Rental Case Study- What I Did Wrong as a Landlord

In This Article

Several months ago, I wrote a piece called ““How I Accidentally Bought Two of Kurt Cobain’s Former Homes and Why That’s Not Even The Best Part”” that talked about my favorite investment I own – a small duplex that was once inhabited by Nirvana frontman Kurt Cobain (as a baby.) While I love this property dearly – the past several weeks I’ve been dealing with a mess and I thought I would share the story here – to perhaps help others from experiencing the same problems.

The story begins twelve months ago. The tenant in the front house (they are separate homes, on one lot) moved out at the end of December and left the place in fairly-typical disarray. I spent the month repainting and installed new carpet, along with new flooring in the kitchen and some other minor updates. The home looked presentable and I placed an ad in the local newspaper, along with a sign in the yard, a Craigslist ad, and several other marketing techniques.

So far, so good.

The First Mistake

The problem, ironically, began with a cruise.

Yep – a cruise ship. I was setting sail for a weeklong cruise in the Bahamas during the first week of February and the right-side of my brain told me that I should try my hardest to get the unit rented before I leave. After all, if I didn’t get someone in by February 1st – I would probably not find someone for the entire month, which would cost me $625.

Remember that number- $625. I’ll come back to it later.

I showed the property to a young gal with four kids. She was very nice, and offered to pay six months of rent in advance from her tax return. Great!

I screened the tenant the same way I always do –

• Income,
• Background,
• Previous landlord &
• Job verification.

The income was borderline and the job was brand new, but the six-months advanced rent helped me to feel comfortable. She didn’t have any previous landlord references (apparently she had lived with family?) and her boyfriend was currently in jail for the next five to ten years, so I didn’t need to worry about that. Also – I have a rule (you can read all my ‘rules’ in my post How to Rent Your House) that states there can be a maximum of two people per bedroom. This, being a two bedroom home (and roughly 800 square feet,) should have maxed at four people total, but because they were kids – I let it slide. Mistake #1.

If you are an experienced landlord – you can probably see a few warning signs in there. I took some precaution and required a double security deposit from the woman – and approved her quickly. The next day I left on my cruise.

So far, so good.

Or so I thought.

Signs of Trouble

The first indication that something was wrong came a few months later – when the tenant (a sweet old lady) in the other house (remember, this is a duplex) called to complain about all the kids. They were “destroying the property.” Now, I know this lady was older and probably exaggerating. I’m sure she just didn’t like kids – and kids will be kids. After all – it was only four kids. So I added it to my lengthly list of “things to do someday” and sent the tenant at fault a nice letter asking her to control her kids . Mistake #2.

Several months later I received another call, this time from another neighbor who looked me up to complain about “all the kids causing a ruckus.” I guess they were climbing all over the neighbor’s RV and throwing rocks. This is the typical kind of complaints that landlords receive all the time, so I also put it on my list of things to get to and sent another letter.

When the third complaint came in from another neighbor – I knew I better do something about it. I called the tenant to let her know the concerns – and she said she would try to keep her kids in check – but her sister was watching them during the day while she was at work so she couldn’t guarantee it.

The Inspection

After several more calls from the sweet old lady in the other house, I decided to finally pull out my old to-do list and take care of this problem. I scheduled my manager to head over and to do an inspection of the property and, once again, talk with the tenant – but this time in person.

He reported back that yes, the house was experiencing some wear and tear, but nothing out-of-the ordinary for having six kids living at the house.

Six kids?

Apparently the tenant had moved in a relative who had a couple kids – and a dog.

At this point, corrective action should have been taken. I should have asked her to either move the new guests out or move out herself. However, the autumn was approaching and finding tenants was becoming a more difficult task. So I let it slide. Mistake #3.

After all – how much damage could six kids and a dog do? After all – I wouldn’t want the house vacant for another month. That would cost me $625.

The Aftermath

The tenant gave me notice and left at the end of December. She never missed a payment and was generally a nice tenant to deal with. Upon leaving, she left the key in the mailbox and a message on my voicemail that she had “cleaned really well.”

However – walking into the home I was shocked.

Nearly every square inch of the walls, the floor, and the trim was covered in a unique combination of grease and color crayon. The carpet had stains, the vinyl had holes, furniture was left, garbage piled all around, the siding was tore off the back of the house, and there was a strange smell that saturated the place that Colorado and Washington landlords will be getting more and more accustomed to – marijuana.

How could six kids make such a mess!?

More than Six Kids

The answer, of course, is that there were more than six kids.

Far more.

Apparently – according to the neighbors, the tenant had moved in more people, as well as running a daycare for all her family and friends. At any given point, there were 15-20 kids in that small, two bedroom, 800 square foot house with minimal to no adult supervision.

It’s a wonder the house is still standing.

My contractor is working on the home right now. It’s been vacant since January first, and I’ll be lucky to have the property rented by February 1st, costing me $625 in missed rent…

…and a $5000 bill to the contractor.

What I Did Wrong

I view every problem as a chance to improve. Let’s look at what I did wrong here – and the lessons I learned.

1. Don’t be in a Hurry

   I didn’t want to sacrifice losing $625 in rent – only to be hit with almost 10x that in charges from the tenant. Lesson: it’s best to wait for the best tenant, rather than trying to save a buck at the beginning.

2. Don’t Compromise on your Standards

   I have rules for a reason – because better landlords have come before me and determined that they work. Lesson: pay attention to my own rules. Even a double security deposit and six months of advanced rent wasn’t enough to justify breaking my rules.

3. Check Up Often

   Most of the problems I experienced could have been dealt with at a much earlier stage – had I listened to the neighbors and gone and checked things out myself, rather than putting it all on a to-do list and sending an easy-to-ignore letter. A contractor can inspect – but it’s not their home. They don’t care about the things I care about – and they didn’t know the condition before.

4. Sometimes You Just Never Know

   Honestly – sometimes a tenant will pass all (or most) of the qualifications – and still turn out a costly venture. As a landlord – it’s our job to screen the best we can in hopes that we can find the best tenants. Usually it works – sometimes it doesn’t.

The property should be up and running in a few days – and it still is my favorite property because of the great cashflow I get. But cashflow means nothing when it all gets thrown out the window to pay a contractor to fix it up every year. That’s not cashflow. That’s just a headache.

The main lesson I’ve learned, and I want you to take away from this story, is:

Even a great cashflow positive, rockstar property can turn sour if not managed correctly.

What do you think? Would you have rented to her? What would you have done differently? Leave me a comment below and let’s chat.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.