Main Content

Sad Slippery Slope of a Philadelphia Real Estate Disaster

Investing in Philadelphia real estate, or anywhere else, can be very profitable. There have been many success stories and people have made a lot of money. I recently met an older gentleman who came to this country as a child with nothing, and through his success in real estate, put 5 children through college and graduate school. It’s exciting to watch multiple developments change entire neighborhoods for the better.

Unfortunately, this is not the only side of real estate. For every person that makes a fortune, there are a bunch that lose their shirt. Below is a semi-fictional tale of a Philadelphia real estate investor. I say semi-fictional because it’s several real situations that I’ve combined into one.

Meet Joe. Joe grew up in Philadelphia, has a 9-5 job, a wife and children. Since Joe believes, as most of us probably do, that social security is not the one and only solution to retirement, Joe started buying investment properties. He bought one, fixed it and rented it. Then another, then another. Then he started buying two at a time. He started using the positive cashflow from his rentals to fund the purchase and rehab of his new properties. He put all of us properties in the name of an LLC and he was on his way to success…. or so he thought.

Currently, Joe has 8 rented properties and 2 that he’s fixing up. As Joe got cash from his tenants, he would work on bringing his vacant properties into rentable condition. That’s when the problems started.

His tenant at 123 Happy Street started falling behind in his rent. Joe was a nice guy so he said he would work with the tenant. He’s just have to fix up his vacant properties at a slower pace.

Suddenly, his tenant at 321 Money Road lost their job and stopped paying rent all together. Now, Joe couldn’t do any work to his vacant properties. He was counting on having them fixed and rented before the real estate taxes were do. Joe was nice, but he’s not a pushover. He knew that he couldn’t afford to vacancies and 2 delinquent tenants so he told both tenants that they needed to pay or get out.

Both tenants and 123 Happy Street and 321 Money Road were upset that Joe was being so harsh with them. They insisted that he should be more patient since they had both been good tenants and that they were not leaving.

Joe had enough. He took off a day at work to go meet with a lawyer to file evictions. The problem was that Joe hadn’t renewed his rental license and he couldn’t evict with out them.

Joe went to the city, but he hadn’t another problem. The clerk told him that he couldn’t get a rental license because he was behind in filing his tax returns for his LLC.

Joe made an appointment with his accountant and got the LLC tax returns filed. Unfortunately, Joe needed to pay some taxes so he had to use up some of his savings. Joe was getting frustrated. In a moment of anger, he called both his delinquent tenants and told him that they’re going to be evicted soon

After a couple weeks, he filed his tax returns and paid his taxes. He was ready to go back to the city.

This led to another problem. Apparently, there were now violations on 321 Money Road. The clerk told him that he couldn’t get his rental license. Joe had the funny feeling that the tenant called L&I on him. Joe tried to get the rental licenses on 123 Happy Street and the rest of his properties, but the clerk said no. In order to get a rental license on any property, there can be no violations on any property owned.

Not happily, Joe called a contractor and told the contractor to call the tenant and take care of the violations. After a week, Joe called the contractor to get an update. The contractor told him that the tenant wasn’t letting him in. Furious, Joe called a locksmith and drove to the property to change the locks. Joe had the locks changed and called the contractor to come right now. About the same time the contractor showed up, so did the police. The police informed him it was illegal for him the change the locks (on his own property) without consent of the tenant. Finally, after weeks of back and forth, the tenant agreed to let the contractor in if Joe would give the tenant $100 in cash. Joe was livid, but he knew this was the only way. He did it. After another couple weeks, the work was complete and the property was re-inspected and cleared of all violations.

Joe went back to the city confident that he would be successful. Unfortunately, there were now fines and violations on his vacant properties. Joe bit is tongue and went to take care of them. With the passing of time a couple more of his tenants stopped paying rent and Joe was really in a financial jam.

Back to the city for Joe. All violations were clear, but now real estate taxes were do and Joe couldn’t get a license without paying them. With 4 delinquent tenants, 2 vacant properties & he had already tapped is savings to pay for the income taxes, repairs, fines, lawyer & accountant, Joe had to borrow from his 401k to pay the real estate taxes. The were paid and he finally had his rental license.

He went to court on all 4 tenants. He won 2 of the cases without a problem. One 1 one of the cases, he won, but the tenant appealed the ruling. His lawyer informed him that the process could take another 6 months and he would need to pay more legal fees. That wasn’t even the worst one. On the last eviction, Joe was evicted a mother with a couple small children. It came out during the hearing that Joe had never tested for lead paint and low and behold, there was a small amount. This was enough to send the Judge into a fury as the city is cracking down on lead paint. The judge found in the tenants favor and Joe had to pay the tenant 4 years worth of rent that he collected.

After a month, the 4 tenant were gone with left Joe with 6 vacant properties, no savings and no way to re-rent them.

This tale may be fictional, but after 23 years in the Philadelphia real estate market, I’ve seen plenty of similar stories.

For information on how not to fall into the slippery slope of a Philadelphia real estate disaster, contact Real Estate Management Advisors, LLC – REMA today at 215.914.0700 x 275 or email us at AriMiller(at)reinfo411(dotted)com