If you've been a landlord, or broker managing someone's properties, for any amount of time one of these stories might sound familiar to you. A common myth landlords often have is that general repairs are going to be their biggest expense with a property, aside from the obvious tax+mortgage payments. That is very very wrong. The largest expense for most landlords is actually what they typically consider their biggest asset, their tenants! Not all tenants, but based on some of the info I'll elaborate on below, a single bad tenant can turn a property that's been wildly profitable for 10 years into a loss really quick.
The tales range from losing a single month's rent to losing a year's worth of rent, or more. Read the comments below and conclude for yourself. Then keep reading to determine how to avoid these catastrophes with your own properties.
Tenant Protection Laws
"The absolute worst experience we ever had was two college students referred to us by my husband's uncle. They trashed the place, stopped paying rent after the first two months and were really, really difficult to evict because it was winter, and at that time the state had laws protecting tenants from being pitched out into the cold. The final insult, of course, was that when they did sneak away in the dark of night, they turned off the heat but not the water -- so we had frozen pipes to deal with on top of the garbage and filth."
Never ever again..
"My boss has a rental that I got put in charge of, and I will never do that again! It was an older couple with their 20-something-year-old daughter, and they lived in filth. They had two dogs, one cat and a chicken that all lived in the house. I guess the animals didn't like to go outside, so by the time they finally moved out there were mountains of dog, cat and chicken poop in the house. We ended up having to go to court to get them out and then go to court again to get two months of rent and more of a deposit."
Drug use and damages
"We had druggies (highly recommended by family/friends in our church!) who glued pennies to the walls, stuffed Cheetos into the shutters, stapled small pieces of cardboard to the inside window facings, disassembled the outdoor flower bed and brought all the bricks inside the house, poured water into the floor furnace, causing it to rust out (we have a 1928 home in Tulsa, Okla., which was beautiful), used the drapery for cleaning rags, used wood staples to anchor a large, outdoor inflatable toy inside the living room and left their drug paraphernalia in the closet when they moved. We've spent thousands in cleaning and replacement costs."
Smoke damage and dead yard
"Rented to a well-to-do couple with a 2-year-old, solid references (so we thought), and we paid a rental agency to monitor the property and collect the rent. These people paid on time. However, they had a kitchen fire due to the stove being so filthy, thousands of dollars in smoke and fire damage, completely melted the door off the microwave, wouldn't set up the sprinkler-system timers to water automatically, so the entire yard died, completely tore out shrubs and cracked the upstairs master-bath sink washing a bowling ball. They didn't have a diaper pail, so they just tossed the wet diapers (from second child born while in the home) in a corner on the carpet of the baby's room (gag), took every window covering and tore out the alarm system contacts on all the windows. My favorite one: They drove their car through the wall in the garage into the downstairs guest bathroom. All toilets in all three bathrooms had to be replaced because they were stained black. Never could figure that one out."
Drug manufacturing
"I had rented to a mother and two boys (ages 3 and 7) who were supplied to me by the Department of Social Services. They were on a plan (two-year max) to help down-and-out single moms/dads get on their feet. I thought this was a good plan. Then the constant traffic started coming to the house apartment: 10 p.m., 1 p.m., 2:30 p.m., 6:30 p.m. The smell from the apartment was horrible, and I eventually found out she was making and selling crack cocaine from my apartment."
These stories I found on landlord discussion forum are mild in comparison to some of Robert Kiyosaki (Rich Dad Poor Dad guy) stories. He talks of some severe liabilities into the hundreds of thousands of dollars landlords sometimes find themselves in. For instance, is a property you rent is then used to create meth, in some instances it is required of the landlord to strip the walls, flooring, and anything else that may have come in contact with the meth product or fumes and replace it all. That's tens of thousands of dollars in most cases.
While a typical bad tenant might skip out on a month or two rent or cause some light damages, the really bad ones create problems like you just read about here; sometimes worse. These expense range from a few thousand dollars to five, and sometimes six digit figures in extreme cases. Take even your most profitable property and assume you loose 3 months rent from a long eviction process; subtract a $3,000 loss from it, is it still profitable? Take the same property and place someone who destroys the interior; subtract a $9,000 or $15,000 loss from it, is it still profitable? What about a $30,000 loss if you end up with a meth lab inside your rental?
These are of course nightmare scenarios for landlords, and for most it's the exception rather than the norm. But this economic climate has put a lot more people into desperate situations. This means, more renters that would have been ideal are skipping on rent, or causing losses of 3-9 months for landlords after forcing them through the courts for eviction. Even more tenants are picking up drug use, or even drug manufacturing habits to provide for their family. All this spells trouble for landlords.
This all paints a pretty bleak picture doesn't it. It doesn't have to be that way. Do your due diligence BEFORE renting to a new tenant. Run a complete background check on all adults, and check their existing living conditions wherever they live now. It's absolutely vital to move in only quality tenants, because we are all far better off leaving a property vacant for an extra month and taking the time to get a better tenant than risking losing far more with a bad one. Read up on how to properly screen a tenant before moving in your next tenant. Maybe even check-up on your existing tenants if you didn't screen them properly in the first place.
--- about the author ---
Rentec Direct provides property management software free to landlords and property managers. Because of the importance of thorough screening for prospective tenants, we have integrated tenant screening directly into the software so in just a few clicks a complete and comprehensive background check including previous evictions can be done on any new tenants.
My home state of Oregon recently passed requirements stating that carbon monoxide detectors are required in buildings that either:
As you may or may not recall, depending on how close-knit you are within CPA circles, there was a significant new tax consequence and reporting requirement introduced for landlords within the Small Business Jobs Act and the healthcare reform bill passed in 2010.
Some say to keep business and personal completely separate. Others feel that practice is hogwash. I tend to lean towards keeping them separate except around Christmas time. If I've seen the property has been being taken care of I really enjoy giving a gift around the holidays. It's often sometimes as simple as a discount on rent for the month. Generally its reserved for longer term tenants.
So that leads me to wonder why. We all know the general pitfalls of property management.
