Really dumb - I mean DUMB

Ok - let me start by asking that you don’t reind me of how stupid I am.

I purchased a rental house in Indiana from a real estate investor touting a turn key investment. I am not going to bore you with all of the gory details but here is the gist.

Bought property with repairs completed for $40,000. Was told the property would rent for $600+. I was provided with property manager who after several months never got the property rented. Then investor turned me on to new manager. Got it rented quickly for $520. Gave me 1.5 months rent in the beginning and then nothing for 5 mos. And then checks recently for $450 and $160. I never could contact the management co.

I finally contacted the renters. They told me a horror story of problems with the house. I got a handy man to give me an estimate of about $5500 to get the place livable. No insulation – faulty wiring – leaking because there are no gutters – soffits bad and the list goes on.

The house is in my husbands and my names. I realize how really stupid I was with this deal BUT. Now I need to move on. I know I will lose money on this house but my main concern is how to get myself protected. Is it too late to transfer the house to an llc or corporation? I don’t have an umbrella policy personally – should I get one.

What is the best strategy to move on?

Sleepless in NY. (val)

Val you really are not dumb. If the management company you had selected was on the up and up this would be a non issue and you would be a genius. This is a long distance rental situation. What you need to do is take control of the situation. I would contact the people at the real estate investors club where the property is and get a list of the property managers that they suggest. (They may have a website with preferred vendors) Pick your own property manager. I would have my new management company evict the tenant and start over. The tenant has tasted blood. He will never pay right again. Make sure the management company performs credit, criminal and rental background before they let a new tenant in.

You can place a property in an LLC at anytime but talk to a lawyer about that. The whole idea is to have a corporate veil between you and the business. You have been running the business as a personal asset for the last year so the veil may already be pierced.

Thanks for your reply. Thanks for being upbeat in your post - boy do I need it!

But I do feel dumb in that I took the investor at his word that the rehab work would be completed. That never happened and now the investor has turned off his phone.

As far as the tenants go if I do try and kick them out I will have problems with them for sure. She mentioned to me that the management co had tried to evict when they got late and she told hime “just try - There are tons of code violations etc etc etc.”
They were late because of a huge water bill - the managemnt co took 4 months to fix a leak. And their electric bills (I saw copies of high elec bill) were more than the rent - it seams the place has no insulation - none - and there are places where air is just pouring into the house - all verified by my handiman.

I did contact local investors and got a few names of management co’s - so far no one will do it. Two were too far away - another too many houses - and one has other rentals in the area and doesn’t want to compete with existing portfolio.

My husband wants to drive to Evansville and whoop some butt! LOL Not a real solution but it would feel great!

I don’t know Indiana, but where I am code violations are not an issue when you evict the tenant. When the tenant is in front of the judge, the only defense that will prevent them from getting evicted is if they can prove that they actually paid the rent. If they can’t show that they paid the rent, the get evicted.

I tried to get you a # of an old friend from that area but he no longer manages for other people. If you want some off the wall ideas give me a PM. I don’t want to to dumb in the public eye :wink:

i am not an expert and have major problems on my own!!!

however, it sounds to me that you had made a good purchase and can generate good income from it … you just need to find a good tenant … also, maybe i am wrong but why do u need a managment company? what services do they provide that you can not do on your own? You can find your own tenants and take care of back ground check, etc.

also, what does code violation have to do with anything? they can not get you for that for sure. Do these people even know what code violation is? Tell them to make you a list so that you can fix it for them

However, if you are aware of any major code violations, you may want to take care of befor renting it to a new tenants.

good luck.

Code violations in NY can be a bit of a pain, and may provide plenty of fodder and additional cost should you proceed with a L&T action. NY in general is a tenant friendly state. (Afterall, what elected judge wants to put a voter on the street, even if they are not paying rent ???).

You may want to take a peek at the DHCR website (Division of Housing and Community Renewal) for some additional information about the community and landlord responsibilities… (they can differ slightly county to county).

I think that Bluemoon’s post is great. ;D You should get actively involved for at least a little while. See what you can do to mend fences with the tenant without burning bridges with them. You may find, that now that they’ve been there for about a number of months that they may be considering moving anyway.

Don’t worry about the setback Val, it’s not uncommon for people to learn some of the ropes this way. You may end of loosing a little on the transaction, but… you got your feet wet.

Learning from their mistakes is a quality of smart people.

Do you have a purchase agreement and contract from the seller saying they would do all repairs? Did you do an inspection prior to purchase? If so, you’ve probably got enough material to take legal action against the prior owner.

Well - I have just resigned myself to the fact that I am going to take some lumps on the property. I have learned several valuable lessons with this. I must become an avid i dotter and t crosser and tust no-one.

I am going to do the repairs that are making the house a bad place for my tenants and then go form there. I think it is the right thing to do.

Because of the condition of the place - the tenants high water and electric bills and the 6 months of slumlording they had to deal with - I am taking their word that they paid the rent and assuming the scumbag management co stole it. I told the tenets I am not going to go after them for back rent (they paid w/ money orders and did not keep all reciepts so they say) but going forward the rent cannot be late. I still have no mamgment co but I am contacting a lawyer who handles evictions for a managment co in IN (they could not take the house).

If they are late now they have to go. If they stay and pay - yeah for all of us. If they go the house goes up for sale.

Thanks for all of the replys.


this sounds like a nice small claims court case. Many places you can got up to $5k or even slightly higher. Check to see if your investor has other properties in the same county to which you might attach a judgement against if you are successful. Small claims is no lawyers and very cheap to do. No hurry; I would do some research and maybe the next time you have to go out there for something else…make a court date.


I applaud you for getting started and for moving ahead even with a problem first house. Most people get screwed and then can’t see a way out. As with any investments, there are always problems to deal with. The successful investors are the ones that can cut losses and make the most of their learning experiences. Being able to make and implement your decisions ( whether they are the best solution or not ) moves you forward and will eventually cross any hurdle. Keep being proactive and firm with your tenants, both these and future ones.

Good luck,



You have paid a high price for your education from the school of hard knocks and probably have some more losses to incur. In my opinion, here are the things that you should have learned:

  1. It is nearly impossible to make money with an out of state rental. If you want to be a serious investor, buy locally and manage the property yourself. If necessary, move to an area that provides the type of properties you are looking for.
  2. The vast majority of new investors FAR underestimate the actual expenses involved with rentals. Throughout the entire United States, operating expenses run 45% to 50% of gross rents. In your case, that means that $260 per month would be expenses and $260 would be left for paying the mortgage. The property that you bought is a negative cash flow property. You paid too much for it. Here in Ohio, which has almost an identical market to Indiana, I wouldn’t pay more than $26,000 for that property.
  3. Most turn key rental operations are scams that prey on newbies.
  4. You need a LOT more education on operating rentals. It is inexcusable to ever let the rent go unpaid. The eviction process should start the day after the rent is due - WITHOUT EXCEPTION!
  5. Tenants, contractors, and other “investors” LIE! Verify EVERYTHING! Buying a property sight unseen is extremely foolish!

Having said all that, I think that your plan is a good one. The tenant should send all future checks to YOU. If they are late even one day - EVICT them. The tenants will likely call everyone in sight to complain - including the local building department, the health department, legal aid (AKA Satan), etc. They may cause you a lot of trouble, but your alternative is to give in to extortion and give these tenants a free home for the next 20 years. None of this will matter for the eviction - you will still win if the tenants haven’t paid the rent. BTW, DO NOT ACCEPT PARTIAL RENT!!!

It is not too late to put the house in an LLC. Talk to a lawyer or do some thorough research. Pat Tarr has an excellent course on this topic.

Good Luck,


p.s. Although you made some hugh mistakes in this deal, don’t think that doing everything right will stop the frustrations. If you are going to be in the rental business, dealing with scumbags, losers, criminals, deadbeats, and liars is a DAILY job. In fact, dealing with the frustration is exactly what you’re being paid for. It takes quite a while to become numb to the stupidity, so patience and determination are necessary.

Thanks for the detailed response Mike.

1)I live in an area where positive cash flow properties are not an option and moving will not work. So I guess the buy and hold stategy will not be posible.

  1. My mortgage is $336 so yes I guess I am $80 in the hole for the forseable future. I think I placed too much confidence in the appraisal which was $60,000 - of course guess who provided me the the appraiser.

  2. noted

  3. also noted

  4. thanks for reminding me that I was extremely foolish - even though I hardly need reminding

The good news is that I recieved the rent check today! They pay 2X a month on pay day - I need to give them some time to get the check mailed - this was a week after her payday. I’ll take that.

Let me ask you this. If you were in my place and your tentants stopped paying and the place was vacant. How would you get rid of the property. Would you try and sell with a realtor ?




I am setting up the LLC with some guidance from Bill Brinchick and my accountant.


Hey Val, I am very green with real estate other than my onw primay res purchases but I admire that you are doing the “right thing”…The tenant is not paying the rent, sure, but I do not know that I would either… I think you have probably learned a lot from this and will come out on top. If I were in your shoes, knowing what you have told us here, I would get the property back in order as quickly as possible. during that time I would ask the tenants if the property was in working order would they be paying the rent? You may learn a lot fro that answer. i would follow-up by letting them know your intentions to rehab the property and probably be willing to reduce the rent until those were completed, depending on your financial situation maybe even forgive some of the back rent. Once repairs were completed decide what the rent should be moving forward and let the tenants know of the increase on the next lease…maybe they grumble and do not pay a dime, maybe they call their pocket attorney or someone and raise Tee-total hell. The bottom line is that you accept the responsibility as you should, take your lumps as you say and make the money back with a fine property and exemplary tenants moving forward…in 5 years you and your husband will be sitting around telling “remember when” stories and laughing at the whole ordeal while you sit on the vacation spot of your choice paid for by the positive cash flow that you got back around to after the cleanup…

Just my two cents…well maybe $1 and 2 cents…good luck and I would love to hear how it all turns out!


The bottom line is that you accept the responsibility as you should, take your lumps as you say and make the money back with a fine property and exemplary tenants moving 5 years you and your husband will be sitting around telling "remember when" stories and laughing at the whole ordeal while you sit on the vacation spot of your choice paid for by the positive cash flow that you got back around to after the cleanup...


It is nice to have a positive attitude and to try to comfort someone. Unfortunately, none of that matters when it comes to making a profit. Business is very unforgiving and the vast majority of newbies fail very quickly. In this case, this was a bad (although not catastrophic) deal from the start. This is a negative cash flow property without even including the losses from the lost rent, any legal fees that are forthcoming, etc. Things will only get worse after a bunch of money is pumped into repairing the property.

The reality is that Valerie will probably never be doing anything with the positive cash flow from this property. She’ll be lucky to just get out of this situation without a major loss of money and sleep and to count this as an expensive lesson.


You may be right, but then again, from what she has told us, how could you speculate that fixing up a run down property is a waste of time? I’m not saying “how dare you” but simply asking how you come to that conclusion?
Also, what we have to keep in mind is that the best business decision and what is ethically right may not always be the same thing. Should we save the money that we can regardless of the ethical or moral impacts? Many business men and women do. but for every one of those we could find one that was just as succesful and on top of that are able to sleep with their conscience at night… ethical decision making is the true key and while I tend to agree with your perception (God knows you are more knowledgeable on the matter than I am) as a landlord we all have an obligation beyond the bottom line .

Your insight is on target I am sure and I can not wait to see how Melissa’s dilemma turns out as it is something we can all learn from.


how could you speculate that fixing up a run down property is a waste of time? I'm not saying "how dare you" but simply asking how you come to that conclusion?

I’m not saying that it’s a waste of time or even a waste of money to fix up the property. What I am saying is that she’ll probably lose more money because she must fix up the property to make it “livable”. Properties rents are set by the market, the size of the house, and to a certain extent the cosmetics. Adding insulation won’t add a penny to the rent, nor will adding gutters. It is money that may need to be spent, but it’s just more money that will be lost in this deal.

As to the moral aspects of this deal, I’m not at all convinced that the tenant has any complaint. I have found that the vast majority of tenant’s who don’t want to pay the rent complain that the landlord has done something wrong. In the vast majority of these cases, the tenant has simply blown the rent money on something else (like cracki, a dog, a big screen tv - whatever). Rather than taking the consequenses of their actions, they blame the landlord. If I were going to fix up this property, I’d evict the tenants first.

Also, low income tenants aren’t paying to live in a palace. They don’t get the best insulation, the best carpet, etc at low income prices. Why - because they aren’t paying for it. Many low income tenants live like pigs. Their normal status is to live with thousands of roaches, mice, dirt, uneaten food strewn all around, etc. They live this way because they want to, not because the landlord did something bad. I just got a beautiful house back from a tenant that we kicked out for being a pig. She always paid on time, but she was a pig and did a LOT of damage (thousands). The carpet is only 2 years old but will have to be replaced. There were tens of thousands of roaches. It had all new replacement windows and almost every window screen is missing or broken. The bottom line is that I wouldn’t assume that the tenant’s complaints have ANYTHING to do with the condition of the house. All of our rentals are clean and safe when the tenants move in, but I’ve been called a slumlord countless times when we evict the non-paying swine. (No, I don’t like people who don’t pay their bills).