TheLandlordBlog.com

This week the carnival of real estate investing was hosted by Eric over at The Millionaires Blog.  There were quite a few bloggers involved this week and some good reading indeed.  Check it out.

If you have a blog, please consider getting involved in our carnival.  It’s open to anyone!  The more bloggers that get involved, the more we can bring all of those hidden real estate investing blogs into the limelight.  There are plenty of them out there, they are just cleverly hidden in the blogosphere.

It happens every year.  Every year I get cited by the city for something at this one particular property.  It’s located right downtown where there is a lot of foot traffic, so the city watches the grounds, the upkeep of the building, and particularly, the sidewalk in the winter.

They cited me last year for peeling paint on the window frames of the garage.  My property manager took photos of the window frames and we sent them to the city as we challenged the citation.  They dropped it.

Last year they also cited me for allowing ice to build up on the sidewalk.  Local ordinance says that you must keep public sidewalks free from any obstruction or hindrance at all times.  They had a date on the citation of when they saw the ice on the sidewalk, and my property manager insisted that there was no ice and that he had been keeping up with the shoveling and salting.  I checked the precipitation history with weather service and found that there wasn’t any snow or rain within the timeframe of the date of the citation.  I lost that battle and later my property manager was fired for a pattern of neglect.

This week I received another snow removal citation for the same property.  This time there it includes a photo with a date stamp on it.  Sure enough, there is packed snow all over the sidewalk.  Someone could easily slip and fall, a wheelchair would have a hard time making it through, and when it starts to melt it will turn to ice.  Big problem.

The thing is, each tenant in this building has agreed to keep the sidewalk shoveled.  There are 8 people living in the building.  Each one believes it is his/her job to shovel, so we have 8 layers of redundancy to get the job done.  We provide shovels and salt and they sit handily by the entrances.  The final layer of redundancy is the property manager.  He knows the tenants have been told it’s their responsibility, and that it is his responsibility to enforce the rules.  If they don’t shovel, he needs to remind them of what they agreed to.  Ultimately, if nobody shovels he needs to do it so we avoid a citation.  So my 9th level of redundancy failed also.

What do we do to prevent this kind of headache and the expense?  The expense is easy to eliminate.  We’ll bill out the tenants for the $114 citation.  Split between 8 people, it’s $14.25 each due with next month’s rent.  A copy of the citation and photo can be provided if necessary, along with a copy of the tenant house rules that were signed with the lease.

As a landlord, you will have these kinds of headaches.  We can attempt to prevent them by setting clear expectations with tenants and putting these expectations, along with consequences, in easy-to-understand writing.  The tenants definitively know that they need to shovel.  They know that if they don’t, and we get a citation, they will be billed for it.  It’s all spelled out as a line item house rule in their lease addendum.  The property manager is the final safety net.  Either he can enforce the rules or enforce the consequences, or he can prevent the consequences (and perpetuate the laziness) by doing it himself.

As the investor, what is the headache quotient I suffer in this situation?  Very minimal.  I have tight leases and a property manager in place to filter most of the headaches from ever reaching my awareness.  Some of it reaches me.  I receive all the mail that comes from the city.  I received the citation so I am aware of it.  I posted a message in the online workspace that I use to communicate with my manager letting him know of the citation.  I expect him to take care of it from here and I won’t need to think about it again.

Is this one of those “tenant headaches” that landords and would-be investors speak of?  Yes.  Is it bad enough to consider NOT investing in rental properties?  Definitely not.  This is simple stuff.  Part of the package.  Easily remedied when viewed as a simple task that takes mere minutes to execute.  I haven’t found a way to make money yet that involves zero headache.  It’s just part of life, and we can minimize our headache quotient quite a bit by how we set expectations, how we handle the situations when they arise, and how we view the magnitude of the problems when they occur.

As an investor, once you have many properties and many units your income is diversified.  If you have some vacancies, your payments are covered by the other units that are filled.  If you bought right, you have plenty of cash flow to cover vacancy loss, because this was figured in as part of the overall evaluation criteria.

We must be careful to not take this for granted, however.  It is amazingly easy for investors and property managers to become complacent.  Once we know we have cushion to deal with, somehow urgency slips.  We buy properties and don’t rent them right away.  We know someone is moving out and we don’t advertise in advance of them leaving.  We start the eviction process and don’t time the re-rent properly.  Pretty soon your cash flow is gone and you can be in trouble.  You have to start dipping into personal funds to cover payments.  You sit on pins and needles hoping the unexpected maintenance doesn’t happen.

What causes this complacency?  Lack of discipline?  Lack of systems?  Being unorganized?  Denial?  Not enough time?  Enough money coming in so we get fat and happy and don’t care anymore?

I’m not sure what the reason is, and I’m certain it’s different in every circumstance.  We can guard against this loss of cash flow by remembering that investing is a business.  We need to have systems, processes, people, backup plans, and schedules in place that protect our profitability.  We cannot leave our business up to chance.  We cannot count on “feeling like it” at any point in time.  We cannot allow our tendency to procrastinate to affect our bottom line. 

We need to take many of the human flaws out of the equation as possible, and supplement our role with back to the basics, good ol’ fashioned business operations.  Without it, we are hobbyists realizing hobby-level results.

Sorry to say I’ve been driven over the edge with all of the spam!  I’ve decided to suspend the ability for anyone to write comments on my blog for the time being.  I have been overwhelmed with spam comments and I haven’t been able to figure out an effective way to filter them, reduce them, or make them stop.  I’m guessing it is impossible.  If there was even a way to delete them without having to look at each one, that would be cool, but I don’t think there is.  You can’t imagine what I have to look at!  Apparently sex still sells like hotcakes, and there is big money in drugs too.  Whew!

This week’s carnival of real estate investing has been published at Real-Real Estate Investing.  There are some good articles this week, worthy of a look-see.  Check it out.

If you’re a blogger, please consider participating in the carnival.  It’s great fun and there are several benefits to submitting posts and hosting.  The REI community wants to find your blog and hear from you!

I’ve been writing over the last several months about my neighbors who moved out, rented their house out, evicted their tenants, and now have their house for sale.  They are new to real estate investing, and went into it without any education and a fear of failure. 

One could say that what you focus on expands, and they have had some degree of failure with their first investing experience.  Their tenants trashed their house, stole their refrigerator on their way out, and still owe them thousands of dollars.  They chose a bad property management company without calling references or doing any research.  The company didn’t do them any favors in selecting a screened tenant or in handling the situation once problems began. 

These very tenants moved into the rental house right next door to the house they were evicted from.  I watched them move and saw them take the refrigerator from one house to the next.  This week the tenants are being evicted from the house next door.  I would imagine they simply repeated what they did to my neighbors.  They probably paid their security deposit and first month’s rent in order to get in, and then didn’t pay anything further.  They’ll lose their deposit due to owed rent and so essentially lived in the house for three months for the price of two. 

If you don’t mind moving around every few months, this is a technique to get 30% off of rent for life!  And this is worst case scenario because many investors and property management companies don’t act quickly to get non-paying tenants out (my neighbors and their company waited a while).  Professional tenants could live free for some time before having to move on.

The owners of this second house apparently did not do tenant screening when renting to these pros.  If they would have called the landlord reference, they would have learned what was happening with the eviction and could have saved themselves some money and hassle.  This was an amateur move on their part, and once in a while you can get lucky and come out ok, but they were unfortunately up against professional tenants.  These tenants have perfected their system and can now move on to the next amateur investor, of which there are plenty.

Meanwhile my neighbors’ house sits empty with a for sale sign out front.  They were so disenchanted with their rental experience that they want no part of it anymore.  They want to sell and be done with it.  The only problem is that the market isn’t moving right now.  Not unless you’re having a fire sale.  Their house will sit there for sale for some time.  Money continues to flow out every month as they make their mortgage payment.

So it strikes me as interesting that we have the amateurs vs. the pros here.  You’d think the investors would be the pros.  They would have done their research, eventually they would have plenty of experience, and they would have learned how to prevent and solve issues.  They would be investing as a business activity, with the financial aspect being a key operating component.  The objective is, of course, to make a profit. 

The tenants you would think would be on the amateur side of the continuum.  They presumably would have a limited number of rental experiences under their belt and would not be predisposed to “working the system.”  In this case, as is possible with any combination of investor and tenant at any time, the roles are reversed.  Interesting.

This week’s edition of the Carnival of Real Estate Investing has been posted at Salt Lake Real Estate Blog.  Nigel got creative with an olympics theme this time and there are some great posts to read.  Check it out!

If you’re a blogger, won’t you consider getting involved in the carnival?  You can volunteer to host it one week, or you can just submit one of your blog posts each week and watch the traffic to your site increase.  Visit the carnival site to see how you can benefit from participation and have fun at the same time!