Meth labs...

[Bearded Man]

I was doing some late night reading and looking at rental risks, etc. The idea of a meth lab is really sucky. I mean REALLY. As a land lord, you are on the hook for cleanup. WA requires disclosure selling/renting, even after cleanup. Many states do, in fact. So basically, you get to pay for cleanup AND take a hit selling it, since it will get a lower offer regardless.

Any tenants that would have a ML would not have assets either, so they are judgement proof. As my ROI get's closer to REIT territory, it makes me wonder if the risk of meth labs is going to push me out of rentals. I like the cash flow, but the risk....

I suspect the best way to avoid the lab problem is to visit frequently since they are less likely to setup shop when there is risk of being discovered vs the absentee LL who hasn't been inside in years. Most articles I read seemed to suggest this as the biggest key. But even someone smoking meth there, requires cleanup and disclosure. My agent just went through this with a client and wow, what a horror story.

[matchewed]

Jump at shadows much?

[onlykelsey]

I was doing some late night reading and looking at rental risks, etc. The idea of a meth lab is really sucky. I mean REALLY. As a land lord, you are on the hook for cleanup. WA requires disclosure selling/renting, even after cleanup. Many states do, in fact. So basically, you get to pay for cleanup AND take a hit selling it, since it will get a lower offer regardless.

Any tenants that would have a ML would not have assets either, so they are judgement proof. As my ROI get's closer to REIT territory, it makes me wonder if the risk of meth labs is going to push me out of rentals. I like the cash flow, but the risk....

I suspect the best way to avoid the lab problem is to visit frequently since they are less likely to setup shop when there is risk of being discovered vs the absentee LL who hasn't been inside in years. Most articles I read seemed to suggest this as the biggest key. But even someone smoking meth there, requires cleanup and disclosure. My agent just went through this with a client and wow, what a horror story.

I suppose that's all true, but I imagine any major crime would be just as bad for your rental.  Hopefully credit and criminal checks on your tenants would take the risk of a meth lab or murder dungeon pretty low.

[matchewed]

So let's do some back of the napkin math on that risk that is likely to drive you out of rentals.

The DEA has a map of Methamphetamine incidents. Now these incidents are more than just labs, so the actual number of labs found is less. But let's assume that the actual number of labs is somewhat around there because why not fluff the threat in our heads. In fact, let's double it. So let's assume 2x the number of 2014 incidents. 18676 meth labs.

According to a Harvard paper by 2013 the rental market was predicted to be 43 million. Let's say half of that is single family homes your most likely to be a meth lab given the increased privacy.

So 21.5 million.

18676/21500000=8.6865116279069767441860465116279e-4

Or to put it in percents .08% chance of this happening to you.

And this is a risk that is driving your decision making.

If you were to say I was way underestimating the number of meth labs in the country feel free to double them again. And feel free to halve the availability of single family homes again. Doing the math of that gives you .3% chance of this happening to you...

[Bearded Man]

So let's do some back of the napkin math on that risk that is likely to drive you out of rentals.

The DEA has a map of Methamphetamine incidents. Now these incidents are more than just labs, so the actual number of labs found is less. But let's assume that the actual number of labs is somewhat around there because why not fluff the threat in our heads. In fact, let's double it. So let's assume 2x the number of 2014 incidents. 18676 meth labs.

According to a Harvard paper by 2013 the rental market was predicted to be 43 million. Let's say half of that is single family homes your most likely to be a meth lab given the increased privacy.

So 21.5 million.

18676/21500000=8.6865116279069767441860465116279e-4

Or to put it in percents .08% chance of this happening to you.

And this is a risk that is driving your decision making.

If you were to say I was way underestimating the number of meth labs in the country feel free to double them again. And feel free to halve the availability of single family homes again. Doing the math of that gives you .3% chance of this happening to you...

Good point, apparently Washington is no longer heavy for meth labs either, mostly the Midwest: http://www.huffingtonpost.com/2013/10/07/meth-states_n_4057372.html

Still, although unlikely, it DOES happen. Part of assessing risk is not only the probability of an event but also the impact. I've looked at several real estate listings recently where I thought it was a great deal for the area (about half price surprisingly) due to meth contamination.

Considering the cost if it does happen, it really sucks. Especially if you only have a few rentals. This is one of the times it really pays to have a lot of rentals vs. a few.

But you are right, maybe the risk is not that great. The more I think about things the more index funds seem attractive. I've seen a few others post about this here in random threads, that once you have money sometimes making a lot of money quick up front (like through RE) isn't as important as protecting what money you have.

And when you consider my returns are approaching 5%, I could stick the money into O (REIT) and get the same return with less overall risk and less work. Yes it's unlikely that a meth lab, or an EQ, or a fire or foundation issues become a problem (well, EQ are likely in my area) it all adds up and is spread across exactly ONE asset. While meth labs may not be as prevalent as I thought, I think I'm going to look at learning more about REITS as an alternative to physical property owned directly.

[matchewed]

So let's do some back of the napkin math on that risk that is likely to drive you out of rentals.

The DEA has a map of Methamphetamine incidents. Now these incidents are more than just labs, so the actual number of labs found is less. But let's assume that the actual number of labs is somewhat around there because why not fluff the threat in our heads. In fact, let's double it. So let's assume 2x the number of 2014 incidents. 18676 meth labs.

According to a Harvard paper by 2013 the rental market was predicted to be 43 million. Let's say half of that is single family homes your most likely to be a meth lab given the increased privacy.

So 21.5 million.

18676/21500000=8.6865116279069767441860465116279e-4

Or to put it in percents .08% chance of this happening to you.

And this is a risk that is driving your decision making.

If you were to say I was way underestimating the number of meth labs in the country feel free to double them again. And feel free to halve the availability of single family homes again. Doing the math of that gives you .3% chance of this happening to you...

Good point, apparently Washington is no longer heavy for meth labs either, mostly the Midwest: http://www.huffingtonpost.com/2013/10/07/meth-states_n_4057372.html

Still, although unlikely, it DOES happen. Part of assessing risk is not only the probability of an event but also the impact. I've looked at several real estate listings recently where I thought it was a great deal for the area (about half price surprisingly) due to meth contamination.

Considering the cost if it does happen, it really sucks. Especially if you only have a few rentals. This is one of the times it really pays to have a lot of rentals vs. a few.

But you are right, maybe the risk is not that great. The more I think about things the more index funds seem attractive. I've seen a few others post about this here in random threads, that once you have money sometimes making a lot of money quick up front (like through RE) isn't as important as protecting what money you have.

And when you consider my returns are approaching 5%, I could stick the money into O (REIT) and get the same return with less overall risk and less work. Yes it's unlikely that a meth lab, or an EQ, or a fire or foundation issues become a problem (well, EQ are likely in my area) it all adds up and is spread across exactly ONE asset. While meth labs may not be as prevalent as I thought, I think I'm going to look at learning more about REITS as an alternative to physical property owned directly.

Sure impact is important but when it comes down to it it is the odds of it actually happening that matter primarily. I won't cower in my house in fear of being struck by lightning because apparently it's really really bad for you.

Do the best you can to mitigate normal risks; as you know in real estate that is by evaluating your purchases and your renters. If you are doing as such then I wouldn't worry about a <.3% chance of losing a significant portion of my money. There is some risk that is probably equally devastating and equally likely for any sort of investment.

[Bearded Man]

True. One of the rare good posts. Usually I get emotional opinions posed as facts, lol.

[arebelspy]

It seems like, from this post and others, you're looking for a reason to get out of real estate.

Your yields are low, and you aren't happy with it.

You don't need a reason.

If you don't want rentals, sell the things.  :)

[southern granny]

I saw  a property owner who  was almost in tears trying to convince authorities not to consider his property as being contaminated.  A meth lab had been found in the trunk of a car in the back yard, but they were forcing him to have the house decontaminated as well.  It was going to cost over $10,000.