By: Ilyce Glink and Samuel Tamkin
Q: If you are thinking of investing as part of a slumlord real estate investment group, please don’t. The neighbors will pray for your painful demise.
We have the misfortune of living next to a house owned by an LLC. The property is presently occupied by a group of squatters openly selling drugs. What this is going to do is prohibit purchase of real estate by LLC’s.
Through research and whatever else we can muster we (the surrounding homeowners) will force someone’s hand on this. A real estate LLC should not be allowed to be irresponsible with its real estate holdings.
A: The issue you face is not related to how your neighbor decided to hold his or her ownership interest in the home. Your problems are caused by a property owner (or owners) that doesn’t care about what happens to the rental property or who takes up residence in it. But they should – and not just because of how it affects you or the neighborhood.
During the last five or so years we’ve seen or heard about thousands of abandoned homes or bank-owned homes that attracted the wrong kinds of people. Abandoned by the owners, who were also forced to leave because of a foreclosure or short sale, some of these properties were also used for illicit purposes and many of them fell into disrepair.
Nevertheless, you shouldn’t feel that a person or business that owns homes using a limited liability company (LLC) should trigger an automatic negative response. There are plenty of real estate investment properties using LLCs who manage their businesses responsibly. An out of state landlord who owns the property personally might wind up in the same situation, with an unrented property occupied by squatters or drug activity within.
All states have laws regarding the sale of illegal drugs and most municipalities have zoning and code enforcement laws. While not all localities have the manpower to enforce their laws, you should talk to your police department and zoning and/or municipal code enforcement departments about the issues that are going on at your neighbor’s house.
Some municipalities have passed forfeiture laws that allow the city to confiscate the rental property if the property owner fails to take action to prevent illegal drug activity from happening at the property. While not everybody agrees with these hardball tactics, we’ve heard from property owners who feel compelled to ensure there is no tenant illegal activity, they care for their properties and stay out of trouble.
Again, report this issue immediately to the local police department, alderman’s or councilman’s office, mayor’s office and other governmental departments.
But you shouldn’t blame the method of ownership. Owning investment real estate in an LLC can be a very good idea. Plenty of folks own investment property this way, are great landlords and their neighbors appreciate their efforts to shore up value in the neighborhood.