Our tenants skipped town last week. They left two truckloads of trash, the stench of cigarette smoke, and disgusting bathrooms and floors. The state of the apartment was not a surprise. During some routine maintenance to the AC unit, Rob noticed the cigarette smoke, and the general disarray of the unit.
At that point, we informed them that we would start eviction proceedings if they continued to smoke in the unit. They stopped smoking indoors, but the stench lingered on.
Our former renters paid the rent late in July, later still in August, and now they are gone. For being the type of people who skip town without cleaning, they've actually been great renters. For 18 months they paid the rent on time and in full. Aside from the smoke and routine wear and tear, they didn't damage the unit. Plus, they had the courtesy to inform me that I could dispose of their crap.
These are a few lessons that I've learned from my rookie landlord experience.
Check with former landlords
We verified income, credit, and criminal backgrounds, but we did not think to contact former landlords. My guess is that our renters have done this in the past. Now I know.
First, last and security deposit
In my limited rental experience, I was only required to put up a security deposit and one month's rent prior to signing the lease. It turns out that if you work with lower income tenents, first, last and a security deposit are traditional.
We will use about 80% of the security deposit to clean up the smoke, the carpets, and a few odds and ends. This means that we're out a month's rent.
We obviously won't pursue the tenent for nonpayment (other than a letter), but we could have been virtually whole.
Trust your gut
Rob always felt a bit suspicious of our current renters. They seemed to dislike that he asked questions, even though his purpose in asking questions was to provide preventative maintenance as needed. Last October, he suggested that we should not renew their lease. I emotionally agreed, but on paper they still seemed fine.
I should have listened to the heart logic on that, even if it wasn't perfectly accurate. Our goal is to attract a lot of qualified tenents, so we can "listen to our gut" on this one.
Charge lower rent
Would you take a loss of $100 per month to save you about $1800 in lost rent + $500ish in repairs? A lower rent may give us the ability to attract a higher quality tenent. The prevailing rental rate in the neighborhood right now seems to be $950-$1050. We're thinking of pricing our unit at $875-$900 to attract the right tenents.
In a lower quality neighborhood, with a unit that is only modestly more upgraded than average, we have little extra to offer a tenent, so we need to consider cutting our price.
I'm stilll researching this, since the unit isn't exactly in the dregs of society. It's a lower middle class neighborhood, and we may find those high quality tenents without dropping the price too much. Once I complete my research, I will report back to you.
Your worst case numbers are realistic
Our house easily passes the 1% Rule, but we ran the numbers for maintenance, upgrades, vacancy etc. It's easy to see us coming close to our worst case scenario this year.
It's still a profitable venture, because this is a paid off house, but it's not such a slam dunk.
Worst case numbers happen in the stock market, and they happen in real estate. I guessed that we would have a lot of middle of the road years, but so far we've had one amazing year, and one pretty bumpy year.
We shall see what the next year holds for us.
I'm a wife, a mom, an employee, and a personal finance nerd who is devoted to spreadsheeting my way through life.