This tenant is a "keeper"

[Mr._johngalt]

Our condo is leased to a young guy (mid 20s). The rent has been right on time every month except for March.
He was a week late and paid the (very stiff) penalty
that I had written into the lease. No complaining either.
If it was me, I would have negotiated my way out of paying it. Also, I have not had one trouble call since he moved in (averaged one a month prior). There was a
problem with a shower, but he and his boss fixed it
themselves. I knew this guy was a good one when I
met him. Of course, eventually this good luck will be
offset by a "tenant from hell", but I will enjoy this
while it lasts.

JG

 

[yelnad]

We're on a golden streak right now, too. We have 3 "keepers" in the same building. We're enjoying it while we can because before that we had some real losers (the felon and the one who started the fire that gutted the entire first floor unit).

 

[Beachbumz]

Yeah, we are pretty lucky right now too. We have had a tenant for 18 months now and never a late payment. Only one service call, it seems the AC was broken and it was 94 degrees (tenants can be a bit picky sometimes ). Only problem is, this guy is career Air Force and will probably be moving May 1, so the gravy train ends...

Beachbumz 8)

 

[cute fuzzy bunny]

Of course, eventually this good luck will be offset by a "tenant from hell", but I will enjoy this
while it lasts.

You do realize that he's been systematically removing everything from the interior of the home and ebaying it?

Have you seen Pacific Heights? One movie thats guaranteed to make you never want to rent out your home.

 

[Toejam]

Nightmare tenant

About 15 years ago a man, who lived 3 doors away from a rental home I own, knocked on my door.  He told me I needed to go to my rental home asap and check it out.  When I got there, there was a big sign posted in the yard with instructions to contact the narcotics division of the city's police department.   The rental home was a mess - broken windows, front door busted in, rotting food on the stove, dog poop, and ...... a basement with dirt-filled pots wall to wall!  The tenant had even rerouted most of the electricity down to the basement for the many "grow lights" to maximize his "cash crop".  Needless to say, I spent almost that  entire summer cleaning and repairing the damage.

I am not proud of this, and it was a very costly lesson. Since then, I have had responsible tenants (knock on wood) and make it a point to inspect and drive by the rentals on a fairly regular basis,  just to make sure there's nothing funny going on.  Do you other landlords check the inside of your rental  property on a regular basis?  

Despite the aforementioned nightmare, I have never considered selling my rentals and am glad I still own them to this day:  Purchase price was $29k in 1976 for one rental, currently appraised at over 200k.
Purchase price of other rental was $58K in 1982, currently appraised at over 300k.  Both homes are paid off, and the rental income is one of several things that has enabled FI/RE for me.  

 

[Craig]

Great thread.  We have three rentals, and they are a huge help these days ... covers all of our home mortgage payment and utilities (except for my five year amortization amount   ). We've been very fortunate with renters as well.

Question for fellow landlords ... years ago, I remember hearing about a standard that landlords could charge rent of roughly 1% of the property value per month.  These days, we are nowhere near that standard ... our rent in Scottsdale for a 3 bedroom home is only $1,295 ... 1% would be $3,900.  Anyone else hear such a concept, and ... anyone else wondering when we'll finally see rents really rise?

 

[rapoole]

"Question for fellow landlords ... years ago, I remember hearing about a standard that landlords could charge rent of roughly 1% of the property value per month. These days, we are nowhere near that standard ... our rent in Scottsdale for a 3 bedroom home is only $1,295 ... 1% would be $3,900. Anyone else hear such a concept, and ... anyone else wondering when we'll finally see rents really rise?"

Hi Charles-

I'm not a landlord, and no real estate expert, but I bet that 1% rule of thumb is a relic of an earlier age of higher interest rates and lower real estate prices. That suggests you won't see it back till the fundamentals change. Just my guess - best of luck!

rapoole2000

 

[cute fuzzy bunny]

Woof...so you're getting $1300 a month for a home you could sell for $390k!?!

Wow. I had a similar decision recently on a $1k/mo rent vs a sales price of $240k. Took the 240K in a heartbeat. Even in bonds I can make more than $1K a month with no hassles.

Where do you landlords draw the line? Or are you going to keep the rentals regardless of the rent/sell dynamics?

 

[wabmester]

When rents are way out of whack with house values, one of two things happen: rents rise or house values fall. I don't think rents will be rising.

 

[Spanky]

In addition to income (rent), the property value also increases. For me, I do not want the hassle.

 

[Beachbumz]

Yeah, that 1% rule appears to be becoming a relic. But even years ago, it was difficult to find that. I think this was a Carlton Sheets thing (maybe others). Pretty much, if you can get 1%, you don't need to run the numbers, it WILL work. Also this 1% rule came about in times of much higher interest rates. I haven't run the numbers, but that 'rule' could probably be in the .8% range.

I agree that appreciation has been rising much higher than rents and in some areas to bubble proportions; but I believe that in most areas we will eventually just see a slow down or stop to the rise in prices for a long while. I don't think we will see a big drop in prices unless interest rates get really high or we have a bad recession...JMHO.

Beachbumz 8)

 

[Mr._johngalt]

I am familar with the 1% rule. I am not really in the landlord
business any more. The condo is only leased while we
are not using it, so I bought it mostly for us and not as
an investment. That said, we are getting way over the
1% in rents and I expect to have excellent appreciation
opportunties as well. However, it is rented fully furnished, so that should command a premium and represents a
potential problem when we finally get to the personal
use phase.

JG

 

[Martha]

Where do you landlords draw the line? Or are you going to keep the rentals regardless of the rent/sell dynamics?

We drew the line when it appeared that we could sell our buildings for more than the cash flow from rent could support. Buyers were simply banking on additional appreciation. I think it was a good move, but I think my husband still struggles somewhat with what to do with all his free time.

 

[yelnad]

We don't regularly inspect our properties inside, but we do enough ongoing improvement/maintanence that we have regular access to them and can see how they're being kept.

 

[Martha]

I am recycling an old post, but the circumstances still make me cringe. In the years my husband was a landlord he had only one really bad experience. He bought his first buidling, a tri-plex.
One of the apartments was occupied by a "collector" who had newpapers and other trash piled all over. As part of the purchase, he required the owner to have her moved out and the owner clean her apartment. That went just fine. However, the owner, right before closing on the sale, rented the apartment to a woman and her children, with no deposit and he didn't even collect the first month's rent. The landlord at closing paid the first month's rent out of his pocket. My husband didn't know that and thought the landlord had done his job and simply had rented to someone new.

This tenant was a nightmare. She never paid any rent, though she kept promising to do so. Although the trash was cleaned out by the prior owner, the apartment was in bad shape and needed repairs. The new tenant wouldn't let my husband in to work on it. The neighbors complained about noise and kept calling my husband and the police. As my husband's lawyer, I started an eviction action for failure to pay rent, and all the other problems. In Wisconsin, if a tenant says she contests the eviction, it is set for trial. The tenant contested the eviction and the court wouldn't set it for trial for two months. The tenant filed complaints about the condition of the property and had the county test for lead paint. The tenant claimed no rent was due until the apartment was fixed up. The county found lead paint and demanded my husband repair peeling paint. He still had not even been in the apartment since before closing on the sale and the tenant still wouldn't let him in.

Finally, we get to the trial date. The tenant called the court right before the trial was to start and said she was in labor at the hospital and having a baby. She wanted a continuance. None of us believed her because she lied all the time. The judge said he would do the trial by phone. We did the trial. We won an immediate eviction order.

It turned out she really was in the hospital having a baby.

Nevertheless, we enforced the eviction order.

Years later, my husband is still mad at her and the seller. I never really was mad at her. She was doing what she needed to do to survice, just as we did what we needed to do.

When all of this was going on, we went and saw a movie, Pacific Heights, about a tenant from hell destroying an apartment with the landlord unable to do anything. We still hate that movie to this day.

 

[Craig]

Spanky, you hit it. When we total our investments in our rentals, we're getting 3.9% cash on cash return, plus our $590K investment has grown to at least $800K in 2 to 5 years. Then there are the tax benefits ... most of the positive cash flow is sheltered.

We did like-kind exchanges to get into the rentals without tax impact, and we're considering literally moving into the rentals one after the other during retirement (live in them at least 2 years), and then selling as principal residences to avoid cap gains. Real estate sure has its aggravations, but there are some neat benefits.

 

[Mr._johngalt]

You can do some wonderful things with real estate
(don't forget the leverage). In our case, even after
our wintertime personal use of the condo, we still
have positive cash flow on our investment. This does
not count loss of the use of the cash invested however.

JG

 

[retire@40]

We did like-kind exchanges to get into the rentals without tax impact, and we're considering literally moving into the rentals one after the other during retirement (live in them at least 2 years), and then selling as principal residences to avoid cap gains.  Real estate sure has its aggravations, but there are some neat benefits.

Before you try to cash in on the neat benefits, I hope you understand the Sec 1250 recapture and Sec 121 rules.

 

[Martha]

Before you try to cash in on the neat benefits, I hope you understand the Sec 1250 recapture and Sec 121 rules.

Over the last several years we got out of the rental property business except for the four unit place we live in. Boy that recapture of depreciation hurt. But then again, we had the opportunity to shelter much of the income over the years with the depreciation and that income would have been taxed at a higher rate.

Martha

 

[unclemick]

Ah yes recapture.

Our duplex was recaptured big time when we sold it. The IRS never misses a trick.

 

[unclemick]

Also intertwined in this recapture dealeo - a for sale by owner wherein I carried the note - another painful story - getting dragged into messy divorce proceedings to get the money. I outsmarted myself into the arms of the IRS. Still profitable but I thought the IRS got more than their 'fair' share. Some people thrive on real estate - not me -heh,heh.

Still watch 'This Old House' and those kinds of programs however. Nearly thirty years as a desk jockey - doesn't help my handyman skills and it's been commented that ' I couldn't cut a straight line with a left handed skill saw.'

 

[Craig]

Yes, we'll watch the 1250 recapture rules. In an interesting twist, we had very low basis going into the last 2 rental houses, which means the depreciation and related recapture will be pretty small. We'll see if we really get much of a depreciation tax benefit anyway. Certainly a consideration, but not a killer.

 

[cute fuzzy bunny]

I couldn't cut a straight line with a left handed skill saw.'

A roll of galvanized flashing and some stucco can create a great deal of beauty.

I made our outdoor dog jakes dog house out of old leftover scrap from my wifes house construction. I didnt pre-cut ANY of the wood. I took about 35 minutes to nail all the wood together and then took my reciprocating saw and "evened it out". Coverered all the seams with flashing and stapled a bunch of shingles to it.

Butt ugly after I was done with the saw...a thing of beauty now...

 

[unclemick]

Ah ha!

Stucco! Will keep that in mind.