Advice for New Landlord?

[Deano]

Not exactly home repair, but here's what I'm up against.

Last year my wife and I had some inheritance money to spend so we bought two ca. 1890 houses in our community...but ended up taking out a home equity loan on our house to pay for repairs on the two houses. (about $73,000)

House #1 cost $50,000 with about $15,000 in repairs, some things still to be done. (Value of house today, I estimate at about $80-85k).

House #2 cost $32,000 with easily $25,000 in repairs. (Value of house today, I estimate at about $75-80k).

We decided to rent out the houses for a year or two cause the real estate market currently sucks, especially in this older suburb of Cincinnati, Ohio.

We rented to friends from church whom we knew were having a hard time. We have a lease with $700 rent, not including utilities. (I would say that rents in our community are about $700-$800 right now for houses). If the rent is paid in full, we have a profit margin of about $200 for each house, which doesn't include repairs/improvements or paydown on the principle of the mortgage (does pay mortgage interest).

Both tenants have been late with the rent almost every month and we've only received one half of one house this month. I sent a certified letter reminding them that the terms of the lease will be strictly enforced from now on and that unpaid balances needed to be paid immediately. We also gave one tenant $100 for Christmas and offered to reduce the rent on the other house from $750 to $700.

Still no payment. Tenant #1 has not said anything in response to the letter; tenant #2 left a snotty voice mail on my cell phone that there were repairs that I had not performed but that basically I "will be getting my money." The discount on the rent was not mentioned. I"m really peeved.

Both tenants, on a positive note, do take care of the houses. One even did some concrete work this year (but also called the health department about lead paint...which was really stupid).

Anyway, I needed to vent a little but will appreciate any advice that you guyz can give.

Thanks

Dean in Cincy [e-mail]

[hallerb]

Both myself and my dad were landlords at different times, in different citys.

Lets assume you make a stink now and they leave, whats the rospects at this time of year to rent them?

do a credit check before renting?

some olks who have a hard time atre that way r a reason, they dont care about paying bills.

for ow i would ake your lumps and hope the real estate mrket improves, sadly i think home values are headed down. too many people refinance repeatedly rolling too much debt into their homes, a ecnomic downturn can really hurt.

right now i know of 5 couples like that who owe more than their homes are worth, 2 are in foreclosure, one couple isnt even bothering to work thinking it hopeless.

look your running a BUSINESS, as such you must treat it like a business, with credit checks and all the rest!

Or run it t help people, and know it wouldnt make a profit, and be happy if it just covers its operating costs.

trying to do both will esult in doing neither well:(

[Grandpa]

Won't do you much good now, but NEVER, ever rent to "friends," especially church friends. What you're experiencing right now, is something that just about every landlord that rents to friends has gone through. By the time this is "over" either you or they won't be going to that church anymore, and you certainly won't be friends. Hope you get out cheap. Been there, done that.

[Colbyt]

Two replies already that addressed some key points. If they are taking care of the houses you are better off than a lot of us. Sell them as soon as you can would be my advice because you haven't experienced any of the bad stuff YET.

BTW, if you rent them again be sure to get them to sign the Federally mandated lead paint warning disclosure and give them the required booklet.

Colbyt

[jimmyDahGeek]

Check to see if there is a landlords association in your area and join it. If you are new to landlording you need to get advice from experienced landlords in your area. The association in our area charges $150 a year and they provide a monthly magazine, forms, classes, and lots of professional advice for your area. Last month I had to evict a tenant and the association provided me with samples of all of the forms to fill out and even reviewed them with me before I filed. The bottom line is you CAN'T be a nice guy or they will take advantage of you. In the future always do a credit check and get references before renting. The family I just kicked out, their future landlord didn't even call me for a reference(he'll be sorry)... Well I'm glad they are no longer my problem.

Good luck, Kick them out the sooner the better,

Oh btw. this isn't the best time of year to be finding new tenants. Most people looking to move in December, January, and February usually aren't the kind of people you want to rent to.

[Don]

best move I ever made as a landlord was to find a section 8 recipient. Rents are direct deposited into my account the first of every month. If the tenants get troublesome all I have to do is threaten to go to the agency and report them. This jerks a knot in them quickly. They do not want to lose that voucher so they straighten up quick. Just be sure to go to where they live before you rent to them to see how they are taking care of the place they are currently living. Life is good. :)

[Sacramento Dave]

I hear a lot of people complain about renters, But in reality there has to be more renters that won't screw a place up, will pay there rent on time or who would invest in rentals. Eventually your going to get a renter that will pay and take care of the place. Your also gaining the equity in the house at somebody else's expense.( the Market will come back) Plus as motioned never do anything with Friends or Family. From my experience contracting with Friends or Family do it for free or charge so much they leave you alone.

[HeyBub]

You are on the cusp. I have often wondered whether SOBs become landlords or whether being a landlord turns them into SOBs.

I rented a house to the Consul General of the Dominican Republic. He damn near burt it down (his family evidently left a vat of boiling pig fat on the stove in case they needed a snack - like a banana). They also put door hooks on all four bedroom doors. On the hallway side of the door(!?).

After his exit, I rented the house to the owner of one of the largest portrait studios in Houston. At the termination of his lease, we found (I'm not making this up), over 100 giant, empty, Tide detergent boxes secreted in every closet and cabinet. There were also over 300 empty pop bottles and uncountably many empty liquor bottles. He broke out a window pane to use as a doggie-door. And so on.

I sold the house.

Anyway, steel yourself to tenants not acting like responsible people, or at least the responsible people you know. You can protect yourself somewhat by an extensive vetting process before accepting the lease and requiring a substantial deposit. You should also not skimp on insurance.

(Afterword) The new owner of the cursed house wasted no time in connecting a garden hose to the gas log lighter, snaking the hose down the hall from the family room to the bedroom, turning on the gas, and going to sleep (evidently a suicide attempt). Some time later, he awoke and attempted to light one of those mary-hoo-wanna things - with predictable results.

[maradcliff]

You are not alone. I used to be a landlord and I got so fed up with it all that I sold the place. Tenants all seem nice until they move in, then they turn into assholes. I shouldn't say ALL of them, I did have a few decent ones, but very few. I had one that paid the rent the first month before moving in, and never paid on time for the 14 months they lived there. I dont mean a couiple days late, I mean weeks. I finally evicted them, so they trashed the place. Thats when I said the hell with renters.

[maradcliff]

I always did them, they still turned out to be assholes.

[Edwin Pawlowski]

You must know the real problem by now. People having a "hard time" don't pay their bills. It does not matter that they are friends, church members, etc. if they don't have the money, you won't be getting it. If they have the money, but have other things they deem more important, you won't be getting yours.

What you have to do is consider the next move. Are kids involved? Lease term? It is harder to evict when tenant have kids and if the lease term is not up yet. You want these people out as quickly and as gently as possible. Local laws vary, but it can be a very long and costly process to get rid of a tenant. You may want to talk to a local lawyer that specializes in real estate of this sort.

It may also pay you to enlist professional help in finding the next tenant. It is far cheaper to pay some sort of fee and commission to a rental agent that $200 to a lawyer.

[DK]

I've been a landlord for many years and I don't have all the answers but here is a couple.

1. Don't ever let tenants do any work on your property. They value the work at 0,00 while you value it at .00. This is a universal truth.
2. Be firm but fair on late rent payments in the lease and then follow through when the event occurs. You should start eviction proceedings quickly, following the exact letter of the law. There is a ton of help online for this. But understand that your initial lease must be in order for you to win the eviction proceedings. Things like bold face type and notices are extremely important.

1. Don't give up on all tenants just because you run into a couple of bad ones. I've had tenants for years that were never late on a payment - but I had to go through several to get them.

2. Reward your good tenants with improvements and pay close attention to their complaints. You should actually budget improvements to all your rental properties annually at least. These improvements may make your tenants happy and increase your tax base, too.

[dpb]

Deano wrote: ...

....[snip saga of slow/no payment from renters who happened to be friends/acquaintances from church as well]...

It's too late, of course, and gather your intention originally wasn't to rent but to flip (albeit in perhaps somewhat longer time frame than many), but rental houses rarely pay a decent investment return as the rental obtainable just isn't sufficient to make for an overall _net_ ROI that is approaching what one could get elsewhere.

You mention these renters were having a hard time -- if they are employed but in hock to their ears, that's one kind of problem, but if they're either un- or under-employed, that's something else. If the former, there's perhaps a way you could manage to help get them back on their feet through the auspices of the church. If the latter, then you really have a difficult situation to solve other than probably eventually move them out or susbsidize them as if they don't have the wherewithal to begin with, the situation isn't going to improve (unless they can somehow improve their earned income). On the former, our church has offered financial counseling and other related services through a faith-based organization that has actually (somewhat to my surprise) been reasonably successful at helping some struggling families contend with such problems (and no, not one of the advertised "non-profits", this is something quite different). You might want to investigate whether your congregation might consider doing something similar. If there are these two, there are bound to be others with similar problems who just may not know where to turn or won't look for advice but just might with a little persuasion.

That's an approach far different than the pure business end of it, of course. You have to judge how deeply you've dug a hole for yourself and how far you can go before you risk your own home and credit, of course. Unfortunately, as others have noted, with renters, sometimes the devil known is better than the next alternative.

Good luck...(but invest the next inheritance in a selection of good mutual funds or similar) :)

[Steve B]

We do two things with our money. We have our two rental properties as vacation rentals, and one week's rent pays two months mortgage. You may or not be able to do this depending on your houses' locations, and your market.

The other thing we do is get first deeds of trust through our financial planner. They run from 12 to 25%, and are short term, usually one year max.

If you had put your money in them, you would be farther ahead right now.

If you liquidate and find a good CFP that is trustworthy and reputable, you can do this, too.

Or, you can remain landlords and go through this drama EVERY month for the rest of your life, unless you drop dead from a heart attack first from all the stress.

Real estate rentals are usually a break even proposition. If you're lucky, that is.

Steve

[Bill]

You are basically "loaning" your property worth $80,000.00 to total strangers.

A bank loaning this amount of money would be darn sure they were going to get their "payments" before making such a loan.

You should do the same. Be sure they will pay! Do a credit check and a renters check. Find a local rental association (links below) and they should be able to tell you of local services which provide these services and how to make potential renters pay for these background checks.

Poor credit is a clue that they may not pay their bills. However if someone has just been divorced or whatever and the credit was good prior to the divorce, then use your judgment as to the renter's current situation, finances, employment, etc.

Tenants can easily cause $5,000.00 damage or more to your property! One dog can ruin doors, carpeting, and chew everything in sight. Drug houses can have you facing a "toxic waste" cleanup or having to tear down the house!

So do a drivers license check. Driving under influence history not good for example. Do a criminal background check. Past drug charges not good for example. Nobody is an angel, some people make "mistakes" when younger, so use your judgment.

Depending on how bad the area is, may want to run criminal checks on

*everyone* living in the house and require all persons residing there to be on the rental agreement/lease.

In general if they have good records which show they are a responsible driver, good credit, etc. Then they will most likely be a responsible renter and pay their rent on time - not damage your property.

You can get legal forms for everything as well as good advice from a local rental association.

Apartment, Landlord and Rental Owner Associations...

[Steve B]

And then you hang there, naked, slowly twisting in the wind, exposing yourself to lawsuits claiming profiling, discrimination, and who knows what other frivolous pretext. If any of the applicants are gay, then can claim that discrimination, although you may not have a clue as to their proclivities. If they have religious beliefs not common to this country, they can claim discrimination on those grounds. Any way you go, you can be sued, and there goes 100 years of profit.

Yes. You can do background checks, and charge the applicant to do them. But they do have their limits, and by all means are not an airtight vessel.

Background checks are around $50 per person for a good one. Are you going to require that *everyone* have one of these, which will run into the equivalent of nearly a month's rent to some folks? Are you going to insist that the children, ages, 2,4, and 7 have background checks, too, just to be safe?

Yes, you may get better tenants, but people who will spend that kind of money are usually shopping to buy, not to rent. And all they do is have the best person apply to pass a background check, then they all move in afterwards.

I see the word "judgement" being used a lot. Most good judgement comes from experience. And most experience comes from bad "judgement."

Liquidate and put it in interest earning investments and don't miss one night's sleep.

The OP may get lucky, and have great tenants, and everything goes well. On the other hand, their first few months aren't going particularly well, are they?

Let's wait a couple of months for the saga of the thread on how long it takes to evict someone from a rental. And what it costs. And how much damage the tenants can wreak in the interim.

I don't want to be a negative wet noodle, here. But we've all been through this drama before.

Steve

[Stormin Mormon]

The best advice I've heard, is to check references. You need to go back three or four. If folks are a problem, the current landlord will say ANYTHING to get rid of them

Second, it's aparently not good to rent to friends.

Third, the way the laws are written where I am (Peoples Republic of NY State) I would never own rental property.

[Norminn]

Why? Do that only if you are wealthy enough to support them. Renting property is business, and I don't do business with family/friends.

A credit check and background check would be a good idea, more so if the property is higher value or you get a lot of transient renters.

Re: the "nasty voice mail": call the caller and get specifics of repairs they referred to.

I haven't been a landlord, but have been a tenant to some real jerks.

If you are acquainted with the renters, you might consider a friendly chat about the finances. Depends ... are they in bad health, laid off, or ? Folks who owe rent aren't likely to welcome the landlord with open arms. If they just went for something they cannot afford, try to reach a reasonable agreement about finding other housing and perhaps forgiving the lease. Are they newlyweds, old, got kids?

[Oren]

I've had two rentals; both rented to the original tenants for about

18-24 months and then promptly sold.

Tenant 1, Legal Secretary, employment verified. She smiled up a storm. She loved the house, school, yada, yawn. Gets in the house: as if it's automatic, starts late on rent payments. We gave her grace period to pay the deposit. She was so happy. Our Lease included and was acknowledged by the tenants initials, of a daily fee - $25.00 - everyday late. $X amount for a bounced check....

She cleaned the act for awhile, because she had another motive. Get the Law Enforcement boyfriend on the Lease. Documents were amended to allow him to live in the house, copies, etc. The same basic Lease spelled out no changes to the house (just call me and it gets fixed). Rent starts to be late, same pattern as with *smiley*. We call his Internal Affairs Department, they dummy-up calling it landlord/tenant dispute. I called it financial responsibility of law enforcement officer. I asked why he replaced a master bed room door. "I fell through it", right. The eviction date went very well for us.

Tenant 2, Section 8, Single Mother, three girls. Always paid by the County Housing Authority. This was a very nice neighborhood. Other than reasonable wear and tear, no serious problems.

By 24 months passing, both homes were sold.

-- Oren

"Well, it doesn't happen all the time, but when it happens, it happens constantly."

[Goedjn]

Not realy. In some places that complaint makes it damn near impossible for you to evict them.