By: Revanche

Real Estate Investing #19: bidding goodbye to Tenant 2

January 20, 2020

2020: If you’d like to join me in helping Lakota families this year, please read this post. We have $25 in contributions so far!

Frustration upon frustration.

At first, I thought that my PM was overreacting to the tenant’s first late payment in four years, but we set up a plan in case that was the start of a pattern.

Unfortunately, it was. The tenants were mother and son but the mother was the person paying rent and that first late rent occurred as soon as mother was moved out for health issues. The rent has been late every month ever since.

Not only that, the late payments continued accompanied by repeated (totally preventable) HOA violations that cost $100 a pop and a lot of time to fight back to save that money. Sometimes the time spent was wasted anyway because they wouldn’t remove the fines.

I only do a little better than break even on monthly costs so a tenant that doesn’t pay on time, racks up very avoidable fees that we have to take time to fight, and takes up precious extra time meant that I could no longer afford to charge below market rent.

If he’d actually talked to us honestly about issues with his income, if he’d cleaned up after himself and didn’t rack up extra fees every month ($100-400 a month!), we would have continued to work with him.

But the HOA fees ate up the difference between my income and expenses for the rental each month. That is considered profit, technically, but I don’t treat it as such since we don’t take that money out. I put every penny of profit in “escrow” so we can pay for necessary repairs and maintenance. We don’t make the tenants wait to fix anything – we fix everything immediately upon hearing about the problem. This is how our capital expenses are set up, graphic courtesy of Rich & Regular.

Philosophically, my goal is to be as decent a LL as possible: charge fair or even less than fair rent (and keep it low for good tenants), be on top of repairs, always return as much of the security deposit as possible.

Their money pays for the mortgage and the maintenance but they get flexibility to live wherever they choose and in exchange we deal with all the work and the responsibility of owning and maintaining a decent place to live while being tethered financially to the mortgage. It should be a symbiotic relationship.

But in order for me to protect their deposit, it’s important for us to head off unnecessary expenses at the pass. This tenant made us work way too hard to protect their money. They refused to do the most basic stuff to avoid fines. This was totally backwards.

After four instances of late rent, a new excuse every month with no actual explanation, and additional fee-incurring HOA violations every month, PM notified the tenant that we’d be raising the rent in December.

He gave notice for the end of December though it was a weird notice of “but I might need another month”. Er, ok but you still need to pay rent. We couldn’t be sure when he would actually vacate, what condition he’ll leave the place in, or if he thought he could skip out on last month’s rent (he did), but we did just get yet another HOA violation notice and a collections bill for his unpaid utilities. *facepalm*

The company that normally delivers the pay or vacate notice went MIA so the PM had to scramble to find another decent company to issue the expected vacate notice.

We just needed him to pay his last month of rent (which is 7 weeks late at the time of this writing) and to vacate as agreed.

Instead, he blew his 2-week-late promised payment, we had to issue a 7 day pay or quit notice, he still didn’t pay, and then we had to proceed with an eviction notice. He didn’t pay for December or January, and stuck around until the last possible second.

The security deposit won’t cover even half of our costs between the legal fees, the unpaid bill and those fees, the locksmith, and the lost rent. I’m digging into our saved profit buffer to cover the rest.

It’s really disappointing to have to end this tenant relationship this way. I assume he’s never going pay anything toward the missing rent and repairs so I can just hope he stays gone so we can move on with our next steps in peace.

Our next steps

We now need to get to work getting the place ready for the next tenant, may that not take too long, unless I throw up my hands and give up and sell it instead because I’m tired of long distance landlording. The PM also made some negative comments about the neighborhood and recommended selling; I have to consider their professional opinion here.

We have minimum two weeks of maintenance work to refresh at least the carpet and paint. He left the place in a bit of a shambles. Appliances were broken (they were just replaced last year, how did you DO that?), door frames were broken, the carpet looks like they deliberately ground dirt into every inch of it, huge piles of trash, furniture, and food were left all around the yard and the house.

In the past two years, we’ve replaced all the kitchen appliances, the water heater, repaired the fence, the air conditioner, the kitchen sink and the master bath, and a leak in the garage. We’ve also replaced or repaired the garage door opener four times, I don’t know what’s up with that thing. It really helps when the tenants actually pay the rent on time in full so we can budget long-term.

Once all of that is in order, we’ll have to get on the hunt for new tenants at market rate. We don’t have a huge buffer to work with so time is of the essence.

I’d really like 2020 to be the year we build up the reserves for the big maintenance, instead of dribbling away hundreds here and hundreds there but I might just want to be done with it all. This was a nearly 6 year experiment and it was ok but I can’t say that I wouldn’t have made better money in the past 6 years just plowing that cash into the bull market.

I need to do the math on whether listing it for sale now results in a net loss.

:: Please wish us luck with closing this chapter and opening the next one. Would you stay or would you sell?

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