Monday, March 27, 2017

Becoming the Unintentional Landlords

The "Unintentional Landlord" refers most simply to people who are unable to sell, or at least to sell for the price they want and therefore become landlords, often due to necessity.

Although we have intended to become landlords, we are also unintentional landlords in that we never planned on renting out the house that is now our rental property.

We bought our first house in 2014. It is a ranch style house, built in 1975, complete with 3 bedrooms, 2 larger bathrooms, and a 2 car garage. It was well maintained and solid, but needed some upgrades. I haven't done all the math but I would estimate we have probably put $13,000 into the house in repairs and upgrades.

We recently had to replace a 2012 AC unit due to vandalism related to renting out the house, which was $2,100, and that is in addition to other damages!

We made many upgrades while living at the house, and had started replacing the flooring when we found out we needed to relocate for my husband's job. We were initially going to sell, but were concerned with the time of year and cost of selling a house that we had just bought 2 years before... 5 year rule and all the investments. A neighbor mentioned a contractor couple she knew looking to rent, one who wanted to move in immediately and would finish the flooring who needed to move due to mold causing health problems for their children, and having a newborn I felt really bad for them and thought it could be a win win!

Tip #1: If you are going to be a landlord you need to be able to keep your emotions OUT of it!
- I felt sorry for this family, especially the children, which is why we agreed to rent out the property! I learned my lesson the hard way, and it cost plenty

Tip #2 Tenant Screening
At a minimum you should be doing credit checks and looking for eviction reports. My current tenants submitted for both!
Depending on the cause of poor credit to me depends on whether it is workable or not. I had a call from someone who had bad credit due to medical bills, that could happen to anyone and doesn't indicate an unwillingness to work/pay bills... just the high cost of healthcare in our country!
I also ask for past addresses/landlord information now and I did call!

Tip #3 If a tenant is willing to break their current lease early they will break yours too!
This isn't a absolute, but it shows a disregard so unless they have come to an agreement with the current landlord to end the lease early, say paying fees etc. I would keep looking.

Tip #4 Always plan on paying the mortgage
The bank doesn't care that your property isn't rented, the tenant isn't paying, etc. You signed the mortgage papers and you are responsible irrespective!

Tip #5 No Pay No Stay
If a tenant doesn't pay rent move to evict them within 2 weeks! The eviction process is long enough and courts can grant them extra time (after all what do the courts care, they aren't paying anymore than the deadbeat tenant!)... Sometimes it might even be worth it to pay the tenant to leave as they can monopolize your property without paying for months, and if they are broke then they are judgement proof!

Tip #6 Have a strong lease
What do I mean by this? You need to include provisions such as those stating tenant must notify you immediately of problems of they are liable if the problem causes additional damage due to their negligence in notifying you! They can't flush anything but toilet paper. They can't make any changes without WRITTEN permission, they can't get an animal without WRITTEN permission, what they are responsible for, what is expected. You really need to outline EVERYTHING.

Tip #7 All Contact should be done THROUGH email, except in the case of an emergency
I am about to give an addendum notifying my tenants of this. This is for my sanity more than anything else. I get a call from them and I'm already stressed before answering wondering what is wrong and how much it will cost THIS time... not to mention phone calls force you to respond right away. My apartment lease stipulates all repair requests will be made online unless it is an emergency, now my residential will too!

Email also provides a written record!

Tip #8 Find a good contractor
Our contractor has saved my sanity more than once. He dealt with the aftermath of the first tenants, the vandalism, and taking care of the new tenant's repair needs. He is my go to guy and my eyes and ears while he is there and his prices are reasonable. He is also a landlord so he looks out for me!

Tip #9 Security Deposit
Tenants can always do more damage than their security deposit, but at a minimum security deposit should equal one months rent!

Tip #10 Know your State's Landlord Laws
I researched these when I became a landlord. I wouldn't say I'm a pro as laws do change, and can be interpreted differently or ignored by local police/courts, but I at least did due diligence to try to prepare myself.
         -If there is ambiguity in a lease it favors the person who did not write it aka the tenant
         -If you wrongfully withhold a security deposit, which can mean you failed to tell them why                 within your states time-frame, than you can actually owe double or triple in some states!

I would absolutely encourage anyone considering renting out a property to really sit down and think about it, do some math and see if it is really worth it. How much are you losing selling now? How much will you lose by having to pay the mortgage for X amount of months, or if you have a heavy repair/maintenance bill?