Lessons From Being A Landlord

Posted by: Chris Palmeri on October 26, 2009

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Regular readers of this blog may remember that I bought a bank-owned home as an investment property last March. Here’s an update.

I lost my first tenant in September. He stopped paying rent when his income dried up. I knew I was taking a chance on him when he couldn’t quite scrape together the full down payment the day before he was to move in. Buying a house and leasing to him was a double bet on the housing recovery since he sold cabinets for a living and, as he told me, new cabinets were just about the last thing people ordered in a recession.

I leased to him anyway because he’d worked at the same job since 1992 and since he was breaking up with his girlfriend and didn’t have to give another landlord notice he could move in immediately. I didn’t have to wait a month for my first rent check. In retrospect I should have screened him out.

A friend of mine who rents out a duplex he owns says that after the first time you get burned by a tenant you’re always a stickler for the rules. I did lose a month’s rent in the end, but that’s a month I would have lost in the beginning anyway. He left the house quickly and spotless—to move in with his sister in Alaska. He showed the place to a couple of prospective tenants when I couldn’t make it there. He even left behind a lawnmower and a bottle of champagne, which I gave to the new tenants. I believe that it pays to be nice to people. A cynic would say I was lucky that I didn’t have to evict him.

I leased the house quickly on Oct. 1 to a young couple just moving to California from Kentucky. Again I took a little risk since I didn’t have the down payment check in hand until the day they moved in. They could have changed their mind and I would have been out another month’s rent. But they said they really wanted the house and I verified her credit and their employment. She works for Home Depot, he at a hot rod shop.

One mistake I won’t make again: I’ll never leave the utilities in my name and ask the tenants to switch them to their name. I got stuck paying a few water bills. This time I turned all the utilities off before the new tenants moved in and told them they had to sign up for themselves.

As some readers suggested when I first started writing about this investment there were some unplanned expenses, $1,800 for a new garage roof, $800 for a new garage door. Those were repairs I could have postponed but hey I have no intention of being a slumlord. One of the benefits of this whole experience is that I took a house that was run down and needed work and made it much cuter. That feels good.

I put another offer on a house recently. It’s kind of addicting.

Reader Comments

Kris

October 26, 2009 12:15 PM

Not sure if I missed a page, but where is the part where you talk about the lessons you learned?

Janet Huey

October 26, 2009 12:44 PM

Thanks for the update. I really enjoy the honesty in your posts about your
investing.

Janet Huey

rsa

October 26, 2009 2:19 PM

My original home, later converted to a rental property purely out of necessity (out-of-state job change amidst worsening housing market) and not due to greed or speculation, stayed vacant for 8 months before I found a reasonable tenant who is still performing well on his rent commitments. Everyone I met before him either had serious credit problems or simply walked away at the last minute despite exhaustive correspondence and detailed explanation of quite normal lease terms. It's just getting increasingly difficult to find trustworthy and creditworthy tenants who can fulfill their lease obligations.

Mario

October 26, 2009 2:57 PM

Good luck Chris, I wish you the best.

A Rothman

October 26, 2009 8:35 PM

Oh the lessons I have learned about being a landlord. This is not a job for the timid. You really need to hold your ground and not look like a sucker. Always allocate three times the amount of time you think it will take to manage your property. If you think you can just collect rent checks, you are wrong. Routinely inspect your property for damage that magically just appears. Then there is the matter of repairs. Things break, costing time and money. Some People just don't like following rules. You say no pets, they get 10 pets. You put on water saving devices, they take them off. (Just how do you take a shower without a showerhead!) Do you have government sponsored low income renters? Get used to an additional yearly inspection in addition to the yearly rental property inspection (yes, the City of LA stinks). Rental property does not necessarily appreciate at the same rate as nearby single family homes. The gain you are looking for may never materialize. I could go on, but I am getting depressed.

Nanoman

October 26, 2009 9:34 PM

Profound.

Ballbuster

October 27, 2009 3:23 AM

Despite the ominous signs as revealed by this rental experience, Palmeri still clings to the notion that buying a house in Pomona as a rental unit is a good investment. Demonstrating his ignorance of Southern California real estate, Palmeri's first mistake was buying a 30 years old trashy house located in Pomona, the arm pit of Southern California. The caliber of his past and present tenants reflects this demographic. As a BW Hot Property proponent, Palmeri is a die-hard real estate evangelist for the NAR and other real estate denominations who preach the gullible and naive to invest in real estate as their ticket to financial heaven. Like the other real estate suckers who had gone before him, after repeated tenant turn-overs and burnt-overs, Palmeri will, one day, learn the meaning of hell on earth. However, for the moment, Palmeri expediently puts on a happy face. Fainting enthusiasm for another rental unit, Palmeri is only deceiving himself. Behind that fake enthusiasm is the usual headache that comes from running a rental business which Palmeri tries to conceal. Palmeri is disingenuous when he does not disclose some key complications suffered by his house-for-rent. Notice that Palmeri only revealed he had to re-roof the garage while saying nothing about the remaining portion of the roof. Since the entire composition shingle roof was constructed at the same time and sustained identical weathering over the years, Palmeri has intentionally left out the facts about the crumbling condition of the remaining asphalt-shingle composition roof and the unavoidable $16,000 re-roofing cost. He also did not mention the self-destructing, rusty galvanized pipes commonly installed in his type of house. His initial $2300 expenses is just the tip of the iceberg as property taxes, fire insurance, AC/furnace maintenance, wear-and-tear, as well as gardening cost come due. Palmeri's true enthusiasm will reveal its full measure when his tenant has a charcoal BBQ party in the living room in which Palmeri had painstakingly installed new carpet and paint.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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