I am a small passive investor in working-class apartment communities, Class B and C. This is affordable housing with rents ranging from $750 to $1,400. A syndicator pools our funds, buys a run-down apartment community and rehabs it, creating good, clean, safe, affordable housing for working-class families. Our motto is “Best Product, Best Price.”
Our syndicators work closely with honest residents, helping them to find local rent subsidies, deferring rent payments, and otherwise working with them in this time of crisis. But there are residents whose evictions have nothing to do with COVID-19, and we must be allowed to evict them.
It is critically important that government officials, politicians and religious leaders rushing to create eviction moratoriums understand the challenges our syndicators face and why evictions are sometimes necessary. Our syndicators provide monthly reports and financials. Here is a tale told by one such syndicator in his monthly reports and the challenges he faced during a recent month. We meet and know most of our syndicators before we invest with them. They are friends as much as business partners.
One of my investments is in a small apartment community in a small city. When it was originally built decades ago, this 24-unit community was considered a nice place. As it passed through several owners, the place degenerated, earning the reputation as the last place that would accept residents before they were forced to live in their trucks. The untrained former maintenance man, who made inappropriate comments to female residents, was incredibly creative in making things work, not making repairs. He just made problems go away.
Years prior to our purchasing this apartment community, the family in Unit 214, a two-bedroom, two-bath unit, allowed their daughter’s boyfriend to live with them, in violation of the lease. After numerous domestic incidents, often requiring police participation, the boyfriend was asked to leave. Shortly thereafter, the family left in the middle of the night, owing rent and leaving behind most of their personal belongings. But the boyfriend still had a key.
To retaliate against the family and the property, he entered the unit, piled clothing in the living room and set the pile on fire. Then he stopped up all the tubs and sinks and turned on the water, allowing it to overflow. It did not occur to him that water and fire don’t play well together, and the water kept the fire from spreading. Both Unit 214 and Unit 114 below were badly damaged. A resident who had lived at the property for over 10 years told this story to our syndicator.
When our syndicator purchased the property some years after this incident, Unit 214 was occupied. The residents eventually moved out at the end of the lease and he decided to rehab the unit completely, which is our practice.
Under the carpet contractors found a compressed cardboard subfloor stapled to lathe attached over 2-by-4s, which had been nailed into an X from corner-to-corner in each room. The walls in the unit were literally free-standing — attached to the framing at the top but without support at the bottom. Reframing the floor with proper joists, attaching the walls to the rest of the building, and installing new subfloor cost $4,862.50, and that was before the new flooring, new appliances, new bathroom, new paint and new doors.
There’s more. The resident who related the Unit 214 story — the one who has lived here for over 10 years and who was a hoarder — was in another city last month undergoing medical rehabilitation. During his absence, his 1985 water heater broke, flooding his apartment, Unit 106. The syndicator learned of this when the water and the stench entered the adjoining unit.
The hoarder’s stuff had been soaked, creating ideal conditions for mold and insects. The syndicator filled two Dumpsters with trash and debris at a cost of $975. He will spend $3,000 to $4,000 to rehab this unit.
There’s still more. The couple in Unit 103 haven’t paid their rent for a while, gaming the system by citing the COVID-19 situation. They received the requisite 30-day notification to vacate and our syndicator filed for eviction. Then, the woman locked herself out of her apartment and when the syndicator met her in the parking lot to unlock her door, she told him they’d found another place to live and could he refund their security deposit so they’d have a down payment on the new place.
Yes, there is still more. The syndicator is evicting the folks in Unit 109. That’s the unit where the residents broke the blinds, punched holes in the walls and doors, and haven’t paid rent since May. This woman gave our syndicator a landlord verification form to fill out for the local housing authority so she can qualify for a subsidized apartment. If the syndicator completed the form honestly, these people would never qualify.
So, he visited the local housing authority office and learned that these forms were generally mailed, rather than given out in-person. The resident in Unit 109 obtained the form from her cousin, who claimed they had not paid rent because the landlord hadn’t fixed the apartment. This unit was completely rehabbed before they moved in with new floors, a new kitchen, a new bathroom, new lights and fresh paint.
It’s entirely possible for the residents to Photoshop the syndicator’s signature onto a different form to made them look like model residents.
One more point of note: The residents in units 103 and 109 stopped paying their rent, but they appear to be driving new cars.
This small property has no employees. The syndicator does everything, so there is no help from the CARES Act. Four non-paying residents in a 24-unit building creates a cash flow problem. Each month, the syndicator must pay the mortgage, interest, insurance, property taxes and other expenses, which include water, wastewater, trash and pest control. The good residents subsidize the non-paying residents, who are stealing from those residents and the investors.
Another syndicator purchased an apartment community, and police were onsite for 30 of the first 31 days.
These are typical challenges faced by Class B and Class C apartment syndicators as they transform an apartment community from a slum to clean, affordable, safe, working-family housing. Good, honest, hardworking families deserve to live in communities free from the kind of people we need to evict. These people are a danger to our good families and the building itself.
A direct cash payment to a renter is the best way to prevent evictions.
Donald R. Hoke lives in Dallas.