Inspiring interviews with Today is Top Landlord, This is the Rental Income Podcast,
and now damnly. There's a lot of great things about owning rental properties,
and we talk about them all the time here on the podcast, but I'd
like to keep things real and share bad stories every now and then. And
Kathy, unfortunately, you have one of those bad stories. Tell me what
happened, Well, Dan, I rented out my home and the tenant set
up a meth lab and destroyed my home, costing me literally hundreds of thousands
of dollars. That is so devastating. You're investing in rental properties to make
money, not to lose hundreds of thousands of dollars. Well, on the
show today, we're gonna figure out what happened. We'll hear Kathy's story and
see if we can figure out if maybe she missed something or if there's something
she could have done to avoid having this happen to her. First, let's
take a quick break, we'll thank our sponsors, we'll come right back and
we'll talk to Kathy McCarty from Denver. It's a lot of work to find
a really good rental property, and when you actually find that property, you
want to make sure you're working with a lender that can get that loan closed.
The lender that I recommend is jay Lee Ridge from Ridge Lending Group.
She's a nationwide lender and her specialty is helping investors finance rental properties. She
has a ton of loan programs and she can find something customized to you for
your situation. If you want to find out more or you're ready to get
started today, just go to Ridge Lendinggroup dot com. That's our Idge Lendinggroup
dot com. N MLS four two zero five six Rental Income Podcast, Kathy.
I'm thinking that if this happened to me, I might not know about
it. I mean, I don't go to my rentals every day to check
on it. How did you find out that this was happening at your property?
Well, that's a great question, Dan, I its somewhat of divine
intervention. I had a maintenance issue at my home. The property manager reached
out to me that there was some type of water leak there and they were
having their plumber work on minor repairs. And when I got a text the
next morning that there was some digging going on. Our conversation the night before
never went over any type of digging, and I went up to the property
and discovered a large piece of excavation equipment on the property with a very significant
hole that they had already dug ten foot long, several foot wide, and
several foot deep. And that was certainly alarming, given that after I spent
some time on the property with the excavating individual, I wandered behind the property
and discovered equipment that I could not recognize, and with photos, I went
down to our local SHAFF substation where I showed them those photos and that turned
out to be an extraction system to remove THHC from cannabis, and with that
they were able to get a search warrant within a couple of days and then
discover the equipment, the ingredients and a significant amount of methanphetamine along with other
drugs, a small arsenal of guns and more, just more. You had
an idea by looking at the equipment that this could be drug paraphernalia or something
that was used to manufacture drugs. There was there was. It was certainly
suspect and when I when I reached out to the manager about what I had
discovered, I was met with some resis assistance of and the response was,
we don't know what he's doing is illegal, and that was very suspect too,
So I realized that I had to be my own advocate and take matters
into my own hands. At that point, the police get the search warrant,
they go in the house, that they figure out what's going on.
Well, I would think, now you've got a problem because now there's a
crime going on, there's drug manufacturing going on. But you can't just kick
the people out. You've got to go through the eviction process. So how
did you well, what did you do from there? Yeah, that's a
great question. And that's what I found out, is that he was They
did eventually catch up with him and arrest him on a dozen felony counts,
and he was looking at a significant amount of jail time on those counts,
but he had taken off and they caught up with him and they arrested him.
And then I did have I did go through the process of hiring an
attorney and spending over a month through an eviction process to gain access to the
home where I felt it was safe. Then to have service providers to help
me evaluate the water issue that I had, and then ultimately to learn about
what was being manufactured there, which was methamphetamine inside the home, and what
that meant for the property and my next steps. It was a hundred huge
turtles, especially in those first hundred days. Now it sounds like this property
is in a normal neighborhood. This was a house that you had lived in,
so it wasn't like this was a neighborhood where this kind of stuff goes
on. No, this was literally in the foothills west of Denver, in
a very nice bedroom community. I had chose to rent it out temporarily after
my youngest son went off to college after a health event that I had to
work on my next chapter. And uh, that seemed like a sensible solution,
but it pretty much did turn into my worst nightmare. You could actually
see, Uh, I was close into the downtown area. I was behind
the library to the community and our local shriff substations. So, uh,
this wasn't you know, in out in the boonies in the middle of nowhere,
or in an inner city where there was a lot of crime and activity
like like you would tend to believe could happen. So with with them cooking
meth so you have these meth toxins that that are in the house, But
like what does that mean, Like are these dangerous if someone were to go
in the house after they'd been cooking math? Well, that's that was part
of the education process that I learned, is that weather meth is consumed by
smoking it or manufact action in it, which would cause obviously a higher concentration
of toxins. It's released into the air in a residue that has a petroleum
base to it, and it's very sticky and very it gets into all the
nooks and crannies of all porous materials as well as our ventilation systems and whatnot,
and it is if you look at the ingredients of what goes into making
meth, it's very toxic and it's very dangerous to all living individuals, including
our pets. And some of the standards that are set up in the States
or they use a child size body mass to help design the criteria for tolerance
of meth toxins because children are much more susceptible to the smaller body sizes.
So I'm guessing that this is in a matter of getting a cleaning service over
there and getting the carbon steam cleaned or something. This sounds like a more
involved process to get this out of the house. So what's involved with cleaning
your house after this great question? It's a very involved process, and the
states that have regulations on it, many of them have states certified testers or
individuals organizations that are approved that go through specialized training to certify whether a property
is cleared of and meets the standards that they have set up for meth contamination.
And then there are companies that are set up as remediation companies that have
to go through a protocol process to extract and remove the math. You can't
just wash it off your clothes or your carpet. In many incidences, because
it's so porous and in high concentrations, a property may be needed to be
gutted down to the studs and even rebuild carpeting, pulled out padding and whatnot.
It's it's very dangerous, very dangerous to the health and well being of
individuals. I'm hearing dollar signs here. This sounds like it's going to be
very costly. So what did it cost you to get this out of your
house? Again? Another great question. My home was literally unremediatable. The
levels were so high from the contamination of manufacturing it, and because my home
was a nineteen fifty six restored cabin all wood, very porous, there was
no dry wall to go down to the studs too, and it could not
be remediated. And so I had several companies up there. They all,
you know, they all were willing to try, but none of them really
thought they were going to be successful. And a handful of them gave me
bids to give it a try, but through my due diligence and talking to
the experts, it was not re idiatable. And then the next big shocker
for me is that I found out that insurance does not cover this. Our
standard insurance policies don't cover this type of situation. The tenants policy did not
cover my property because of the criminal activity and his willful conduct. They declined
my claims as well. And under the contamining clauses of our homeowners policies,
most properties under residential real estate are not covered. And so again that was
another shocker. Incredible, this almost doesn't seem real, like this is like
the worst case scenario that could happen. So your landlord policy isn't going to
cover this. And then the tenants their renter's policy also wouldn't cover it.
Nope, anything. That's what I ended up again doing some significant due diligence
in the insurance industry, not just locally, not through just major careers,
but a lot of the brokerages. And to date, I have yet to
find an organization that has an endorsement or any type of policy and residential real
estate that will cover meth amphetamine toxins, except in maybe the case where somebody
broke into a home and under vagrant vandalism, they might cover it that way.
And so that's what I found out is happening. Commercial could be different,
and so I encourage individuals to reach out to their specific agencies organizations,
talk to the underwriting teams and find out and drill down and get granular about
their policies and what's covered, but then mostly what may not be covered,
because I was especially surprised that his criminal activity would would void his policy on
my property as well, and so that leaves investors, lots of landlords and
whatnot, very very very exposed. At this point, knowing that I realized
you're not an insurance agent, everyone should check with their own insurance company.
But from your understanding, is this pretty standard that most insurance policies will not
cover this. From the due diligence that I've done over the last five plus
years, I have yet to find anybody that has confirmed us with me.
And I keep and I do keep checking. And these are all the major
carriers and brokerages that represent one hundred plus different individual carriers and whatnot. So
I have yet to find it. And I keep trying to find organizations that
would consider, you know, uh, you know, a test beta test
on this. What I've learned is there's really no FEMA for meth. There's
no government agency out there that'll help you. You have to uh pretty much
tap into your organization's charitable options through your church, family, friends, and
whatnot. It's a very expensive process to tell me what you did, because
I'm trying to picture myself in your shoes, and I would I think I
would feel like my life is over because now this house is destroyed. I
mean, there is nothing you can do with this house. What do you
what did you do? Like? What was the next step? Like?
How did you get out of this? Yes? I literally got out of
it for what I still owed on my mortgage. I lost all my equity,
and I think I got a one hundred dollars check back from the title
company after I paid it. You know all the you know, the real
estate individuals and you know, all the title work and things like that,
and and so I put that piece behind me. But I was within single
digits of paying my home off. And I am not young, and uh,
you know that was supposed to be, uh, the home that I
lived in and eventually the legacy I would leave to my children y and and
their love and you know, my grandchildren. I want to try to figure
out what what our listeners could do to make sure that something like this doesn't
happen to them. So did so when you when your property manager rented out
the property, did they do any kind of a criminal background check on your
tenant? Well, when I when I learned about all this, I asked
for the vetted file and and it did not have anything in it but one
piece of paper and that was the application. So they never even pulled a
credit report. And so yes, I would there's uh, there's there's a
process that I would take individuals through a vetting process upfront that would include a
criminal background check, not only in the state that they're in now. But
if you're doing an application and you see where people come from, that you
that you pull background checks from other locations where they may have come from.
Also to pull background checks and credit reports and do applications in vetting for any
individual that is of age that's also going to live in the property, whether
they're family or friends visiting. You know, just to have a standard set
in place that you're going to just do more due diligence than what may be
currently thought of as normal and customary. I also think it's really important,
especially is that if you have a management company, and there's a lot of
great ones out there, but that you have those very you know, very
specific conversations upfront as to the process and protocols that they follow and that you
follow through with them, that they actually did that that's part of one of
the mistakes that I made is that I took their word for it and I
didn't ask for the specific documentation that they collected and help them make the decisions
of who was going to be in the property. So to take to take
your power back, not to just take full control over to somebody else,
but to be involved in those decisions making you know, I think this is
going to be in your home. The difficult thing is a lot of property
managers won't share that information with owners. So I think that's maybe something to
when you're screening a property manager, to make sure you can look at that.
Do you know if your tenant had a criminal background, like would would
you have found anything if you had looked at a background? Well, there
were certainly things that I found on the credit report at that time that it
would not have met the the I was told that he was a highly qualified
business owner in the entertainment industry, and he wasn't. He worked. He
worked for somebody else, and and he was fully margined on all of his
credit and his applications, so his his probable debt to income ratio would not
have met any sort of criteria. He was basically probably borrowing from Peter to
pay Paul, So he had no mess issues in his background. But that's
not to say he didn't have issues that may not have met the criteria had
had it been reviewed, all right, So that's that's the first thing there
that I think if someone's going to walk away with some ideas on how to
avoid something happened, you really got to be careful and thorough on that background
check, and it sounds like if your manager had been more thorough, you
maybe could have avoided this situation. Now I know you've found this by visiting
the property. That's not something that I do or that I believe a lot
of my listeners do on a regular basis. Do you think that's really important
to have maybe a schedule where you do inspections. Absolutely, And I've learned
from some experts in property management since then reaching out to them and getting some
best practices. It's okay to build into the least that you're going to be
doing some type of inspection. You may even want to just build it into
your rois to the cost. But you know, have landscaping done, have
an internal thorough potential cleaning once a year, something like that, along with
reapplying, having your current tendans reapply over and over again because things can change
in their life and behaviors can change. So it's important to do that and
to protect your property because I know there's a lot of great management companies out
there, but you have to find out are they doing inspections and how are
they doing their inspections and what comfort levels that you have with all of that,
because ultimately you're the one who owns the property and you're the one who's
going to ultimately live with the impacts of others. Actions good are bad,
So all right, so background check and visiting the property. Is there anything
else that you wish you had done or that maybe would have helped you to
avoid this situation? Well, I would have in the lease. I certainly
would have built it into my agreement with my property management company that I would
be part of the decision making process and made sure that any tenant that was
considering being in there give me authority, written authority to review the same documents.
I had the background, the credit background to review income as well as
credit documents that would have helped me make a decision that he wouldn't have been
the right tenant because he was over extended, at least on paper. He
was obviously supplementing his income through criminal action, and then I would have been
able to I would also have those very frank conversations with knowing what my insurance
would and would not cover. I hear they cover you know, and I
say this in a very lovingly way, they cover stupidity in making mistakes like
a fire, you know, baking, grease, things like that, but
they don't cover criminal action, and so what does that mean of all different
types criminal action? And just just have a very clear understanding of what you
know, what your options are. After I finished recording this interview, the
very first thing I did is call my insurance agent to see if I had
coverage for meth toxins and she said I don't, and that she didn't know
of any insurance companies that provide any kind of coverage for meths. So definitely
check with your insurance company, do your own due diligence. But it seems
like what Kathy was saying is correct that this isn't something that's going to be
covered by insurance. Well, if anybody wants to reach out to Kathy,
I've got her contact information on the website. Kathy has also started an organization
called meth Toxin's Awareness Alliance. If you want to check out her website to
learn more. I've also got a link to that on the website. You
can find it at Rental Income podcast dot com. Slash episode four seventy seven.
I'd like to thank chay Lee Ridge from Ridgelandon Group for sponsoring today's episode.
If you're looking to buy a rental property, whether you're just getting started
or you want to add to your portfolio, reach out to Chayley. She's
a nationwide lender. She has a ton of different loan programs and she can
find something that'll work for you in your situation. If you want to find
out more or you want to set up a time to talk to Chayley personally,
you can track her down at ridgelendinggroup dot com n MLS four two zero
five six. Thank you so much for listening to the podcast today. Make
sure you hit the follow button and you'll get notified every time I put out
a new episode. I'll see you next Tuesday. My name is Dan Lane
and this has been the Rental Income Podcast.