This Tenant Caused $30,000 Worth of DAMAGE

Hello and welcome back to Multifamily Strategy. On today's episode, I'm going to show you some of the grossest units in one of our latest acquisitions, the 76-unit. Now, while I love buying real estate low to no money down, sometimes you also get some problems. We're gonna go through a gross unit and an absolutely 10 out of 10 nasty unit. In fact, this tenant did so much damage— $30,000 of damage in 4 months of living here. We call it the Poonit Part 2. Poo is just soaked into the carpet and the walls so bad it ruined the AC, just sucking in the air from the apartment because show you this, how you deal with it, and what renting apartments really looks like on this episode. Let's go. This I'm actually not super stoked to be standing in. The smell is not as bad as you might think. This is like a 2 out of 10 for how bad it can be. There have been some units where you can smell from a block away. There's just a ton of junk. I mean, this is, this is nasty. Check out the kitchen. So as a landlord, how do you prevent this? Well, we do annual inspections, but when you pick up a property, you're going to inherit problems. I see this problem done all the time. People buy a building, they'll have no reserve, then all of their money goes towards fixing this stuff. This is actually quite fixable if you look at the condition of stuff. I don't even want to touch the light switch. I'm trying to touch anything. Tiles are in good condition. The sink is actually not damaged at all. It's just filthy. There's stuff everywhere. We're going to go through all these perishable goods, and this actually— a lot of this is canned, safe, not expired, can go to a local food bank. We'll salvage what we can because I always want to help people in need, but like This is pretty gross. The next unit we're going to go into, we call the Poonit. It's about $30,000 of damage. She signed a lease one month before we went under contract for the property. In 4 months, she destroyed the unit so bad I am horrified to go into, but it's part of the game. So when I say we're getting free real estate, yeah, we'll make some money, but this is part of what you're dealing with. This is not passive income. This is actually pretty gross money. Okay, now the pun. So this tenant was only here for a few months. They moved in while we were under contract, which I don't usually allow, and this is why. $30,000 of damage. Does the floor look dirty to you? Well, news, it's not dirt. That is feces. There were 3 dogs in here. They let them shit all over the floor, in the walls. Look at this, that's all just turds and urine. This couch is just saturated with pee. This one woman let her dogs— oh, it's just, it's horrible. So we're going to keep exploring here, uh, rather quickly. I'll be burning my shoes after this. Fortunately, these awesome barefoot shoes here are only $50 on Amazon, so I am not going to miss them. We'll order a new pair and I'll be driving home barefoot. Holy goodness. Check out the toilet here. Oh, that— it's, it's hard to describe the smell in here. It's so thick. The actual air in here ruined the AC unit. It didn't just like shut it down, it killed it. It ruined the entire thing. We'll have to replace the AC, every appliance. We're going to have to re-drywall. Oh gosh, that is so gross. Never cleaned once. This damage was done in 4 months. When you people beat me up online for, oh my gosh, I can't believe you evicted a single mother— there were kids in here. This is disgusting. I'm not big on being the big mean landlord. There's a difference between being kind and being nice. This person had to go. This is Absolutely disgusting. Check out the kitchen. This is a full gut. Rip out the drywall. This whole unit will have to be taken down to the studs. We're not going to attempt to save anything. Rip it out. Not to mention, I've seen like 6 or 7 cockroaches. This will cost $30,000 to $35,000. If you don't factor for these in your transactions, this could be a deal killer. Always budget for that. Just a second, this smells so bad, I gotta shut the door. This is about as gross as it gets. I would say it's probably a 9 out of 10. I have seen worse, but this is the second worst I've ever seen. That is just absolutely horrible. Sometimes on these properties you get a bunch of awesome tenants, you get a bunch of people who do a really good job of their space. I have over 500 units today. You will get some tenants like this. I probably shouldn't have gone in there. For sure, the AC. We have a bunch of new ACs here. The AC that she cooked is an old one, so at least it's not the biggest loss. It needed to be replaced anyway. But guys, this is— look at the actual campus itself. Middle of winter, so this grass is usually beautiful green. We're in the main courtyard, 76 units. This thing is about 14 acres. Look it out here. This is actually a really nice, clean, beautiful place to live. There's no trash anywhere. There's usually kids playing around this courtyard, except it's 32 degrees right now. This is a beautiful place. And then you have a unit like that. You could smell that from two doors down. That is horrid. That is horrid. As a landlord, your first order of business is making sure people want to live here, which unfortunately means you need to remove some of the people that you would never want as a neighbor. Let's take a look at what these look like when they're actually cleaned up and done right. So when you go through and redo these, the floors are redone, a simple click-together LVP that looks absolutely beautiful. The appliances are all in here. One thing I would have done different if I can go back in time— stainless steel, stainless steel, white, white. I wish we would have gone with one color. It kind of looks— it makes it look a little jumbled together. You should match all the appliances, but I've certainly seen worse. I wouldn't not move into place because the appliances weren't color matched. But if you want to do it right, that could have been done better. Yeah, carpets are brand new and cleaned. The blinds are new, fixed, beautiful. Walls have been repainted to a neutral color, which is extremely important. Countertops clean. This is the type of stuff that you want to see consistently. Let's check out a bathroom. It's cleaned up, it's uniform with the rest of the building. Tile bathroom, we've cleaned up everything in the tub. Cabinet space, this is simple, it's affordable housing, this is a LIHTC property, but this is a clean place. The toilet doesn't have poop literally growing out of it. This is much better. Ultimately, your goal is that you would want to make the space a place that you'd be willing to live in in the same situation as your tenants. So as we head upstairs here, you have a 3-bedroom, 2-bath location. Everything is clean, everything's simple, nice floor plan. If I was looking for a place to move into in my portfolio, this is absolutely a place I'd be willing to live. Test all the fans, make sure they're not super noisy, which they're not. This is the type of stuff we like to see. By the way, you want a money-saving tip? Make sure those fans in all your units don't get too noisy. Your tenants will stop using them. If they stop using them, You get mold problems, you get mold. Now you're looking at expensive reno and actual huge problems in your portfolio. You wanna save a boatload of money as part of your annual preventative maintenance. Check out your water heaters, check out your fans. The fans are quiet and the water heaters are serviced, your ACs are serviced. A lot of your big ticket items don't fail, everything lasts longer. You save unbelievable amounts of money, which is great for you as an investor. In addition, your tenants are gonna appreciate it 'cause you have more money to reinvest back into the building as well. You're not dunking all of your budget into the appliances and the general upkeep. He gets to go back to making the property nicer with little projects like the fences and the landscaping, maybe adding new amenities, or like we're doing this summer, adding movie nights on the lawn. By the way, while we're touring units, check this out. We had a whole bunch of downed fences. I actually have one back there that's still going up around the trash cans. What it was causing is trash to blow all over the campus, and you have to look at a big dumpster from your unit, which is terrible. The little things go a long way on these campuses. Fences. We went with steel post here, so as the wood ages— and there's a lot of wind and weather out here— we can just replace the wood, put it back on these big steel post. This is much more aesthetically pleasing. So how do you handle problems like this, and how do you avoid this at the front of your deal? Well, you're not just raising enough cash to close your deal. It's not a deal yet. Every deal needs to have a capital reserve, which should be 2 to 3 months of full expenses if you receive no income Can you float the property out of your reserve? Then you need to have your full reno budget. So what do I have set aside for situations like this? For my planned renovations, I need to have an overage so that when I take over a property, all of the unexpecteds are accounted for and expected. When this came up as a $30,000 unit turn, we have a $250,000 budget that's just set aside for, oh no, we didn't find this before we closed the deal. So this is a rounding error in our overall deal. If I bought this with just enough cash to close, one or two of those could blow my budget where suddenly I fall behind on all of my projects. I'm behind on maintenance. I'm struggling to make ends meet. I might be having to do owner contributions to float the property. And projects like this fence over here never get done because I'm always chasing the necessary renovations and never getting to the things that actually bring the property to the next level. So buy all your deals with enough cash to close, your capital reserve, your reno budget, and a little budget on top of that to make sure that the unexpected is treated like the expected. Oh, and I forgot to mention, we have a free school community I want you to join. Booming community there and a ton of free resources for you. Free mini courses, a free calculator that I use for every single one of my deals. Most importantly, thousands of investors around the country who are investing in deals just like the ones that you are going to find as soon as you join this community. So check it out. SKOOL, it's Multifamily Strategy Community on School. Totally free. See you there. I'm also going to give you guys a bunch of tips on how to actually make money when you find buildings that are like this. Now, this isn't heavy value-add, but there's some units in this complex that are. So how do you survive these? How do you budget for them? And more importantly, how do you create an amazing place for your tenants to live so you can have maximum occupancy, maximum rent, and tenants who love living here? Happy hunting out there, guys. Let's go buy some more real estate this year.