My Triplex is Gross - Am I A Slumlord?

My Triplex is Gross - Am I A Slumlord?

Rental Property Investor · Oakland, CA · Member since 2018 · 28 posts · 31 votes

Hi Everyone! I am new to the forums, but I love the Podcast. Thank you in advance for listening.. here goes...

My husband/partner and I found a great triplex property in (Deep East) Oakland, CA. This area was pretty rough a few years back, but it's getting better and better.

About the property:

  • Triplex cash flowing at about $350 per door at current rents
  • This is an ugly house. Aside from lots of junk and trash in the house, everything needs to be updated. I am not afraid of an ugly house. In fact, I love a good ugly house to gut and make beautiful again.
  • It is currently fully occupied. Current rents are very high. Based on size and location, it is renting at about $500 more than normal because tenants are Section 8. They have been there for years and looks like they like where they live. If these were not Section 8 tenants, based on the condition of the unit, rents would be much much lower. More on that below…

Here’s my plan:

As mentioned earlier, the triplex is gross (carpets are gross, kitchens are old, bathrooms are mildewy, etc). The units are dilapidated. When I close on the property scheduled in a couple of weeks, I plan to dump money only on necessary safety issues like fixing the water heater, fixing some roof issues, fixing a broken window, etc. - normal stuff and nothing crazy. I also plan on cleaning vegetation on the outside of the property. Lastly, I will have my property manager enforce rules for cleaning the outside.

Here’s my dilemma/my emotion:

Ideally, if the units were empty (my normal preference), I would completely fix the units and update the baths and kitchens and actually aim for the rent that it is currently going for. But, since the rents are already high and the units occupied - I feel like my job is sort of complete and the investment seems more like a turn-key property.

I like the rents on this place and I know I can save the profits towards renovating it later. I am not in the business of kicking people out and to be honest I don’t have a lot of money to do a complete rehab of the property right now so I look forward to saving. I plan to renovate the interior when a tenant moves out and I can get the entire place empty then bring it up to higher standards because 1) I know I can’t rent it out for much at this current condition and 2) I want to actually provide a nice home for someone.

When I walked into the units, I felt disgusted. I don’t like the idea that I will own something that I don’t feel comfortable to walk into. On the other hand, if the tenants are okay living in this type of place and don’t complain, do I need to make changes?

Questions for you:

  • Do you think I should feel bad about the situation?
  • Have you ever been in this type of situation and felt the same way as I did? How did you maneuver through it and what did you end up doing?
  • I know Section 8 has a bad rap, but have you ever had a positive experience?
  • Do you own any places that you didn’t like/wouldn’t live in?
  • How do you or your property manager handle dirty tenants?

Thank you for your time. I appreciate it.

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Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
7y
Originally posted by @Account Closed:

Hi Everyone! I am new to the forums, but I love the Podcast. Thank you in advance for listening.. here goes...

My husband/partner and I found a great triplex property in (Deep East) Oakland, CA. This area was pretty rough a few years back, but it's getting better and better.

About the property:

  • Triplex cash flowing at about $350 per door at current rents
  • This is an ugly house. Aside from lots of junk and trash in the house, everything needs to be updated. I am not afraid of an ugly house. In fact, I love a good ugly house to gut and make beautiful again.
  • It is currently fully occupied. Current rents are very high. Based on size and location, it is renting at about $500 more than normal because tenants are Section 8. They have been there for years and looks like they like where they live. If these were not Section 8 tenants, based on the condition of the unit, rents would be much much lower. More on that below…

Here’s my plan:

As mentioned earlier, the triplex is gross (carpets are gross, kitchens are old, bathrooms are mildewy, etc). The units are dilapidated. When I close on the property scheduled in a couple of weeks, I plan to dump money only on necessary safety issues like fixing the water heater, fixing some roof issues, fixing a broken window, etc. - normal stuff and nothing crazy. I also plan on cleaning vegetation on the outside of the property. Lastly, I will have my property manager enforce rules for cleaning the outside.

Here’s my dilemma/my emotion:

Ideally, if the units were empty (my normal preference), I would completely fix the units and update the baths and kitchens and actually aim for the rent that it is currently going for. But, since the rents are already high and the units occupied - I feel like my job is sort of complete and the investment seems more like a turn-key property.

I like the rents on this place and I know I can save the profits towards renovating it later. I am not in the business of kicking people out and to be honest I don’t have a lot of money to do a complete rehab of the property right now so I look forward to saving. I plan to renovate the interior when a tenant moves out and I can get the entire place empty then bring it up to higher standards because 1) I know I can’t rent it out for much at this current condition and 2) I want to actually provide a nice home for someone.

When I walked into the units, I felt disgusted. I don’t like the idea that I will own something that I don’t feel comfortable to walk into. On the other hand, if the tenants are okay living in this type of place and don’t complain, do I need to make changes?

Questions for you:

  • Do you think I should feel bad about the situation?
  • Have you ever been in this type of situation and felt the same way as I did? How did you maneuver through it and what did you end up doing?
  • I know Section 8 has a bad rap, but have you ever had a positive experience?
  • Do you own any places that you didn’t like/wouldn’t live in?
  • How do you or your property manager handle dirty tenants?

Thank you for your time. I appreciate it.

- Ysabel

 Do not expect the tenants to live the way you live. Tenants are going to live how they live. Some live in very clean & tidy units. Others are complete savages. It is what it is. Your job as a landlord is to provide safe & habitable housing in exchange for rent. Nothing more, nothing less.

I see new landlords freak out when they get a tenant who's a total slob living in their unit. Their 1st gut reaction is to evict the tenant because the house is disgusting. Why? What does that solve? All you're doing is removing an income stream & then spending a bunch of money to fix it up to rent to the next tenant who may be better or be worse. Doesn't make any financial sense.

If the house is already nasty you don't want to remove an income stream unless they are doing something to the home that could continue to cost you more money down the road which is rarely the case when you're at this point. If it smells, & has writing all over the walls it doesn't really matter. You're going to pay about the same amount of money & need to do the same renovation if you remove them now or keep collecting the rent for the next 5 years until they move out on their own.

Take a look at these steps from one of our rental properties below.

Those steps are friggin' nasty. What good would evicting the tenant who lives in a property with steps like that do though? How does spending money on the turnover while loosing an income stream make your business more profitable? Those nasty steps are going to cost the same (or similar) amount of money to clean, fix & paint today as they will 3 years from today. Turnovers are the biggest return killer in this business. Do not create unnecessary turnover & do not expect the tenants to live how you live. You don't need to feel comfortable walking into their homes at all. They aren't your friends or your family. They are your tenants, nothing more, nothing less.

See this reply in the discussion

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  • Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    7y
    @Thomas S. That's a great explanation, and whether you know it, or want to admit it, what you said does show that you have empathy for your customers/tenants. Your decisions are based on what your tenants need, and that is what "emotional intelligence" is.
  • Rental Property Investor · Cleveland, MN · Member since 2017 · 518 posts · 354 votes
    7y

    Questions for you:

    • Do you think I should feel bad about the situation? No. I would expect that their apartments were plenty clean when they moved in. They made that mess, not you.
    • Have you ever been in this type of situation and felt the same way as I did? How did you maneuver through it and what did you end up doing? Mine isn't that bad, but what I do is keep the common/outside areas nice. That's what the public sees. That's what is on my hands. As long as they aren't ruining my building, they can live how they want.
    • I know Section 8 has a bad rap, but have you ever had a positive experience? I bought my building just as it was coming out of section 8. Several had to be asked to leave because they had lost their subsidy and didn't want to pay rent.
    • Do you own any places that you didn’t like/wouldn’t live in? I would never live in my building. First, the 7 of us wouldn't fit in a 2 bedroom, but also because that's just not our situation. We own a nice home and work hard for it.
    • How do you or your property manager handle dirty tenants? I would do an inspection, make a list of what you want done, and let them know that you'll be back to inspect in 2 weeks. At that time you'll have to decide it you can live with it or not. My concern with the dirty tenants is whether or not if will become a health hazard to others. If they are getting mice or bugs, etc. 

    Overall, just keep the outside and commons looking nice/decent. That way when people do move out you will have nice curb appeal and be able to get new tenants easily.

  • Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    @Jay Hinrichs

    @Chris Mason

    Say you renovate the property, and plan to refinance. You rent it out to a very messy tenant, who slowly makes the place gross during the seasoning period. How much does that affect an appraisal on a duplex? 

  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y

    @Account Closed just because the tenant isn't complaining, doesn't mean they are happy with the condition of the property. Tenants like this have learned to not complain to landlords because of retaliation, such as rent increases or being thrown out. It also becomes a cycle, where the property is run down, so the tenant doesn't care. Landlord doesn't care, so they don't take care of the property so it gets more run down. 

    The slumlord question is a tough one. If you are asking "am I a slumlord" then you probably already know the answer. If it bothers you, then the simple solution is to not be a slumlord. 

    How do you do that? First step is fix the broken things in the property, including cosmetic issues. Bathroom mildew/mold can be cleaned and prevented by installing proper venting. Hard wire the vent to the light switch, so the fan is always on when someone is in the bathroom. Find ways to harden the property so the improvements don't get destroyed by careless tenants. Carpet should be replaced with something more durable like ceramic tile. Do regular inspections and enforce reasonable cleanliness standards. Make sure on the outside that your property looks good. If the tenant leaves junk sitting around outside, make them remove it or remove it yourself. How you manage the property will have a direct result on how it is cared for. 

  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    7y

    Getting used to the fact that people live differently than you live is perhaps one of the hardest parts of becoming a landlord. We have very nice places, and place good tenants, and there's still rarely a tenant that keeps the house as clean or neat as we keep our own homes. As long as they aren't damaging anything, altering the home or attracting vermin/other pests, I try to detach myself from it. My wife used to get a little bent coming into a home that we renovated nicely to find the people were total slobs, but some people live like that. I remember once when I was in the Navy, I went with a friend to his house for the weekend. We pull up in front of this high 6-figure home, beautiful on the outside. When we walked inside the place looked like it should be condemned. I was incredulous, and young (and not so subtle), and asked what happened - he didn't really understand the question, until I elaborated. "Oh, the maid doesn't come until tomorrow" was the answer. 

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    7y
    Originally posted by @Brian Ellis:

    @Jay Hinrichs

    @Chris Mason

    Say you renovate the property, and plan to refinance. You rent it out to a very messy tenant, who slowly makes the place gross during the seasoning period. How much does that affect an appraisal on a duplex? 

     Brian, I think it affects it on initial impression. Appraisers should be working from objective criteria, such as bedrooms, baths, comps, etc., but they are human like everyone else and there's no question in my mind I've had a couple of properties appraise higher and lower based on how neat the tenant was keeping the property inside. 

    Skyline Properties
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  • Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
    7y

    @Account Closed,

    I have a hybrid opinion on the topic.   We pride ourselves in renovating houses, and getting really high quality tenants because ours are normally updated and very modern.. that being said, we have 1 unit that is quite the ugly duckling.   The guy  was an inherited tenant has been there +13 years, he's fine with living in an ugly place, in exchange for cheaper rent.    You are in an awesome place where they're paying above market, so 100% keep them there, and keep them happy! 

    I would recommend you talk with them, state you're looking forward to working with them, and that you have plans on improving the property-- but won't be raising rents or kicking anyone out. I'm jealous of your situation!     Fix all the biggies immediately, roof, HVAC, structure-- but the cosmetics-- wait.    

    Each year, do something to improve it-- not for them--for you.   You're the one re-renting it if they move-- would you rather need to dump  a ton into fixing it then, or little by little now?      Chances are, you have a gold mine, and they will stay there for years and be happy there, but life happens-- you will need to re-rent it eventually.    If it looks like a dump, I'd first go with exterior, such as new siding and then next year do new windows.   I wouldn't worry about carpet until they move out, but other things--- each year, improve it so that way you can easily rent it out.    Slow and steady wins the race.    They're also more likely to stay longer if it looks better-- everyone wants a house they are proud of. 

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @JD Martin:

    Getting used to the fact that people live differently than you live is perhaps one of the hardest parts of becoming a landlord. We have very nice places, and place good tenants, and there's still rarely a tenant that keeps the house as clean or neat as we keep our own homes. As long as they aren't damaging anything, altering the home or attracting vermin/other pests, I try to detach myself from it. My wife used to get a little bent coming into a home that we renovated nicely to find the people were total slobs, but some people live like that. I remember once when I was in the Navy, I went with a friend to his house for the weekend. We pull up in front of this high 6-figure home, beautiful on the outside. When we walked inside the place looked like it should be condemned. I was incredulous, and young (and not so subtle), and asked what happened - he didn't really understand the question, until I elaborated. "Oh, the maid doesn't come until tomorrow" was the answer. 

    as this is a SF investor with a bay area property..  I recall one time walking into a property in Pacific Heights neighborhood of SF.

    which the SF folks will understand were that is and the values.. and the houses was not completely horrid.. but carpets were thread bear.

    house stunk  that one stuck with me..  but having dealt with many a hoarder home over the decades its absolutely incredible what some humans will create in their living spaces..  that's why I just laugh when some inspector finds a spot of mold.. some of these folks are living in a Petrie dish.. you can usually tell when the living room furniture is on the front porch.. and or when you walk in there are just walking paths with crap piled 4 feet high or to the ceiling..  and these are Owner occs  not even rentals.. I think owners can be worse than tenants in the hoarder category.  

  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @JD Martin:

    Getting used to the fact that people live differently than you live is perhaps one of the hardest parts of becoming a landlord. We have very nice places, and place good tenants, and there's still rarely a tenant that keeps the house as clean or neat as we keep our own homes. As long as they aren't damaging anything, altering the home or attracting vermin/other pests, I try to detach myself from it. My wife used to get a little bent coming into a home that we renovated nicely to find the people were total slobs, but some people live like that. I remember once when I was in the Navy, I went with a friend to his house for the weekend. We pull up in front of this high 6-figure home, beautiful on the outside. When we walked inside the place looked like it should be condemned. I was incredulous, and young (and not so subtle), and asked what happened - he didn't really understand the question, until I elaborated. "Oh, the maid doesn't come until tomorrow" was the answer. 

    as this is a SF investor with a bay area property..  I recall one time walking into a property in Pacific Heights neighborhood of SF.

    which the SF folks will understand were that is and the values.. and the houses was not completely horrid.. but carpets were thread bear.

    house stunk  that one stuck with me..  but having dealt with many a hoarder home over the decades its absolutely incredible what some humans will create in their living spaces..  that's why I just laugh when some inspector finds a spot of mold.. some of these folks are living in a Petrie dish.. you can usually tell when the living room furniture is on the front porch.. and or when you walk in there are just walking paths with crap piled 4 feet high or to the ceiling..  and these are Owner occs  not even rentals.. I think owners can be worse than tenants in the hoarder category.  

     No doubt. I have to temper my expectations because my wife keeps a seriously clean home and expects it to stay that way. Most people who come over my house think we are neat freaks, which is hilarious to me because I feel we certainly have places that are cluttered or not as neat as they could be, i.e. I don't think our house looks like a magazine every day. But there's never dirty laundry left on the floor, dishes aren't left in the sink, counters are always clean, beds are made, etc. My grandmother kept house the same way, so I thought everyone lived like that. I've come to find that most people are way messier, and hoarders, than we are by a moonshot. 

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  • Saint Paul, MN · Member since 2018 · 189 posts · 107 votes
    7y

    @Account Closed- I like the fact that you care about your tenants and property and want to make it better. My family grew up with Section 8 housing with a single father raising 5 kids. This was after our house was foreclosed on, here is my honest opinion. 

    If the tenants are good, then great, take care of the properties safety issues and if you have the opportunity to update a few things to make it nicer from  a moral standpoint do it don't do this as a hope to get a return on your investment. I agree with most people on here in saying take care of the safety issues and enjoy the cash flow. Ask your tenants if there are issues that maybe the previous owner ignored and take care of those, but when we lived in section 8 housing we weren't expecting granite counter tops or stainless steel appliances, we just wanted a safe place to live that was well maintained. It sounds like you're planning on providing that which is great.

    My dad lived in that place for 10 years and never missed a payment, I won't lie he was pretty dirty with living overall (still is), one thing the landlord did was take care of the outside by hiring out the lawn work and building it into the lease this kept the outside nice and when my dad moved out the inside was updated significantly before selling it.

    Best of luck and keep up the good work!

  • Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    @JD Martin

    Thank you, I figured as much. I would guess that it being a duplex, it would affect the appraisal a lot if they were messy, considering its comps are based off single family homes.

  • San Francisco, CA · Member since 2008 · 77 posts · 41 votes
    7y

    If you delivered the property with clean carpets and sufficient ventilation in the bathrooms, I don't see how you could possibly fault yourself. It's not your job to be their mother - these are grown adults.  A slumlord is someone that is consciously negligent, and if you're addressing repair requests and safety concerns then you're not being negligent. It's ridiculous to be expected to clean up after your tenants' mildew if they're not properly using ventilation fans. 

    East Oakland is still a mixed bag, and the majority of properties there are likely in similar to worse condition than yours. I would wait a bit longer to see how the gentrification pans out before upgrading the units.  And I certainly wouldn't do it with a property that is already cash flowing in its current condition. Maybe if your tenants are stellar and you know they'd maintain its condition, but that doesn't sound like the case. 

  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by @Brian Ellis:

    @Jay Hinrichs

    @Chris Mason

    Say you renovate the property, and plan to refinance. You rent it out to a very messy tenant, who slowly makes the place gross during the seasoning period. How much does that affect an appraisal on a duplex? 

     In theory, it doesn't. In practice, appraisers are human. 

    But present it to the tenant as if it's the end-all be-all, and offer to knock $100 off of their next month's rent if their unit is clean enough that the appraisal hits value.

  • Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    If you think companies like FB will move in someday you have a winner. Otherwise it is a cash cow machine. Chk rent control and potential of money loss if not getting 100% rent.

    Sam Shueh

    Cupertino, CA

    PS: Some people do not mind getting notified if the occupants do drugs, fire, robbery... Others want to have some dignity.

  • Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    @Account Closed has a lot of experience with getting *new tennats* using section 8 into his Oakland rentals. Saj, can you comment here on: how has your experience been with *inhereted* sec 8 tenants in E Oakland? Do you think buy outs would work with sec 8 tenants that don’t meet your standards? (My guess is not easily, per my comments above.) Feel free to share what you can. 

  • Rental Property Investor · Winona, MN · Member since 2018 · 87 posts · 90 votes
    7y
    @Ysabel Y., I had Section 8 rentals at one time... in MN, the conditions you are describing would never fly with the Section 8 inspector. What I liked about Section 8, is that there were always people looking for Section 8 housing (more dwmand than supply) and the rent (or at least the Section 8 portion of it) was guaranteed every month. I personally refuse to own & rent out a property (including its condition) that I would not live in myself. But that’s just me... and I have the financial ability to uphold that self-imposed standard... I’m not living on rental cash flow. I think you have to decide for yourself... it doesn’t matter what anyone else thinks.
  • Investor · San Francisco, CA · Member since 2016 · 338 posts · 444 votes
    7y

    @Account Closed kind of pointed this out, but I think it deserves to be mentioned here (with all the back and forth) that whether or not a tenant is gross or clean has nothing to do with their socio-economic status. Based on my experience, there are as many "white collar" renters with super nasty living habits. It's one of those things that you can't really predict based on the screening process.

    I know this isn't an answer to your original question. Maybe it's just the way I'm reading the responses, but there seems to be a subtext of "poor people are the only dirty renters", and that just simply isn't true. 

    I think there's other thoughtful comments that help answer your initial question, so I'll mostly leave it at that. I do think that you ARE providing a valuable service by providing Section 8 housing, since there's an extreme shortage of places that do that in the Bay Area. 

  • Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes
    7y

    @Brian Ellis

    I would guess that it being a duplex, it would affect the appraisal a lot if they were messy, considering its comps are based off single family homes.

    An appraisal of a duplex will be based on duplex comps. Maybe looking at triplexes if there is a lack of comps. SFR is a different animal, not a comp.

  • Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    7y
    @Lee Bell you are correct, I do remember the appraisal upon purchase, had used 2 duplexes. Unfortunately there aren’t enough duplexes around, I think both comps were well over a year on purchase date.
  • Investor · Crown Point, IN · Member since 2014 · 177 posts · 84 votes
    7y

    Fix the safety issues, some of the others will probably come up with the housing authority does their inspection. They always seem to find something that needs fixing, even if nothing is broken. 

    you need to address the cleanliness part though. if it's not addresses it'll attract pests. Your tenants are responsible for keeping the place clean. The housing authority will not allow them to stay there if it causes an infestation. Your lease should address this, and if they do not keep the place reasonably tidy, you should begin the eviction process. 

    I had neglected to enforce this once and came back at the  housing authority with the lease, telling them it states clearly that the tenant is responsible for resolving the mouse and roach infestation they had caused by not keeping the house tidy. I ended up not getting very far with it, losing the tenant, and needing to resolve the infestation on my own. 

  • Lake Orion, MI · Member since 2017 · 16 posts · 3 votes
    7y

    Personally, with my own place, I have an ROI I want to meet. Once that is met, I work on capital improvements. Putting in decent carpet because the income supports it doesn't make you emotional, it makes you not an a-hole.

  • Gillette, WY · Member since 2018 · 44 posts · 19 votes
    7y
    @Ysabel Y. I have very little experience in this area so take the following with a grain of salt. You had a lot of good points in here, and some great questions to follow. This is my opinion and I hope this helps. You used the word emotion to describe your trouble, which tells me you may have already made your decision and you are looking here for validation. Although we are in the business of helping people, real estate investing is a business and should be 90% numbers based. I think you should decide what it is you want to see out of this property in the next 5 years and work backwards to make it happen.
  • Rental Property Investor · Brunswick, OH · Member since 2018 · 200 posts · 127 votes
    7y
    @Ysabel Y. Thanks for asking this question! My current properties are all in A and B areas. I've been hesitant to pull the trigger on more profitable properties because I have a similar mental block. This thread has been a good reality check.
  • Rental Property Investor · CA · Member since 2018 · 225 posts · 180 votes
    7y
    @Ysabel Y. Honestly, the cleanliness of the units has no bearing on the owner. I would consider you a slumlord if you didn’t fix heaters, water heaters etc, stuff you’re responsible for. For instance, I went into a place in Walnut Creek that had 2 wall heaters, one had been disconnected for a hazardous condition and instead of fixing it the landlord said they are only required to have one working heater. The owner told the the tenant can fIx It. That’s a slum lord.
  • Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes
    7y

    I just came across this and it has some criteria. Kind of funny too, imho.

    Landlord-Hall-of-Shame

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