Raul And The Magic System
The first thing you find out when you become a Realtor, after you've done you classroom work and passed the state exam, is that everything you just studied so hard to accomplish will never come back up during your entire life as a Realtor.
The exception to the rule is your ethics training. The rest isn't worth the weight of that giant book you just studied for two months straight.
Many young would-be Realtors lose sleep over the dreaded entry exam. I even took nights off work to painstakingly memorize appraisals, in-depth real estate law, and mortgage terminology.
The real learning comes later, along with the fun.
Let the appraisers handle appraisals, lawyers argue law, and the surveyors handle maps and higher mathematics. Just don't step over the line and act un-ethical, don't call anyone who's listed their number on the Do-Not-Call list, and never under any circumstances mishandle money or take money outside of your brokerage. If you have any questions, call your broker first and ask him if you're in the clear or about to make waves with the various overseers and regulatory commissions that control us.
If it feels sketchy, weird, or you know for sure someone is about to get seriously "effed" over...you better pick up the phone.
My training came while working in some of the more dangerous neighborhoods imaginable.
You like to think, as you drive into a new place, that everyone you meet has had a similarly rosy upbringing to yours. One that didn't involve gang violence, animal abuses, narcotics sales, or standing around memorials on the street constructed out of dollar store saint candles, an old photo of the deceased and numerous alcohol bottles left empty in tribute.
That would be a nice thought. Unfortunately, it couldn't be further from the truth.
We do not all have an equal start in life...
One of my clients, we'll call him Raul, so I don't get into any ethics troubles myself, found me over the internet and asked to meet the following day at his place.
Raul's place was on a busy street in one of the most gang infested areas of the city. It was also right next to a church, and across the street from a scrap yard. To be honest, it really wasn't a residential neighborhood at all. The interstate was behind the scrap yard, and the closest other home was 5 blocks West heading away from the city.
I wasn't sure who'd built it and when (the original deed was long since lost), but the home was very old and very-much out of place with it's surroundings.
Another realtor's sign was hanging off the fence when I walked in. This is notable since it's illegal for a realtor to steal another realtor's client from them, especially if there’s a listing agreement in place. I made my way up the steps thinking I'd better not stay long.
Raul had completely renovated the new house and fired his realtor. I'll tell you immediately because that's what he told me seconds after he'd opened the door. It was a burden off my shoulders, but it still felt like sleeping with another man's wife since he hadn't even removed the yard sign or lock box from the door yet.
A lock box is a tool realtors use to gain access to properties. The box usually hangs off the door knob or is hooked around a fence someplace on the property. There are several different types, but the basic idea is that a realtor can come and go from the property without having to pick up keys from someone else on the other side of town. Instead the keys are right there in a locked box, and we have the code.
The next thing I found out was that Raul was a serious investor, at least according to him, he had bought and sold over a hundred properties in the last two years and he had a proven system to do so. Usually, those words sound a little cliché coming from a potential client, but by the looks of the home it appeared he did know what he was doing.
Every room had been stripped and completely re-done. New bathrooms and kitchens are fairly standard when it comes to property flippers, if they're really trying to make a good impression for their customers (new buyers) they'll install upgraded lighting, or a more expensive looking backsplash in the kitchen or granite.
When you're dealing with rehab properties in a less than gentrified neighborhood it's not uncommon to see only the most basic building materials and finishings used.
It has to do with your return on investment.
Raul missed the boat on that piece of information.
For starters, every room had a flat screen TV (included with sale of the property). He built a garage with air conditioning and a deck that took up most of the usable space behind the house. The area that wasn't deck in the back yard had been converted to a picnic area. Other upgrades included over 20 security cameras, a new 10' fence around the property line, NEST temperature control, and a media room. He also had this touch screen system set up throughout the house via ipads attached to the wall that connected to the TVs and a speaker system that could be adjusted depending on what room you entered.
This was above and beyond for even the most prestigious of homes.
But the home had been on the market for months with no showings.
"Showings" is the industry term used to describe potential buyers coming to look at a home for sale.
What Raul didn't consider, that I hope you will after reading this posting, is that location and return on investment (ROI) are a key to property investing.
Raul's property isn't close to any other single-family homes. The closest residential properties are the ocean of small multi family properties that sprawl outwards and away from his. Being surrounded by industrial buildings means that someone a long time ago was a hold-out to the companies that bought up all the land or previous homes in the area.
Great for them. I'm sure they enjoyed living out the rest of their days knowing they "stuck it" to the factories lining the surrounding streets.
Not so great for a rehabber that's trying to market this property to potential buyers.
People tend to have a love hate relationship with their neighbors.
Without neighbors to chum around with or avoid... people tend to feel lonely and abandoned.
The other big hurdle that was holding back a sale was the outrageous over-improvements he'd made to the property.
Over-improvement is an industry term that describes a property that is too upgraded for it's own worth and can not recoup the cost of those improvements by selling the home.
All the money he spent on flashy equipment was actually his profit margin.
By the time we would actually sell the house, his margins were so flat that he barley had room to call it a "success".
Regardless, Raul didn't care. All of the gadgets and glam were the intricacies of his proven system. All he wanted to know was, could I sell it?
We did sell the property but that was only the beginning of the rabbit whole me and Raul would go down.
Two days after our first meeting we had dropped the price of his property to a sellable amount, taken professional photos and video (rare in that area of the city, and that price range) and were off to the races.
I got a hurried call from Raul.
He'd found his next project and he was standing in the livingroom.
Some of our best clients often interview other agents, they even go for showings with them. It's not my favorite aspect of the business, but it's also not the end of the world since we rarely put buyers under an exclusive representation contract. Most of them don't even realize that by working with another agent they've cut us out of the deal and a paycheck.
Given how Raul and I had started our relationship, I figured, this was probably the case.
But Raul was more loyal than I'd thought, at least when it came to his relationship with me.
"I kicked in the door" he told me.
He repeated it a few times just to make sure I'd heard him correctly as I scrambled to come up with something meaningful to say that might save him from going to jail.
"Get out of there Raul" was about all I could muster before going into a lengthy explanation of the various laws he'd just broken and the odd position it might put me in.
After about a 5 minute tirade Raul interrupted me.
"Well it was almost off the hinges anyway and there's no door in the back."
As I looked up the property I realized that I'd actually shown it to another investor client the week before.
Most of the doors were missing, almost every window was broken, there was no lockbox or entry instructions other than "bring a flashlight" posted to realtors. Raul was probably still in violation of the law, but given the condition, it's gangland location, and the fact that a major bank owned the property, it was unlikely that the police were on the way.
"Write it up" he told me "and ask them if the junk stays or goes."
"The Junk" he was talking about looked like an episode of Hoarders. There were tons of old food, trash bags filled with clothes, old dressers broken apart, make shift beds and little encampments from squatters long since gone. I found a woman's drivers license that expired in 1980. The walls were covered in graffiti that ranged from neo-Nazi babble to a children's story, and everything was wet due to an almost non-existent roof. There was even an old high school class schedule still attached to the wall in one of the bedrooms.
We made an offer for thirty-thousand dollars and the trash stayed.
The derangement continued back at Raul's other property with various scam artists trying to purchase...one almost made it through when they tried to purchase with one bank while having a foreclosure processed at another.
Raul also allowed various family members to crash at the property, they were regular drug users and would leave evidence of it throughout the house. One of them lit a fire on the back deck that had to be repaired, another startled a small family that had come to view the property on a Tuesday afternoon after he'd fallen asleep nude in a back bedroom after confirming with me that he would be at work during those hours.
Eventually, we did sell the property for a fair price. Raul was happy and recommended me to a friend. He also promised many more deals just like this for me to handle.
Everything was odd, but still okay until one afternoon I received a call from Margret.
Margret and I had spoken months earlier about one of her properties that Raul was vaguely involved with, and at the time I thought he was just fixing a broken pipe in her kitchen.
She was overwhelmingly concerned with the property we'd sold (at this point) three months earlier for Raul — the one with the flat screens in every room.
For some reason Margret, a local licensed Realtor herself, thought Raul's property was still on the market. She wanted to know why I hadn't sold it yet.
She even confessed that she would have already signed over her listing to me, if I had only sold Raul's property but now she'd rather have a young agent in her own office take over the listing.
Just when I thought the madness with Raul was over a whole new chapter began.
After a series of phone calls with them both, and a few calls of my own to lawyer friends and my broker I found out exactly what had happened.
Raul was never really the owner of the properties. I'd known this the entire time, they were in his girlfriends name who I'd met many times and even had check out by lawyers and a title company. Everyone agreed their methods were a little different, but not illegal.
What no one was told the truth about is where Raul's seemingly endless supply of cash had really come from. It was assumed and even occasionally touted by Raul that he'd been a successful property investor for years. He'd sold over one hundred properties. Given the fact that he had shown me other projects he was working on and hadn't raised eyebrows with anyone else along the way, there was no reason to think otherwise.
What Margret shared painted a different picture.
Raul who went by several other names, none of them his given name I am sure of, was Margret's business partner.
She provided all of the money and Raul did all of the work. She didn't want to be on any of the ownership documents because she believed it might stain her clients view of her if she also bought and sold her own properties. It made about as little sense as it sounds like it does.
All of those beautiful fixtures, flat screens and little extras he'd put into the home had been financed by his silent partner Margret. The profit and the principal all went back to Raul, who promptly started asking me to call him by another name directly after the sale.
For over three months until I got the final call, Raul had told Margret that I was unsuccessfully selling the home. The real kicker is that she never looked it up on her own. As realtors we have full access to every property in our marketplace and beyond, she could have checked up on him at any point.
That part always baffled me. Raul never seemed like the trustworthy type, especially with his many nefarious connections that would sometimes accompany us during meetings but somehow Margret had entrusted him with hundreds of thousands of dollars in cash.
Margret, in response to finding out the terrible news that I had actually sold the property three months earlier, did what any of us would do. She threatened to sue him, and told me she had to call the police. She was finally starting to make sense.
I did the only thing I could do. I sent her the number of a great lawyer and wished her the best in all of her lawsuits.
Her listing went to a young agent in her office who following the advice I'd given her over the previous few months, sold the property almost immediately.
The last time I spoke to Raul he was grilling me about my last conversation with Margret, at that point I casually excused myself from any further relationship with them both, despite the many-many properties he would allow me to sell for him if I could only remember what Margret had called me to talk about.
It didn't seem worth it.
People like Raul always go down hard and I didn't want to have any connection to them both, especially with Raul being suspected of stealing such a large amount of money and pulling a fast one on all parties involved.
I'm sure Margret wasn't the only novice investor he'd taken to the cleaner. Jail or worse seemed imminent and I wondered if he felt any remorse, probably not.
Raul had gone to Hawaii three times during our relationship, maybe for vacation, maybe running from someone (Margret or otherwise), and maybe he never even left. He might have just needed the space to dream up his next move. It's impossible to say with any certainty.
My real estate career has continued on to bigger and weirder things. The giant Real Estate Training book still sits in the back of my car where I left it after passing my state exam.
Author: Gregory Caron
September 2nd 2018
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