I received a surprising (or not?) update from my neighbors this week who own the rental house across the street.  They moved into a new house in July I believe and kept their old house as a rental.  I posted the drama that happened as they hired a bad management company and got their house rented.

The news is that their renters are being evicted on Monday.  They’ve asked me to keep an eye out as they U-haul their stuff away and call them if I see them taking out the appliances.

If my memory serves, the tenants have been in the house for three months.  They are one full month behind on rent.  So they’ve paid two months and are being evicted.  Couldn’t help but notice a new SUV arrived in their driveway last week but that’s neither here nor there.

This situation is really disappointing but not at all surprising.  My neighbors built a new house and needed to either sell their old one or get it rented.  They put it on the market and it sat for a few months with no offers and a few dramatic price reductions.  Just before the new house was done, they decided to re-fi and pull out some cash to pay down some consumer debt and rent the house out.

They gave the rental listing to one of the largest property management firms in Phoenix after seeing a sign in another yard on our street.  They instantly knew the management company was terrible but didn’t want to deal with negotiating their money back or taking a loss and changing companies.  They had no input into the tenant screening, aren’t aware if any was done, and didn’t realize the tenants moved in with two dogs.  They’ve already been cited by the HOA because of the overgrown landscaping.

Actually now that I think of it, I remember them saying the management company automatically does lease options with all the tenants who are willing to and the company takes half of the option money.  Lease options around here typically mean little to no screening because cash up front is king.

So the tenants are being evicted and my neighbors are putting the house back on the market.  The market is still soft and it won’t sell anytime soon unless they have a major fire sale.  They feel they made a mistake, they got a bad taste about tenants, management companies, and real estate investing overall.  They’re likely going to have a worse taste when they see how long the house sits empty.

This situation is precisely why there are deals for those of us who are conscientious.  This house may turn into a great deal for an investor if the price drops low enough due to extreme motivation.  This also reflects why in some cases I am renting my homes for $300 more/month than my neighbors with identical floor plans.  I have good management and do my homework.  I monitor the process closely, I approve of each tenant after knowing what the screening turned up, and our tenants tell our manager that she was the only one who was responsive when they were shopping. 

Even though we like to call this passive income, we must educate ourselves and put in some effort to turn a profit in this business.  Management companies and tenants will take our profits away if we’re not paying attention.