That is the idealistic mission statement I started with in 2008, and I still have it today. The naivity has been tempered with experience, but the optimism remains intact. Despite all we’ve been through, I still believe owning rental property is the surest path to financial freedom. And I intend to be a good corporate citizen while I’m building my fortune, regardless of how the community views landlords.
There is nothing wrong with wanting to make money. There is nothing inherently evil or greedy about someone who wants to build a company that will provide for their family’s needs and their own retirement, putting money right back into the community through taxes and charitable contributions. Money can do so much good! So why the negative image of landlords?
7The making of a Slumlord
I found out early on in the business why most landlords are such hard-asses. You have to be, or the bad tenants will eat you for breakfast. Unfortunately these bad apples have spoiled it for everybody else. You give them an inch, they’ll take 50 yards. I learned over the last 7 years that no, I can’t let the rent slide for a few weeks. I can’t collect $100 this week and $200 next payday and believe you’ll catch up next month. I have to file eviction papers on the 10th of the month (there are some landlords who file on the 2nd. My husband wants to do it on the 5th, but as of now it’s the 10th.) You’ll have until the date of your hearing to catch up. I’m sorry, but it’s not personal, just business. And yes you’ll have to pay the late fee and the filing fees too. Because, I’ve learned, if you “work with” these tenants on the rent, your rent payment slips down their priority list until it’s somewhere below the cell phone minutes, beer money and new rims for the ride. Meanwhile, your mortgage, property taxes and sewer bills all remain due on their due dates! And if the water heater breaks, yep, you still have to fix it.
Some slumlords are created when there’s no money to fix the water heater, because no one paid their rent. Still others are created when the city shuts down the building because the landlord couldn’t afford the water bill. We actually acquired a great six unit apartment building that was left abandoned by a former owner who did just that!
These “slumlords” are just nice people who wanted to help out someone in financial distress. And ended up in distress themselves.
This kind of problem snowballs – take the case of the “nice” landlord who now has no money to fix the water heater. The good, rent-paying, law abiding tenants aren’t going to want to stick around. The most common answer to the question “Why are you moving” on our rental application? “Because the landlord never fixes anything.”
The landlord who never fixes anything
Don’t get me wrong, I know there are genuine slumlords out there. I’ve met a few of them. Buy the property cheap, do as little to it as possible, just enough to pass the rental inspection. Stick a tenant in there – anybody with a pulse and a security deposit will do. Collect as much rent as possible and spend as little money on the building as possible. Voila – cash flow!
I do not subscribe to that philosophy. Not only does it go against my morals, I believe it’s pennywise and pound foolish! I’m not going to put a granite and tile kitchen in a tiny two bedroom in the low rent part of town, but I’m going to make sure that everything works. And if the apartment is modest, it will still be pleasant. Would I live there with my five-year-old daughter? That’s my litmus test. What I call “The Kelly Code.” Unfortunately, a few of my units are not up to “Kelly Code” and here is why:
Landlords are screwed repeatedly by hired maintenance help. This has been an ongoing source of frustration for us since day one. When we started out, both my husband and I had full-time jobs. In the very beginning, we hired handyman help, and also paid contractors to help with major renovations on the six-unit we got from the landlord who couldn’t pay the water bill. Those contractors ran off with nearly $10,000 of our money and disappeared into the ether without a trace. That was after they got the work site shut down by the city for failing to pull permits. (Read about that whole adventure in part 3 of my How It All Began series in the archives. Link to it here: http://thisgingerjustsnapped.weebly.com/blog/how-it-all-began-part-3-haunted )
As far as the handyman work – it was laughable! If I wanted a crappy amateur job done, we would have done it ourselves! So Steve started doing the maintenance himself, and actually got pretty good at it. Heck, when he started he was already better than most of the people we were paying to do it!
Investors’ tip: if you’re doing maintenance yourself, this service is worth subscribing to. www.JustAnswer.com lets you post any question online and it will be answered by experts in the field. My poor husband found himself having to replumb our 6-unit building with Pex after a 2 inch main burst, flooding a first floor apartment. JustAnswer.com provided him the guidance he needed, and he had his work inspected by a licensed professional who gave him the thumbs up! We’ve also used them to talk us through replacing a blower on a furnace. For $65 a month you can write off your taxes against your business income – well worth it! They helped me troubleshoot a computer problem once, as well.
If you’re handy, and you only have a few units, do the maintenance yourself. It’ll save you money and aggravation, and you’ll learn a lot. The most valuable thing you’ll learn is how to tell if someone you hire down the road is doing the job right or not. Because eventually, you are going to have to hire somebody. And that’s where most of us get screwed.
Professional Property Management companies in NEPA haven’t really figured out the maintenance thing either. As we found out, they’re in the same boat we are – hiring people who seem like they can do the job right, only to have them do substandard work. Or not show up at all. This is creating slumlords. Think about it – the typical out-of-state landlord follows the instructions for Real Estate Investing 101. He buys a rental property in NEPA at a good price and hires a management company to run everything. Hands them the keys and goes to his PO Box in New Jersey once a month to pick up his check. He may never even see the property! Meanwhile, unbeknownst to him, things are breaking and nothing’s getting fixed, at least not to my definition of “fixed.” And before you know it, our clueless out-of-state investor is just another slumlord. That Absentee Landlord local leaders are always blaming for our local problems. If this investor ever takes the drive out 80 westbound to see his property, he may well be horrified. “How could this happen???!!!”
And this is why some of my units are not up to “Kelly Code” and it breaks my heart. We ran into one of our long term tenants last weekend at the movies. He’s had a long list of repairs – mostly minor but it’s a long list – and he’s been waiting months. I squeezed his arm, “we’re trying.” I was almost in tears. But he understood – he ran a maintenance company himself once, and it failed, for all the same reasons. He told me, “You had four guys come in to fix the same problem. And each one fixed it wrong. For the money you spent paying those guys, you could have hired Mike Holmes from Holmes on Homes to come in with his camera crew and ‘make it right!’”
We thought we hired a guy last spring to solve our problem. He had a crew at his disposal, he told us. He would do preventative monthly maintenance on all our units. He could take on multiple capital expense projects, too. We gave him several thousand dollars – and got a lot of unfinished, and in some cases never-started projects. He got a nice Escalade with new rims. I heard the rims got stolen – I guess Karma really is a bitch. But not as much of a bitch as I am. Lawsuit pending.
You are not a Slumlord. Change your mindset. See opportunities where others see only problems! These are the words I tell myself every day. And if you’re a landlord struggling with these same issues, I say them to you, too. Never, ever give up. Rentals are the sure-fire path to financial freedom. All the gurus will tell you this. We just have to figure this out.
My husband started www.InvestorsNetworkNEPA.com as a resource for our community – landlords, flippers, wholesalers, serious and casual investors. One of the aims of this website is to provide a sort of Angie’s List for real estate investors to find trustworthy maintenance people, contractors and other professionals for the teams we need to build. Right now it’s a very short list – but hopefully it will grow as we all pool our resources. A handyman or contractor who ends up on our list will end up getting a lot of steady work!
We’ve also found a great local real estate professional to do the heavy lifting of managing our properties, even though we are still technically self-managed. Maybe she’ll build a management company. Maybe we’ll build one around her. There’s a huge hole in the market for someone who gets the results she’s been getting for us! My buildings will all be up to “Kelly Code” before long, I’m sure of it!
There’s been talk of building a maintenance company – first to take care of our units, expanding out to contract with other landlords and professional property managers. There’s a gaping hole in the market for that, too. So gaping I actually don’t care if someone reads this blog and steals the idea – go for it! And sign us up as clients!
NEXT WEEK: TENANT HORROR STORIES. Know what really makes a slumlord? Scum tenants! We’ve had our share of them over the past 7+ years, but the story I will tell you next week is a new one on me. I mean, who does this??? This is why it’s essential to be on top of your game as a landlord, either watching your own properties with hawk-eyes or paying a competent, dedicated property manager to do it for you. I’ll tell you that story... and what happens when the Crazy Cat Lady gets evicted!