We had a horrible 2015. Distracted by personal issues with our extended family, my husband wasn’t able to put much time into wholesaling. When he wasn’t dealing with those family issues, he was trying to flip two high-end houses in New Jersey with two other partners. Neither one of those houses has sold, and the carrying costs are getting onerous. On top of that, we got royally screwed by a local contractor, and by a local trailer park who sold us a trailer that was installed incorrectly (can’t name the park as there is a lawsuit pending, but if you see me out at a bar after I’ve had a few Sam Adams Cold Snaps it might just slip out while I’m covering my mouth to cough.)
Yet through it all, the rentals cash flowed, month after month. Five months went by with virtually no other income, but the rentals always came through. Consistently. Even with all the little disasters that happen when you own rentals.
I believe in rentals
Being a landlord is not for the faint of heart or stomach. Even if you have a property manager doing most of the day-to-day, the stuff you have to deal with as an owner of rental property can curl your hair. Some tenants can question your very faith in humanity. They can make you wonder if you really should be raising your daughter in a community where people like this are walking around!
But I would recommend rentals to any real estate investor, because rentals cash flow. The trick is to buy them right so they do. I only expect 60% of my rents to make it home to me – 40% is going to go to property management, regular maintenance, vacancies, eviction court costs, and cleaning up after destructive tenants.
Destructive tenants are a fact of landlord life
I would say in my 8 years of experience that 90% of the people who pass your application and screening process will be fine. 10% of those that pass will end up being destructive tenants anyway. I’m not talking about people who move out and leave nail holes in the wall or forget to clean the oven – that’s almost 90% of all move-outs! I’m talking about tenants who literally TRASH the place. Garbage bags everywhere, or garbage they didn’t even bother to bag! Broken TVs. Mattresses – those are popular leave-behinds, as are couches. Some of them even leave illegal roommates behind that you have to evict as squatters. Squatters are hard to evict in Pennsylvania, they seem to have more rights than the property owner. But if the utilities somehow stop working and the code enforcement officer happens to stop by and shut the place down, they have to leave immediately. Just sayin’.
My husband hates rentals. After 8 years, he’s feeling the burnout that a lot of landlords feel. He’d sell them in a heartbeat. But I won’t let him – well I would for the right price, but that’s beside the point! I won’t let him sell them because I believe in rentals. Even with our full share of destructive tenants (see the crazy cat lady blog: http://thisgingerjustsnapped.weebly.com/blog/tenant-horror-stories-the-cat-hoarder )
I believe in rentals, because when everything else went wrong last year, the rentals were still producing income. And that is why we still have a business!
Rentals are recession proof – and depression proof!
Think about it – even in the big real estate crash of 2008 and the consequent recession, rentals continued to perform. Maybe the value of the buildings themselves went down with the real estate market, but the income from rents actually went up. No matter what, people need a place to live. There was an uptick in Section 8 tenants and people getting other forms of government housing assistance due to the soft economy, but the rents still came in! True, in a soft economy evictions will go up, but most people will make it a priority to keep a roof over their head. No one is going to get rich quick on rentals, but you will have income. And someday, if we build this business the way we plan to, we’ll have a large enough portfolio of rentals to supply a monthly income that would qualify us as rich, even after all the expenses are paid and the destructive tenants are accounted for.
The trick is getting there from here.
There are a lot of ways to do rentals wrong, and we’ve done most of them in the last eight years. But we’ve done enough things right that our business is still solvent today. That is the purpose of this blog – I want to tell you what it’s really like to be a DIY real estate investor and landlord. I’m not going to sugar coat it. I’ll tell you about the mistakes we made. We’ll likely make others and I’ll tell you about them, too. The trick is to learn from those mistakes. And of course to not screw up so bad you can’t recover!
Lesson # 1- If it’s the 5th of the month and you haven’t received the rent yet, file eviction.
It seems heartless, but let me tell you your landlord doesn’t want to evict you! I’m a human being, too. Plus I grew up poor so I know what it’s like when the wolf is at your door. But again and again, the Universe is trying to teach me this lesson because I haven’t learned it yet! Throughout my career as a landlord, I have given people chances. I have made payment arrangements. I have waived late fees. I have let people slide a month and catch up. And in the last 8 years, if I did this for 10 tenants, I got badly screwed by 8 of them!
The most recent case: a family with three kids at one of my Pittston half-doubles. The father lost his job. Medical issues. They didn’t have December’s rent. Would we be willing to let them slide until January? It’s Christmas, after all. They would have December’s rent by New Years and would make payment arrangements to catch up in January. They’d got behind before and caught up. Sure, what the Hell, it’s Christmas. Right? WRONG.
There was no rent payment in January. We gave them a few days into the new year, then filed eviction. We were friendly and cooperative with them, filling out the paperwork for them to get emergency help from The Commission for Economic Opportunity.
Then a pipe mysteriously broke loose from the wall, flooding the living room. We responded immediately. The damage was big enough to be an insurance claim, but not enough to make the place uninhabitable. Not that anyone was trying to brand us as slumlords or anything!
Then there were roaches. We immediately sent our exterminator over, who quickly reported back to us those bugs were brought in by the tenants. Again, there was a problem, our response was immediate and professional. No slumlord defense there.
Eviction day came and they didn’t even show up at court. We won the judgement.
The tenants then contacted our manager – they wanted to make payment arrangements. Ten days passed and it was time to take the next step and file for the Constable to come escort them out the door. During this time our manager could not reach them. But on the tenth day, they responded. They said they’d have their tax refund by February 3rd and would catch up. Great!
On February 3rd, our manager showed up to collect, and found an almost empty apartment. I say almost because it was still full of garbage, old mattresses, the kids’ bikes… and 40 tires in the back yard!
All this because I was feeling the Christmas spirit. No good deed goes unpunished!
I hope I’ve learned the lesson the Universe has been trying to teach me: 5th & File. No rent by close of business on the 5th, eviction is filed at the magistrate’s office on the 6th or the next business day, whichever comes first. Yes, it’s $150 and change to file the papers, but the tenant will have to pay those fees plus the back rent if they want to stay, or out they go. There can no longer be any exceptions to the 5th & File rule. I don’t care if it’s Christmas. I don’t care if our tenants are Mary and Joseph and they’re about to give birth! I don’t care if the kid has asthma, the baby is sick, grandma is dying, or the dog threw up on the bed. Sure it seems heartless. Will I really be able to do this? I have to. Or we’re going to go bankrupt.
Evictions are really not all that heartless
A lot of agencies that can help in a crisis require an official eviction to release funds, or admit them into charity housing programs. Sometimes it takes an eviction notice for a tenant to realize we’re serious, and put paying their rent higher on the priority list than the cell phone payment or the new kicks. That’s helping someone become a responsible adult member of society!
And they have ten days to get it right before we can file for an escort out the door by the Constable. Then they get another ten days. 20 days is plenty of time to get an emergency loan from a relative, sign up for welfare, or make plans to move out and at least leave the place clean. Most landlords won’t bother chasing a deadbeat tenant for money if they leave the place nice. However…
…if you trash my house, I will file a civil complaint and get a second money judgement. Then I will go down to the prothonotary’s office and file a lien – that means if they ever want to get a car loan, a student loan, a mortgage, anything ever they’re going to have to pay me first.
Plus we have a new associate doing our debt collections on a commission basis. This Pittston tenant will be our first test case.
I will let you all know how this goes!
**Update** I got a little pissed off while writing this blog and posted the following rant to the Facebook group Luzerne County Homes & Apartments:
Some tenants make me question whether I should be raising my daughter in a community where people like this are walking around! Anyway - I will have a 3 bedroom half-double ready to rent in Pittston as soon as I clean out all their mattresses, garbage and the 40 TIRES THEY LEFT IN THE YARD! Probably $600/month, tenant pays utilities, it's gas heat, newer furnace. Pets considered. PM me if interested but only if you're not a scumbag.
The tenant then contacted me about coming back to clean up the tires and other debris. I told him I’d delete the post if he actually showed up and did what he was supposed to do. He did clean up the tires, and some of the garbage and debris left in the house. But not all of it. So I’m leaving the post up, with an update that he did come back for the tires. If he comes back for the rest of it I will delete the post then.