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Updated about 1 year ago, 10/10/2023
Avoiding Significant Damages to Rental Units
I'm a pretty experienced landlord that has been at this for 6 years. Just acquired my 29th and 30th doors, but of late I've been having trouble with BIG bills to turn units when tenants move out. I usually charge 1x monthly rent for deposits and also offer sayrhino.com as a convenience for some of the units.
It seems in the last year, I've been running into turn costs of several thousand dollars. $3,000 to $7,000 at times. Those are really cash flow killers and the deposit or sayrhino.com policy don't come near to covering the repair bills. I always do disposition of deposit letters which indicate the amount owed, but have never been paid for damages beyond the deposit. I've taken prior tenants to court to collect the debt. I've won the judgement every time, but have collected $0 on those judgements in 6 years of doing this business. The court expenses and the time required to do the small claims court or pay someone to handle it just add to the misery of needing to repair the unit.
Does anyone have any tips for avoiding the large damage type turns when a tenant leaves? Here is what I have in the works or I'm considering.
1) Quarterly inspections of the units to note issues and bill the tenants while they are still leasing. We will do these under the guise of replacing the air filters for them.
2) Not going to court for a judgement, but rather reporting the bad debt to a credit agency. Not sure how I'm going to go about this since it seems a business needs to have a significant money relationship with the credit agencies to report. I'd love to have suggestions on what might work well to get this done.
3) Raise the qualification standards for renters. Right now we require 600+ credit score. Clean criminal history and no evictions. 3x the monthly rent in income. I use mysmartmove.com to run the reports.
Any folks dealt with the same issues and have ideas? Part of it may be where my rentals are located. We are in the oil patch of West Texas. Many of the renters are (former) low wage workers who have come to the oil patch for the great wages that don't require special skills or degrees. It means they're more transient and harder on the homes, even though they have the income and usually the credit to qualify.
Thanks in advance for the tips. At this point, an option would be to repair and put the homes on the market for sale when they become vacant to take advantage of the strong housing market. I'd rather not do that as the initial intent was to buy and hold long term.
#1 Tenant Screening Contributor
- Property Manager
- Honolulu, HI
Quote from @Brad Gibson:
It seems in the last year, I've been running into turn costs of several thousand dollars. $3,000 to $7,000 at times. I've taken prior tenants to court to collect the debt. I've won the judgement every time, but have collected $0 on those judgements in 6 years of doing this business.
Does anyone have any tips for avoiding the large damage type turns when a tenant leaves?
1) Quarterly inspections of the units to note issues and bill the tenants while they are still leasing.
2) Not going to court for a judgement, but rather reporting the bad debt to a credit agency.
3) Raise the qualification standards for renters. Right now we require 600+ credit score.
1) Quarterly inspections are pretty intrusive, even if you are "just changing filters". Aside from that, an actual inspection is necessary. I've had good success with this strategy: Initial Rental term is six months, with prospective Tenant advised that our intent is "long term", but want to make sure the property and relationship is a good fit for both parties. To that end, I assure them we will perform an inspection shortly prior to the six month mark, and if everyone is happy, we will renew for 12 months without an increase. Going forward, we perform annual re-inspections prior to annual renewals, and evaluate the market at that time to determine any changes in terms before offering options to Tenant.
2) The collection agency needs the judgment to effectively work toward collection of past due amounts. You pay for it one way or another. When seeking a judgment, you need to evaluate the possibility of the named parties EVER being in a position to make payments. In other words, if they are just young and dumb, making some bad choices, MAYBE one day they get married, or want to buy a home, and will find it advantageous to correct their past mistakes. If, on the other hand, they are past their "prime", odds of significant change in attitude or income are much less...probably not worth the effort. If you DO get a judgment, they typically need to be renewed based on local law, usually every 7 - 10 years. Be sure you follow through with that, and that you remain in contact with the collection agency/attorney that is chasing them.
3) 600 score is not much, please review the chart below which gives you the odds of a delinquency within 24 months. In general, tighten up your screening process, study the details and try to obtain additional information to review. You should be looking for Good Habits, and Bad Habits. Usually if one area indicates a series of bad choices...whether that is financial, court records, character, job stability, housing stability, or other factors. Dig deep and see that everything fits and gives a clear picture of a responsible, rule following, adult.
Quote from @Richard F.:
Quote from @Brad Gibson:
It seems in the last year, I've been running into turn costs of several thousand dollars. $3,000 to $7,000 at times. I've taken prior tenants to court to collect the debt. I've won the judgement every time, but have collected $0 on those judgements in 6 years of doing this business.
Does anyone have any tips for avoiding the large damage type turns when a tenant leaves?
1) Quarterly inspections of the units to note issues and bill the tenants while they are still leasing.
2) Not going to court for a judgement, but rather reporting the bad debt to a credit agency.
3) Raise the qualification standards for renters. Right now we require 600+ credit score.
1) Quarterly inspections are pretty intrusive, even if you are "just changing filters". Aside from that, an actual inspection is necessary. I've had good success with this strategy: Initial Rental term is six months, with prospective Tenant advised that our intent is "long term", but want to make sure the property and relationship is a good fit for both parties. To that end, I assure them we will perform an inspection shortly prior to the six month mark, and if everyone is happy, we will renew for 12 months without an increase. Going forward, we perform annual re-inspections prior to annual renewals, and evaluate the market at that time to determine any changes in terms before offering options to Tenant.
2) The collection agency needs the judgment to effectively work toward collection of past due amounts. You pay for it one way or another. When seeking a judgment, you need to evaluate the possibility of the named parties EVER being in a position to make payments. In other words, if they are just young and dumb, making some bad choices, MAYBE one day they get married, or want to buy a home, and will find it advantageous to correct their past mistakes. If, on the other hand, they are past their "prime", odds of significant change in attitude or income are much less...probably not worth the effort. If you DO get a judgment, they typically need to be renewed based on local law, usually every 7 - 10 years. Be sure you follow through with that, and that you remain in contact with the collection agency/attorney that is chasing them.
3) 600 score is not much, please review the chart below which gives you the odds of a delinquency within 24 months. In general, tighten up your screening process, study the details and try to obtain additional information to review. You should be looking for Good Habits, and Bad Habits. Usually if one area indicates a series of bad choices...whether that is financial, court records, character, job stability, housing stability, or other factors. Dig deep and see that everything fits and gives a clear picture of a responsible, rule following, adult.
Thanks for the response. Love the credit rating chart & it makes a great deal of sense. It seems you have the 640 to 659 range boxed. Is that your sweet spot for your rentals as far as credit scores?
#1 Tenant Screening Contributor
- Property Manager
- Honolulu, HI
Quote from @Brad Gibson:
Thanks for the response. Love the credit rating chart & it makes a great deal of sense. It seems you have the 640 to 659 range boxed. Is that your sweet spot for your rentals as far as credit scores?
No, that just highlights where the odds become more favorable for a 24 month period.
Can you build it into the rent...so they don't notice it.
And what are you biggest three problem items, filthy carpet, broken doors, filthy paint, purposeful damage as in F-U-Rich Guy here's 20 hammer holes in the wall for kicking me out, not leaving the units broom clean upon exit, etc...
Good Luck!
Quote from @Brad Gibson:
I'm a pretty experienced landlord that has been at this for 6 years. Just acquired my 29th and 30th doors, but of late I've been having trouble with BIG bills to turn units when tenants move out. I usually charge 1x monthly rent for deposits and also offer sayrhino.com as a convenience for some of the units.
It seems in the last year, I've been running into turn costs of several thousand dollars. $3,000 to $7,000 at times. Those are really cash flow killers and the deposit or sayrhino.com policy don't come near to covering the repair bills. I always do disposition of deposit letters which indicate the amount owed, but have never been paid for damages beyond the deposit. I've taken prior tenants to court to collect the debt. I've won the judgement every time, but have collected $0 on those judgements in 6 years of doing this business. The court expenses and the time required to do the small claims court or pay someone to handle it just add to the misery of needing to repair the unit.
Does anyone have any tips for avoiding the large damage type turns when a tenant leaves? Here is what I have in the works or I'm considering.
1) Quarterly inspections of the units to note issues and bill the tenants while they are still leasing. We will do these under the guise of replacing the air filters for them.
2) Not going to court for a judgement, but rather reporting the bad debt to a credit agency. Not sure how I'm going to go about this since it seems a business needs to have a significant money relationship with the credit agencies to report. I'd love to have suggestions on what might work well to get this done.
3) Raise the qualification standards for renters. Right now we require 600+ credit score. Clean criminal history and no evictions. 3x the monthly rent in income. I use mysmartmove.com to run the reports.
Any folks dealt with the same issues and have ideas? Part of it may be where my rentals are located. We are in the oil patch of West Texas. Many of the renters are (former) low wage workers who have come to the oil patch for the great wages that don't require special skills or degrees. It means they're more transient and harder on the homes, even though they have the income and usually the credit to qualify.
Thanks in advance for the tips. At this point, an option would be to repair and put the homes on the market for sale when they become vacant to take advantage of the strong housing market. I'd rather not do that as the initial intent was to buy and hold long term.
These turn costs seem pretty standard to me, especially after a tenant has stayed for 3+ years. I'd consider investing in more tenant-durable turns.
Rather than spending $7k on a turn, spend $10k putting in LVP, and high-quality kitchen counters etc.
Once I did that, all my turns when down to $2,000-$3,000.
Quote from @Richard F.:
Hi Richard, could you please provide a link or source for the chart? I receive an error when I click on the graphic. Thnx, Malek
Don't sell yet Brad, hang in there! :- )
I'm in Houston, face similar issues but lower turn costs. These are smaller, lower end rentals, all tile or laminate floors, etc. Incoming / replacement tenants are also not real picky - they'll preview before we re-paint and say, "No, we don't want to wait. We'd like to move in this week - we'll take it like this." So there's a balance for us every time we have turnover - how much do we want to put into the rental.
Of course our subs always want to remodel the entire kitchen and all the bathrooms! At one point the bathrooms were nicer than my own family member's!
Hang in there, and don't sell quite yet.
One strategy I like to use in the screening portion is walk-throughs of the applicant's homes. I actually do this in a Zoom call where we're doing a "meet and greet" after they apply and then I ask them to just walk me around while we're on the call. You'll be able to see how they keep the place and that helps you make informed decisions about whether to move them in or not.
Quote from @Stephanie Cabral:
One strategy I like to use in the screening portion is walk-throughs of the applicant's homes. I actually do this in a Zoom call where we're doing a "meet and greet" after they apply and then I ask them to just walk me around while we're on the call.
Do you give them advance notice of the 'walk around' request? As a landlord I love the idea. On the tenant side they might find it overly intrusive.
No! I don't attend the open houses but let everyone know that I'll do a zoom meet and greet for any applicants so they're prepared for that. When we're on the zoom call, I say that I need to do a walk through but, to save us a trip, would they mind walking me through really briefly while we're on the call. I explain I'm not worried about tidiness, since I'm catching them off guard and it's basically to make sure there's no massive damage. I find they're a bit shy but agreeable. And it's the ones that are a bit worried about it are the ones who care about how they keep their house.