Be a landlord? Bah Humbug!

[Mr._johngalt]

We've owned the condo for about a year and a half now.
( have stayed in it 3 nights total) In that time we have had three
different tenants and had trouble with all of them. I am not sure,
but I think I have already been stiffed for more rent than I
lost during my entire career as an active landlord.
Correction............that is not true. I do recall a bigger
rental shortfall. Anyway, this is especially worrisome as we will
be using the place. I guess I don't mind losing the rent as much
as the wear and tear plus the chance of missing personal
property. I used to rent them shabby and unfurnished.
This is a different deal. Anyway, I did get about as much rent last year as I estimated going in. It's been a real PITA collecting it
though.

JG

 

[Martha]

Need a new rental agent?

For a while we rented out our home. Even though we had decent tenants, the wear and tear was obvious after a couple of years. We decided to sell it before it started to look like "rental property." We recently saw the place and the new owners have really fixed it up nice.

 

[Mr._johngalt]

Need a new rental agent?

For a while we rented out our home.  Even though we had decent tenants, the wear and tear was obvious after a couple of years.  We decided to sell it before it started to look like "rental property."  We recently saw the place and the new owners have really fixed it up nice.

I really really like our rental agent. Hopefully she is on a
run of bad luck vis-a-vis tenant selection.

JG

 

[Jarhead*]

Being a landlord, like many other pursuits is a young mans game.

When I was in my mid 30's, I had a demanding management job, and a young family (wife was homemaker).

I started a side business for add income.

Within 3 years I bought a small office bldg.,
an 8-plex, plus 5 individual houses. (All close to fully leveraged).

Horror stories? You betcha, but doubt if anybody would be interested in hearing about them, and besides that I get "combat flashbacks" when recalling them.

Was it worth it in the big scheme of things?
(Depending on how long I live, I suppose

One thing for sure, I missed spending much time with my kids, but my wife did a great job of filling in for me.

I felt it was "mandatory" to get the hell out when I was 49. Did so, and starting my 20th. year of "goofing off", maybe working like an "immigrant" paid off.

Trust me, on this point. Regardless of how these guys in the info commercials make owning income producing real estate appear to be easy, it is a gut-grinding, very stressful way to go, and not for everybody.

 

[brewer12345]

 

I really really like our rental agent.  Hopefully she is on a
run of bad luck vis-a-vis tenant selection.

JG

Just MHO, but after three strikes I would probably be shopping for a new rental agent and considering how I might market the property differently.

 

[BarbaraAnne]

We owned 5 rental properties in the DFW area between 1979 and 1992.  They were "bought right" (as JG would say).

They were an enormous headache.  Without going into the gory details we had to evict tenants with "good credit" but couldn't seem to come up with the rent and threatened us with guns.  We had one guy commit suicide with a gun (think of that mess!). We had a tenant with a drug lab who was arrested in the house and the house was severely damaged during the arrest.  Most people seemed to have problems coming up with the rent, despite new cars and plenty of Christmas presents for the kids.  The constant repairs and appliance replacements were a financial nightmare!

We screened thoroughly and used a property manager.  It didn't make much difference in most cases as to whether the manager found the tenant or we did.  We had a few good tenants, but most were difficult for one reason or another.  In addition, the property managers really weren't motivated because they made their money regardless and didn't find the least expensive contractors to fix appliances or make repairs.  In fact, we figured they were getting a kickback from the various "contractors" (in-laws).  We were so thankful to get out of the business, despite our losses...

What was really hard was losing money because the Texas real estate market stayed flat and is does today.  Therefore owning real estate in Texas in a flat market is a losing game unless you are "d*** lucky"...

 

[RockMiner]

Trust me, on this point. Regardless of how these guys in the info commercials make owning income producing real estate appear to be easy, it is a gut-grinding, very stressful way to go, and not for everybody.

We were unwilling landlords for a while following the crash in Houston real estate in the 80's. The poor local economy led to increasing difficulty in finding tenants..once we started dropping the rent to keep it occupied we experienced a disasterous series of destructive deadbeats. That was a miserable experience, and permanently soured me on rental property.

 

[Howard]

Buy REITS, the ROI is the same or better, you get Professional Management, you can Buy or Sell with a Mouse Click.

 

[Arif]

JG,
I would question her criteria and selection process. For instance, what multiple do they use to evaluate a tenant (rent is $500 then min. income is 3 times rent or $1500...DO NOT include child support!!) Go down the list of how you would do it and see if what the PM says sparks any red flags.
Remember you are renting in an environment where pretty much everyone that has a pulse can qualify for a mortgage. Especially in TX where homes and condos are inexpensive relative to the other areas of the country. As interest rates rise hopefully the quality of tenants should improve. Although many people don't like Section 8 or Housing Assistance, I use it for a large percentage of my units. It limits the number of units I have to "chase" for the rent but I do my fair share of running none the less. Section 8 probably is not an option for you as I am sure the condo is nicer than the typical Section 8 rental. But I would encourage the PM to be a bit more creative and grill her for answers to why the turnover is so high.
BTW- I am in the process of selling all of my rentals in TX. The taxes are WAY too high and the equity is just sitting there doing nothing. Far more opportunities in other parts of the country like GA.

 

[LRAO]

JG,

Use tenantalert.com - it gives you a "tenant predictor score" based on the person's credit score, rental, job, and crime records.

Have the applicants pay the $30 fee when they turn in their application. It has saved me a lot of headache.

-New young landlord

 

[SteveR]

Rentals are indeed for the young and healthy or the old and rich. Either you do a lot of the stuff yourself, or you have the $$ to pay someone else to do it.

I rented a house for a few years but I lived 2500 miles away. This required an agent. While they did a good job of keeping it rented, they did a lousy job at screening. For some reason, they kept renting the place to Highway Patrol Troopers. These guys must have a lot of pent up anger. My house was the untimate receipient of their "Anger Management" programs.
I don't even remember the number of walls and doors that had to be fixed/replaced during that time.

I was very happy to sell it. I have no desire to get into all that again. 8)

 

[Outtahere]

Before DH and I married he had his house I had mine...being the pita that he is he refused to sell his for a number of years. Renting turned out to be a nightmare which we both decided we would not repeat. He finally sold it because I told him if he kept it he'd be staying single and living there. I don't know how I kept him from killing some of the tenants but we definately agreed he doesn't have the temperment for being a landlord. I also wouldn't want to be his tenant LOL

 

[uncledrz]

In the 80's and 90's I was a landlord, haven't been for the past 7 years although I do have the property that is now my office and thinking of keeping it and renting it rather than selling. Never had the nightmares that others have had, but I was always close to the property, did much (not all) of the work myself and kept very tight payment control. Hopefully the office building will rent without too much hassle, but the above posts are certainly a valid warning.

Uncledrz

 

[Eagle43]

Being a landlord, like many other pursuits is a young mans game.
...

Trust me, on this point.  Regardless of how these guys in the info commercials make owning income producing real estate appear to be easy, it is a gut-grinding, very stressful way to go, and not for everybody.

I want no part of it; never.  I had a friend who was a landlord with an awful tenant.  This tenant knew his rights, and he used them right up to the time he and his furniture were put on the street.  My landlording aspirations are fulfilled with the Vanguard REIT Index Fund. 

 

[spike]

I was a landlord for at least 25 years, I had about 67 units, with only a a couple of mortgages. Most were free and clear. I could see the writing on the wall, the level of tenants deteriorated every year. I did most of the renting and as many repairs as I could handle. But it became to much.

What killed me was the fast turnover of tenants. They would wreck the carpeting, kitchen floor, and the whole unit would need painting even if they lived there 6 months.

I decided to go with commercial units and that was actually worse. Everything was my attorney talking to there attorney. I made Lot's of money but I finally got out. I paid some horrendous capitol gains, wish I would of starker-ed more of it, but I just couldn't take it any more. It got to a point where I told my wife to handle some of them before I hurt someone.

The best thing I did with some property is sell it and hold the paper. I get my check each month and the buyer can handle the B.S.

It's so easy to get a mortgage now that mostly whats left in my area is the bottom of the barrel.

In my experience property managers will bleed you dry and rent to anything with a little cash.

Like previous posters mentioned it's better if your young when you own property. It just wasn't worth the aggravation any more.

 

[modhatter]

I am 63 now, and have been a Landlord on and off for over 35 years. I have three rentals in Fl and two in AZ. One I am currently camping out on a Airo Bed mattress in one (with my son), which I am having to totally "Gut Out" from the worst tenant I have ever experienced. She, painted every inch of this place including all the tile, sinks, cabinets light fixtures, outlets and GLUED orange and gold Southwestern design napkins all over the kitchen cabinets, that now how to be tore out. This re-do is going to cost me over $15,000. So anyone out there considering becoming a Landlord - Take Heed from the posters.

I have always in my youth been a fan of owning real estate as an investment. And few who have done it, actually lost money in it. However, as one poster mentioned, I think it is a job for the young. I am currently aganizing over whether to "sell or not to sell" the balance of my units. I want Sooooooo much to be free of all of this. But I just don't trust the stock market now, and have a need to preserve and grow my investments for my son (mentioned in other posts) I did sell two units this year, and writting that check to Uncle Sam for $50,000 + was hard to do.

If only we could look into a crystal ball to see "whats coming next" it would make these decisions so much easier.

 

[Martha]

I am 63 now, and have been a Landlord on and off for over 35 years. I have three rentals in Fl and two in AZ. One I am currently camping out on a Airo Bed mattress in one (with my son), which I am having to totally "Gut Out" from the worst tenant I have ever experienced. She, painted every inch of this place including all the tile, sinks, cabinets light fixtures, outlets and GLUED orange and gold Southwestern design napkins all over the kitchen cabinets, that now how to be tore out. This re-do is going to cost me over $15,000.

She probably watched to much HGTV.

I don't envy the work you are having to do. And while taking care of your son too.

 

[yelnad]

However, as one poster mentioned, I think it is a job for the young.

Since I'm young, I would label it as a job for my husband. We own some rental properties and they are a huge pain. Earlier in my career I was a Residence Hall Director at a college. That's crazy work, but being a landlord is worse.

 

[MJ]

I have been a small time landlord for over the last 20 years. I owned a country home that I rented during the summer months for 15 years. I always asked for a hefty security deposit and all the money up front for the 3 summer months by the end of the 1st month. I even got them to pay for all the utiliies. Every other weekend I came up and stayed in the 2nd floor apartment using the excuse that I had to mow the lawn and do other minor maintenance, so my NYC summer tenants were always respectful of the house. I also live in a 2 fam house and have rented the other apartment. I had similar positive experiences with it as well. For my 2 fam house rental, I ask for 2 months security. I have been very fortunate to get good long term tenants. I guess, I have been lucky so far. The result is that I got to keep most of my rental money.

MJ

 

[KB]

Modhatter

I hope you can sue her for the damages.

I've never wanted to be a landlord....and hearing stories like yours...I still don't. Good luck with the repairs.

 

[Honkie]

As JG often says, the 3 key factors with property are LOCATION LOCATION AND LOCATION.
To my mind, this is not only geography, but aso the properties location on the accommodation food chain. A lower end rental at lower end price would inevitably draw a lower end tenant. Higher end property at higher end prices draws a higher end tenant. Doesn't necessarily make the tenant any easier to deal with as human being, but they are less likely to trash the place, hold gang meetings there or default on the rent.

Anyway, to show the other side of the fence, my experience so far has been very different to those posted. I have four rentals in total. Three apartments and a car park space. The car park tenant can't really trash the place and there are no repairs or maintenance to do so unsurpisingly after signing the agreement in October 04 I haven't seen or heard from him since. Every month the rent is deposited in the bank. No hasse, no work, I almost forget about it from one month to the next. The other apartments are similar. One tenant I met at the viewing back in December 03. We agreed on some minor repairs and I bought them a new TV and a washing machine. Signed the agreement and only met him again last week to agree the continuation of the original 2 year lease for another 6 months. Rent paid direct into the bank every month. Another tenant I have never met. Agent found him and arranged the viewing and the lease agreement. Again, rent into the bank every month without hassle. The third apartment, is leased to a Company to accommodate one of their executives. Same deal, never met the occupant and never missed a rent payment.

During the currency of the latest leases and tenants on the 3 apartments I have had to arrange one minor plumbing job (US$80) and paid one tenant to replace a TV.

Once a month I spend less then 2 hours, checking the bank account to see that the rent has been paid, and checking that the necessary building management fees are settled. Once a quarter, I pay the property taxes, which takes about 30 minutes online. Once a year, I spend a day finalising the company's account and send them to the accountant for audit and submission with the Company returns.

This has been the case for over 4 years now.

However, as the landlord, I require a 2 month security deposit and 1 month's rent in advance. All tenants are either employed or are a company renting for their staff. I make sure that the units are in good shape, repainted and clean when they are on the market. Every year I have the electrics and gas system and appliances checked and certified. The tenant is given copies of all the certificates so he is immediately aware that I look after the place. So far, no tenant has caused any damage beyond normal wear and tear. One tenant actually repainted some areas where he had chipped the paintwork!!

Thats my experience with nearly 250 'Tenant Months" under my belt (4 units, for almost 5 years, almost 100% occupancy).

All the properties are "higher end". They rent for US$1400, US$1900 and US$2700 per month respectively. The car park for US$360. If instead of the 3 apartments renting for an average of US$2000 per month, I had 10 apartments renting for US$600, I would expect more hassle. If instead I had 20 apartments renting for US$300 I would expect more hassle still.

Like I said, LOCATION LOCATION LOCATION.

Cheers

Honkie.

 

[Nords]

A lower end rental at lower end price would inevitably draw a lower end tenant. Higher end property at higher end prices draws a higher end tenant. Doesn't necessarily make the tenant any easier to deal with as human being, but they are less likely to trash the place, hold gang meetings there or default on the rent.

Same here. We rented as much as possible to military tenants (advertising on bases). We've had troubles with toilet-training toddlers & incontinent dogs, but that's what security deposits are for. We raised the rent every year about 3-5% to what the market would bear. Other than a roof leak and a broken window, no emergency calls.

The woman across the street from us owns the exact same model & floor plan. She was placing classified ads in the newspaper, not doing credit checks, and never raised the rent. (She was 25% below market at the time we talked about her property.) She had drug dealers & deadbeats to the point where neighbors were videotaping and having confrontations. After the latest eviction (since her tenants were bringing down the neighborhood) I gave her the military Housing Office number, suggested what rent she should charge, and wished her luck. Now the military tenants are frequently in the same units and feel much more comfortable in their homes, leading to better property condition & higher rents.

I think it's location AND price. The more you can afford to charge, the more your tenants will be invested in taking care of your place. There's a reason that a low-priced property is a bargain, and it's a pretty significant undertaking to improve an entire neighborhood just to realize the value of bottom-fishing.

 

[Arif]

With all this talk about problem tenants I started researching TICs (tenant in commom). Basically you sell your rental or investment property and do a 1031 exchange into a commercial property anchored by long term tenants like Home Depot, Staples, etc with professional property managers. The CAP rates that I have seen so far are in the 7-8% range. I even saw one that was for a self service multi story parking lot and I thought of Honkie and his parking spot. Low overhead and always a demand for it. So all this got me thinking of the following scenario:

500k spread out over 4-5 different TICs
8% CAP rate
40k annual income

One of the major benefits is that there is no tax bite as you sell your headache rental and buy into the TIC thus no errosion of built up equity. I think this is especially good for those that want to diversify their real estate rich portfolios. So far I think this will be a major part of my FIRE strategy. There are other considerations that I have to look into such as qualified investor status which I think you have to be and the minimum investment allowed.

 

[Honkie]

The woman across the street from us owns the exact same model & floor plan.  She was placing classified ads in the newspaper, not doing credit checks, and never raised the rent.  (She was 25% below market at the time we talked about her property.)  She had drug dealers & deadbeats to the point where neighbors were videotaping and having confrontations.  After the latest eviction (since her tenants were bringing down the neighborhood) I gave her the military Housing Office number, suggested what rent she should charge, and wished her luck.  Now the military tenants are frequently in the same units and feel much more comfortable in their homes, leading to better property condition & higher rents.

Nords - I think I might have been tempted to do the old dear a favour and offer to take the place of her hands at a price well below market (she sounds like she would have been glad to get out), then either install the military tenants and take the higher yield resulting form the lower purchase price or sold it at market for the gain. I guess the thought must have crossed your mind?

I even saw one that was for a self service multi story parking lot and I thought of Honkie and his parking spot. Low overhead and always a demand for it.

I would love to get my hands on a self service (or minimal service) multi-storey parking lot. Difficult to come by and very expensive though. On the other hand I do love my one parking space. The yeild is great and the management and hassle is almost zero and the prices generally move in something like lock step with the price of units in the building apartment. The entry price is relatively low (I posted earlier that I paid about US$53,000 for my space) but the tenant and property quality is driven by the building as whole with higher end/more expensive units. The only downside is that the resale market is relatively small - only people in the building wanted the space or more knowledgeable investors who like car parks. Not impossible to sell, but one is selling to a limited audience. That aside, I would like to expand on this front.

Cheers,

Honkie

 

[Nords]

Nords - I think I might have been tempted to do the old dear a favour and offer to take the place of her hands at a price well below market (she sounds like she would have been glad to get out), then either install the military tenants and take the higher yield resulting form the lower purchase price or sold it at market for the gain. I guess the thought must have crossed your mind?

Ooooh, yeah. Many times, and hers was one of three properties on that street.

In 1998 my FIL and I agonized for weeks over buying the place two doors up or that old dear's across the street, but we had no overwhelming reason to do it. We were on track with our ER portfolio and, at the time, RE was so Old Economy. Hawaii RE had also been in the toilet for eight years and we couldn't ever see it recovering to the insane prices of the late '80s. You younger posters, are you listening to the echo of history repeating itself for the blissfully ignorant?

Of course the property two doors up was on the market for $289K and is now worth over $600K. (It was bought by a nice local couple who'd left Hawaii in the '80s after high school but who were tired of CA and wanted to raise their kids on the island.) But aside from those eye-popping 25% cap gains, I bet a detailed spreadsheet analysis would show that we've done just as well with Heartland Value (sold at the peak), Tweedy, Browne Global Value, or Berkshire Hathaway. And let's not forget that we were trying to raise a six-year-old while working 50-hour weeks (we were really slacking off then!).

Aside from those issues, the "problem" that held us back was diversification. We couldn't see any advantage to owning two properties subject to the same factors and such a big part of our net worth. Of course today we're interested in doing largely the same thing but as a much smaller %. Somewhere in the next decade or two, when we start seeing RE agents throwing themselves in front of our cars, we'll probably pick up a local townhouse or condo. Naturally we think that we're much smarter more experienced, more prepared, and better able to handle the work. Or else spouse is just trying to help our kid find her first place if she wants to stay local.

BTW the third property is our neighbor's house. He's in his mid-70s and still working part-time for Hawaiian Tel because, frankly, he makes Jack Nicholson in "About Schmidt" look like Dale Carnegie. He's never truly happy unless he's fighting with someone about anything. I'm pretty sure that his wife said "Congratulations on your retirement. Now get the heck out of here."