Rev N You Reader Mail: Income Property & Tenants

Last week, Dave wrote an article about managing a rental property yourself vs. hiring a professional property manager. We received plenty of emails from our readers telling us stories and asking questions about property management. But, one reader’s letter really stood out to me, and I thought it was a good one to share.


Our reader from Washington had a good idea for rental property owners (it’s something we do with our Toronto properties) and an interesting story to share.

She has found herself in a tough situation with her property and current tenants, and while Dave did write her back with some comments, she has some difficult decisions that only she can make. I thought her story was interesting, and that it’s one that many landlords can relate to – let me know what you think!

Do you have a terrible property management experience to share? Or maybe you’ve been a tenant and you have a bad landlord story to share? I know it goes both ways!!

Here’s the email:

Hello!

I really enjoy your e-mails and gift “incentives” such as the calculator, and your articles relate so well to what I have experienced dealing with income property and tenants. It can be very trying.

As a suggestion, if you’re going to be your own property manager, it certainly doesn’t hurt to have one of your tenants act as “manager”. I don’t exactly tell them that, and of course, there is some trust involved, and you always take a chance with anyone you trust to help you. It also helps to line up a handy-man, or an electrician, plumber, carpet cleaner, painter, and appliance dealer, unless you can do some of this yourself. It’s easier for me to pay $150, or so, to a carpet cleaner and have it done right and fast, rather than me trying to do it. And, of course, there is the deposit you can deduct a portion of this from, if you’re lucky enough that the tenants moving out have payed their last month’s rent!

When I purchased my duplex, I took it on with the tenants already in place. The responsible couple were on a month-to-month at the end of their lease, and the other couple were just signed by the previous owner to a one-year lease. At this point, both couples are on a month-to-month after their leases expired.

I was supposed to move in to the duplex as my personal residence, but when I saw that I was stuck with a lease for the “rowdy” couple, and my only option was to ask the long-term “responsible” couple to move out, I changed my plans. They both have young kids, and they’ve both now been on a month-to-month basis for several years now.

One of my tenants is very responsible, and always pays rent on time, or sometimes even early. He keeps up the yard (as a matter of being responsible, they should do this anyway, but law says landlord needs to maintain all common areas), and he lets me know of any problems at my duplex; and if necessary, he is pretty good at fixing things – even “fixing” the rowdy neighbors. But with this, I let him know this is the reason I keep his rent down, and he appreciates it. A small price for me to pay to keep things on track.

That being said, my other tenants get drunk all the time and can get rowdy. They are also hard on things. I’ve had to replace some of the electrical because they were overloading the hot water heater, replaced the refrigerator, and I won’t be replacing the washer. Also, they now have snuck in a little dog and won’t get rid of it. I worry about having to replace the carpet, but they say it stays kenneled when they are at work.

This is a hard call to make about whether or not to start a warning and eviction process because of the dog (and rowdiness sometimes), because for the most part, they pay their rent on time. In addition, my other tenant pretty much helps keep them in line when problems arise; however, I worry about losing the “responsible” tenants, since their family is outgrowing the duplex. It’s a juggle.

I’ve considered raising the rent of the “rowdy” tenants to accommodate having the dog.

They’d either have to pay the increase, or leave (the gal gets some public assistance being a single mom). That’s the only way I can see to solve the problem for me other than evicting them which will lead to having to spend the time, effort, and money on cleaning the place, replacing stuff, advertising, interviewing, and new background checks, etc. Ugh!

I’ve been an actual property manager for an employer in the past, and I really don’t have the guts for it. (I’m quite like Julie:-) In the past, I’ve dealt with deliberately set fires, drugs, holes punched in walls, wax dripped on carpets, and nails and chalk everywhere, last month’s rent not paid, and appliances stolen. But, it certainly taught me lessons about dealing with people.

While my current situation is saving me some money for not having to pay a property manager, it is primarily because I am just got laid off from my regular job, and I also have an ARM loan that I need refinanced. It’s a mess, but I deal with it each time the first of the month rolls around.

I recently read a comment from a person who owns apartment buildings. He said, if you own income property, you have to treat it like a job and “manage” it on a constant basis, and he’s right!

Thank you for everything!

You’re doing a great job with no “fluff” and good, useful content.

Lynda

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8 Comments

Filed under investing, problem tenants, Property Management, real estate, self managing rental properties

8 responses to “Rev N You Reader Mail: Income Property & Tenants

  1. Pingback: Rev N You Reader Mail: Income Property & Tenants · Real-Estate.ExplainedOnline.Net

  2. I have looked over your blog a few times and I love it.

  3. looniefrugal

    I must say that I love your blog and am learning a lot 🙂 I dont own a home but I find that the light you shed on the topic very clear!

  4. Marie

    Dear Dave and Julie,
    I’m a recent fan of your site. I love your articles. My husband and I bought our first duplex in Provo, Utah a couple of years ago. We’re looking at burying another. We have quite a bit of equity in our personal residence but it makes my husband nervous to tie our house to other loans. He’s wondering about creating an LLC. I haven’t found any articles about that–do you have any opinion or suggestions.
    Thanks,
    Marie

  5. Hi @Marie! We’re happy to hear you like our site!! Thank you. I am NOT a legal expert, so I am not really able to give you advice. Canada and the US do differ a bit when it comes to corporations. But, I will tell you about our corporation.

    We just closed a corporation that we set up according to the advice we received at a real estate investing course. It was a three tiered corporation or some such fancy thing – specifically designed to protect our real estate investments. We just closed it because it sat empty for nearly 6 years!! There are a lot of reasons why, but the biggest one for us was that we had to personally guarantee any loans we got for the properties and when financed by a bank in many cases the bank didn’t want the corporation on title for the property. We also encountered the situation where the venodr wouldn’t allow a corporation to be on title (this was in buying new construction units from a developer that had restrictions on the number of investors that could buy their condo units). Once we purchased the properties, we didn’t want to pay all the fees to then transfer them into the corporation when we’re still guaranteeing them personally anyway.

    There are fees to set up the LLC, fees to keep it each year, plus additional tax filing requirements. You want to make sure there really is a significant benefit to doing it before you go to the hassle of having one. Ask a lawyer, if you can. Does it really limit your liability if you have one?

    We likely will be restructuring our holdings in the coming years and may then put them into a corporation, but until our accountants &/or lawyer says there’s a benefit then we don’t want the hassle.

    This is a simplified explanation but hopefully it gives you a sense of what happened to us. There are other reasons for using an LLC, such as tax benefits, that make it very worthwhile for some people. There are also family trust reasons… and so on. Everyone’s situation is different so please don’t take our situation as the answer to your question. Get the proper advice.

  6. Kathleen

    TIP:

    After many years of trial by fire, I now always make it a point to collect first month, LAST month AND security. This covers the last month when most tenants assume they can use their SECURITY to cover their payment. It also insures I get the last months rent AND have security to cover repairs if need be. It also weeds out the prospective tenant who has his FIRST months rent and hopes to make money to cover the next month AFTER he moves in to my unit! I am self taught and own and manage 15 rental units as a secod job – your web site it great – wish I had found it in the early days!

    Kathleen

    • Thanks @Kathleen! Sounds like you’ve probably learned a few hard lessons like we have! It’s a great tip. Unfortunately, it’s not possible in Ontario where we own several properties. I’m pretty sure the law states that you cannot collect any deposit from tenants that exceeds 1 full month of rent. In other words, you can collect EITHER last month’s rent OR a security deposit but not both.

      Another tip for everyone is to always check your landlord tenant laws in the areas you are investing in – what we can do for our properties in BC is very different from what we can do with our tenants and properties in Ontario.

      Thanks for stopping in and for sharing your good tip.

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