Being a landlord can really suck sometimes. As a San Francisco landlord since 2005, I’ve had my share of ups and downs. The older I get, the more I want to simplify my life by investing in real estate crowdfunding so I don’t have to deal with tenants and maintenance issues.
I e-mailed my master tenant a couple times whether I could come by and pick up my speeding ticket bill with no response over one week. Concerned, I e-mailed the other tenant asking him to look out for my speeding ticket in the mail.
The other tenant got back to me after a couple days saying, “no problem” and the master tenant finally e-mailed back from a gmail address apologizing for not telling me that his college e-mail account got shut down.
“No worries,” I told him.
Another two weeks past and nobody got back to me about my ticket so I e-mailed them again to inquire.
“It looks like it just got here,” said one of the tenants.
How coincidental that the ticket just gets there once I inquired, I thought to myself. “Can I stop by tonight and pick it up?” I asked.
“Sorry, I’m not around, and neither is John (the master tenant)” he responded.
I told them that’s fine and gave them three excuse-proof choices to enable me to pick up the ticket:
1) Leave my mail by the landing area inside my door and I’ll just pick it up on my own time.
2) Let me come the next morning before work.
3) Let me come the next evening after work.
They responded, “Our schedules are unpredictable. We’ll leave the mail outside the door on the steps before the gate for you to pick up.“
In other words, they are suggesting that I don’t come into the house. The master tenant also included in our e-mail correspondence that a shower head broke off. So I would think he would be OK for me to come in and have a look.
But instead, he blocks me and says he’d like to send me a picture. There are two other tenants on the lease as well, so I can’t imagine why one person can’t just meet and give me my mail.
Alarm bells are now going off because I suspect either 1) They’ve damaged my house and don’t want me to know, or 2) They have another roommate not on the lease staying there.
If there is damage to my house, it needs to be fixed ASAP. If another person is living in my house who is not on the lease, this results in extra wear and tear, and more importantly higher liability risk on everyone.
The biggest reason why I have an umbrella policy is because it insurers me beyond my housing and car insurance liability that would put my assets at risk.
If you have a significant amount of assets you’d like to protect and have income and assets exposed to other people, get an umbrella policy today. It’s not that expensive.
Dealing With Bad Tenants Effectively
I’m hoping for the best, but am expecting the worst. It seems like my tenants are hiding something due to their delayed e-mail responses and inability to meet up or let me in the house. I can go into the house if I want, but I’m giving them the courtesy announcement first.
I want to give my tenants the benefit of the doubt because they are relatively young guys who are probably working 80 hours a week. I have a $15,000 deposit from them I will most certainly use to cover any damages.
I will also make them pay for the extra tenant and have the tenant get renter’s insurance, or have that extra tenant leave if s/he does not agree. If worse comes to worse, I will start the eviction process for violating the terms of our lease.
The tenants have a lot of downside because they are just starting off in their careers. San Francisco is a small city, and I know plenty of people who head up departments and companies they’d like to work for after their initial analyst programs are up in banking and technology.
They know this, which is why I’m hopeful they are just too slammed at work. At least I have received three rents checks from them on time already, so money is not yet the issue.
I have heard many tenant horror stories before. Luckily I’ve never encountered a bad tenant after 10 years of renting to seven sets of renters across two properties.
But now that there is a chance that something bad might be brewing with my new tenants, I encourage all landlords to explicitly state in their lease that they have the right to enter their home with a 24 hour notice with notification. Each state has different laws regarding a landlord entering their unit and notification requirement. It’s a 24 hours notice in California.
Furthermore, I would try and establish some reasons for why you need to come over and visit at least once a year, so that you can check up on your property.
Some reasons for me checking-in include:
* Picking up the old mail that will inevitably keep coming in no matter how many times you request a address change.
* Gardening if you have a garden, and your tenants don’t want to maintain it.
* Replacing fixtures or appliances that have already been highlighted in the lease as “watch items” that needs maintenance.
If you find something wrong, simply make it clear to your tenants to fix or watch out about the cost of the damages. The more heads up you can give your tenants about living within the agreement of the lease, the more hassle there will be down the road.
If you are a tenant, a landlord checking-in might seem intrusive. But if you have nothing to hide, I don’t think this is intrusive at all. Why wouldn’t you want a landlord regularly maintaining the place for you? I know I would. I’d simply clean up a little before s/he gets there.
Bad Tenants Need To Follow The Lease Agreement
Disputes happen when rules are not followed, or when one party takes advantage of a grey area. For example, a lease might state a tenant can have house guests over for a “reasonable period of time.”
However, what does “reasonable” really mean? I told my tenants having guests a couple nights a week is fine, but they can clearly take advantage of my guidance and have someone stay over all the time if I never visit. Four tenants, four live-in girlfriends suddenly means eight tenants.
Another common conflict is when tenants have pets over the size limit, or who have pets when the lease clearly states pets are not allowed. No matter how much you love your pets, pets do cause extra wear and tear to the walls and floors. You should be amenable to paying for a non-refundable deposit.
An extra tenant is one of my biggest fears due to not only the extra wear and tear, but the added liability. It’s not just one person I have to be concerned with now, but this new person’s friends as well.
There’s a big uproar from tenants and landlords about master tenants who pay below market rent, who then sublease rooms out at market rent so the master tenant can live cheaply, for free, or make money. That’s unfair and a clear violation of the lease agreement.
The other big conflict is tenants AirBnBing their room or extra rooms without the landlord’s consent. Again, the main issue is liability. Who is to blame if a tenant AirBnB’s their room to a psycho killer who hurts a neighbor? It’s highly likely the victim will go after both tenant and landlord.
As a landlord, we have a duty to maintain our properties to the standard of the lease. I am always prompt in having someone fix anything that’s broken because it’s my property. Broken or rundown features means less rent, more problems, and a lower selling price.
I understand every tenant wants to get a good deal or save some money. But unless you are independently wealthy already or want a horrible referral to your next landlord or employer, be honest and follow the straight path. It’s not worth getting into legal conflict because generally nobody wins, except for the lawyers involved.
Quick Tips For Landlords Who Have Troublesome Tenants:
* Remind them about the rules of the lease if there is any suspicion of violation.
* Highlight the cost to fix such items as soon as you see things start to deteriorate so the tenants can stop.
* Try and check-in at least once every six months to see if your property is still standing.
* Reach out during winter time to remind them about potential problems with the house to to water and cold weather. In other words, tell them what to look out for (e.g. pooling light well that may flood) so they can help maintain the house properly.
* You will be a surprised how powerful a simple, friendly, e-mail can be to keep tenants from abusing your property.
* If your bad tenants move out, check out my suggestions on how to find the best tenants for maximum peace of mind to move in next.
Readers, have you ever had any troublesome tenants who disregarded the rules and trashed your house? What are some of the things they did? How did you go about fixing the problems in a professional manner?
Afterword: When I finally picked up the mail, I discovered the house now looks like a frat house with a pool table and dart board in the dining room, some old black leather sofas throughout, and filth everywhere. Having a dog who sheds doesn’t help either. I don’t think I’m going to allow pets in the future. Or at least I will raise the non-refundable deposit to $500 per year, not just for the lifetime of duration.
I shot them a reminder about no smoking in the house, and the cost of refinishing floors given I just did mine at my new house. They’ve always been on time on rent at least. It seems like they’re working hard and just don’t have time to coordinate a meet-up or clean the house. At least I know that everything can be fixed and cleaned. It just takes time and money.
Invest In Real Estate More Strategically
Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile.
The combination of rising rents and rising real estate prices builds tremendous wealth over the long term. Meanwhile, there are more ways to invest in areas of the country where valuations are lower and net rental yields are higher thanks to crowdfunding.
Take a look at my two favorite real estate crowdfunding platforms that are free to sign up and explore:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. The real estate platform has over 300,000 investors and manages over $3 billion.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
I’ve personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.