6 Tips to Newbie Landlords in Coronavirus America

[Andrew Lekowski]

This is not a guide to how to prevent an eviction in coronavirus America. It is our story regarding a close call with some bad tenants. Our FIRST tenants actually. And here it goes!

This article outlines the experience we had with our true first tenants. Although we had a house hack with two other roommates, living with someone is a lot different than handing someone the keys to a rental property. Let's call these tenants both X and Y.

Throughout this article, I will highlight all the mistakes I made that I believe many beginner landlords may benefit from. Looking back, some of these mistakes I had definitely known better, however actually in the moment with excitement, anxiousness, etc. it is hard to look back and judge. Learn from our mistakes!

So here are all the lessons learned from our close call:

1) Never, ever put off a security deposit during move in.

Initially, when Tenant X and Y applied for our rental, they had the most outstanding scores (relatively). A credit score floating in the low to mid 600's was the best applicant we received given the strong C class neighborhood. No dings on the background check, respectable jobs in the community, and no red flags during the apartment showing. All references checked out (yes, I actually called). Perfect. Everything seemed great during the application, and we turned down several other applicants that had worse credit scores. Everything seemed great until we had a signed lease agreement, and Tenant X called me and said, "hey, is it okay if we split up the move in cost?"

Those words could of and should have been a deal breaker during the screening process, however after the phone call I believed that they would have the ability to pay in one week after the move. And they were on the verge of being our first tenants, so I was very anxious to get them in our apartment to focus on the other three units. So, I adjusted the lease agreement to reflect the payment plan for move in and we allowed them to take early occupancy, which leads to mistake number two:

2) Never, ever allow tenants to move in with the utilities still in your name.

Only applicable if your tenants are responsible for the utilities. All I had based this experience off of was my first property I bought. The old owner allowed us to take early occupancy with the utilities in his name still, and we switched them over at our leisure and back dated it for the day we assumed occupancy.

Whole different ballgame in the rental world. We signed the contract giving our Tenant's five business days to put the utilities in their own name. Five days passed, and we ended up having to shut the power and water off so that they would be forced to put the utilities in their own name as per the contract! We got lucky with this, as during the coronavirus some landlords are restricted to what they can and cannot do with the utilities.

...

Pausing the lessons we learned here, time to get more caught up on the story. So the payment plan for the initial move in falls through come the date we had chosen, and they end up racking up late fees. We serve a seven day pay or quit notice. We work with them and take a partial payment of this initial move in cost so that we can freeze the late fees and so we can guarantee at least some deposit if they lose all ability to pay. Eventually, after much stress, much documentation, and spending too much time trying to get just the initial move in payment, they pay their whole balance including late fees. Cool right? Absolutely not worth it. At any point they decided that payment was not in the cards, we could have been forced to start the eviction process with no security deposit to soften our losses. Huge rookie mistake. Concurrently with this, in the span of one month we had three major appliance breakdowns... in the same unit! Leading to the next lesson learned:

3) We done messed up with the appliances.

Major appliances in a rental such as a refrigerator and a stove oven can be a one-and-done sort of a deal, or they can be the bane of your existence. Initially, when we were doing the renovation on our Fourplex, there were zero appliances. We ended up going to a flea market and buying four refrigerators and four stove ovens. When buying a bulk order like this, quality control is crucial to ensure you are not buying lemons. Our process for quality control was not good.

We had them delivered, plugged in, and we basically ended up doing a partial functions test of everything. For example, we tested the refrigerators and freezers turned on, however, we did not wait until the freezers froze. We tested all the stove eyes, however we may or may not have tested the ovens in all the units. Either way to put it--we did not systematically attack the quality control of these appliances such that it was necessary to give them the benefit of the doubt. And oh, did they take advantage of this benefit.

Within a few days of moving in, Tenant X informs us that the freezer will not freeze. So we communicate this to the flea market where we bought the appliances, and guess what? They refuse to honor our warranty. After calling and texting them and stopping in several times to work out an appliance swap, they end up ghosting us and shutting down due to the coronavirus. We finally track down a refrigerator on Facebook Marketplace, and we ensured we did our due diligence testing this one--worked great. We move this one into Tenant X's upstairs apartment (ugh), which after taking doors off of the refrigerators and entry ways, is beast of a task. Anyway, we leave the apartment with the refrigerator working just great.

Then the oven stops working.

Then this second refrigerator that we just moved in stops working.

Given that the only appliance issue in the entire Fourplex came from these problem tenants, it is very suspicious that they had three appliance breakdowns in the first month. However, because the quality control process we had with the appliances was subpar, we decided to give them the benefit of the doubt on all the appliances and chalked it all up to bad luck. Dealing with these appliances, we spent much frustration, money, time, work, etc. In the end, we learned to conduct better quality control initially including a full functions check of everything we add to our rentals. Additionally, we learned to modify our future lease agreements regarding the appliances. Before our lease stated we would be responsible for any normal wear and tear appliance repairs, however this is too vague and indefinite for my liking. I will now tell future tenants I will give them a grace period with the appliances, and after that they are fully the responsibility of the tenant. This is more common for our market and in no way are we responsible legally to ensure our tenants have working appliances. Lastly, we learned that we need a new vendor for our appliances that will honor their warranty. Even though we had the flea market write down their warranty on the receipt, they still failed to uphold it. They were not a super professional company, so in the future instead of trying to save a few dollars and buy bulk at a bargain, I will seek out bargains only with reputable vendors.

4. Dealing with your tenant's parents. 

This is actually not a lesson learned, as we believe we handled the situation with the parents very well. However it is very important to mention this because it is slightly comical, and it outlines what landlords are truly getting themselves into when renting out apartments. 

During the whole rent not being paid, appliance breakdown fiasco, somehow the tenant's mother gets my number and starts messaging me. She basically starts threatening a lawsuit because the refrigerator in her son's apartment will not work. She calls and leaves voicemails and her husband calls and leaves voicemails. I told Tenant X and Tenant Y that we would not communicate with any party not on the lease agreement for their privacy and as well as ours. Of course, despite reiterating this several times, to the very end of the story we would get messages from the parents. We can absolutely understand why the mother was getting involved (where did the rent money come from in the first place...). And what mom does not want the best for their children? However, in the realm of landlording, helicopter moms have no place. We simply refused to engage. However, when the mom took Tenant Y's phone and messaged me off that threatening to call the police and filing a suit for not allowing them to live for free, things got harder to say the least. We still did not engage and handled all concerns professionally. Next time this happens (hopefully never), we will respond the same.

5) The Cat Indicator. 

Maybe this is highly prejudiced, and I am a fairly new landlord so I may be completely off on this. When a tenant wants to move in with several cats, landlords beware. Through my research, I have correlated there is a strong negative relationship between tenants who have several cats and really, really bad tenants. They go hand in hand actually.

I am actually just joking, as not all cat lovers (sorry mom) are bad renters. However we did make a big mistake. Letting these bad tenants in with three cats... Given the low income area, we did not charge additional pet fees. If we would have, I am sure that these bad tenants would have taken their bad cats elsewhere. I now see that pet fees and pet deposits are crucial! How else can a landlord ensure that a tenant will take care of their pets and the apartment?

Back to the Cat Indicator. In this case, our tenants started off with just three cats. When we came in a month later my wife counted four. Additionally, just the way these tenants lived were disgusting! 10/10 hoarders. There were no walkways through the apartment, with random boxes, wrappers, spoiled food, trash, collectibles (aka where our rent money went), everything in the way. I was appalled. How did I let in extreme hoarders into my newly renovated apartment? You live and you learn, however next time I may be biased with my Cat Indicator.

...

The plot thickens. After the move in rent fiasco, I waited nervously for May 1st. I knew what was going to happen deep down, but I had high hopes. Come April 30th at 10:12pm, exactly, I got a voicemail from Tenant X, that started off exactly like this. "Hey Andrew, um, about this rent thing, uh, my wife's paycheck got messed up..." Direct Google voice translation. They then proceeded to ask for some way to work it out. At this point it was very, very clear--they need to leave.

Come May 2nd, we served them their second pay or quit notice. Apparently the money was in the mail (not falling for that old trick). Come May 4th late fees started. Come May 9th, we are five business days into their pay or quit notice, and it is the weekend. I whip up a document called the Good Faith Notice. In this Notice, I informed them in the lease there was a good faith clause to seek out remediation at the lowest level prior to seeking legal recourse. Then I laid out the options as such:

Options

The following are the options available to the Tenant(s) to end the Dispute in Good Faith. Initialling by the Option the Tenant(s) choose represents pursuing that option. If that Option is not executed properly, they will be void and Option 2 (eviction) will be pursued.

___________Tenant(s) agree to payment of the Total Dispute no later than 12MAY20 before 11:59pm, which represents the end of the Pay or Quit Notice (7 business days since 02MAY20 when it was served for non-payment of rent). Payment includes all rent and all late fees. Additional late fees will be assessed at the agreed upon rate of $25/day for each day not paid (i.e. if it is paid on 12MAY20, an additional $75 in late fees will become part of the Total Dispute).

___________Tenant(s) elect to not pay the Total Dispute prior to 12MAY20 before 11:59pm. On 13MAY20, the Landlord will respond by proceeding with the eviction process and filing for a Summons. If this option is chosen, an eviction judgement will be pursued as well as damages for Non-payment of rent, Non-payment of late fees ($25/day for each day throughout the entirety of the eviction process), all legal fees including lawyer fees, filing fees, damages to the Premises etc.

___________Tenant(s) elect to move off the Premises prior to the eviction process beginning. If this option is chosen, the Landlord agrees to not pursuing a legal judgement against the Tenants. If this option is chosen, the Tenant(s) agree to surrender the Premises in move in ready, fully cleaned condition. All belongings will be moved off the Premises, and it will be cleaned in accordance with the Checklist. The deadline for this option is 12MAY20 at 7:00pm. At 12MAY20 at 7:00pm, the Premises will be surrendered to the Landlord by handing over keys and vacating the Premises. To incentivize and facilitate a smooth transition out of the Premises and to ensure they are handed over in a move in condition, the Landlord will pay the Tenant(s) a half month’s rent ($275 in cash) after the Premises have been inspected and the keys have been surrendered. This option will constitute an early termination of the Lease Agreement.

Basically, I offered them cash for keys. They chose it! They initialed and signed everything, agreed it was the best option, and I gave them a move out checklist and three days to move out. They even seemed chipper. I thought this would be the end of the battle, but I was wrong

6) Lessons Learned from Cash for Keys. 

When you offer this, you can bet your tenants will wait to the last day to move out. You can bet the apartment will not be in move in ready condition. You can bet you will not get all the keys back and even if you did, you will need to change the locks. You can bet their mother will send you messages telling you everything you are doing is completely illegal and that she will call a lawyer and the police (actually this one probably won't happen, hopefully). Regardless, the three days prior to the Cash for Keys Transaction were nail biting. At some points I swore the tenants were going to choose the eviction process. And we were ready for anything. In Coronavirus Alabama, all eviction enforcements were postponed until basically further notice, so if these tenants wanted to stay for free they could absolutely roll the dice and full send the eviction process. They could have stayed for free for well over three months, maybe even more.  Despite all my worries, I ended up getting the cash for the keys.

Now it is the day following the cash for keys transaction, and it is time to go to war with this apartment. Cat smell lingering everywhere, my wife and I will don masks not for the coronavirus, but to not throw up as we clean out the stench left behind from these tenants. After everything said and done, despite the mistakes we made, we learned more from the hard knocks than we could have learned from listening to 20 Bigger Pockets Podcasts. I hope someone learns from this one and doesn't have to go through this as well!