Rochester NY LTR Tenant 4K damages

[Jamie Dupont]

We have a LTR in Rochester/Greece NY that is under PM. We served the tenant 90 day notice as she was throwing massive parties in the home with complaints from neighbors, etc. Have not cash flowed the property for 2 years with her living there as she breaks everything (another reason she’s being served notice). PM sent us a laundry list of photos and repairs from damages in the home. $4200. Not to mention, asbestos siding that would not have been an issue, is an issue as that also has a massive hole in it. The insurance company sent us a letter telling us they will be dropping us for that reason as well. We have $2100 security deposit, however she also skipped out on her last month’s rent and PM did nothing. Therefore, we are on the hook for all of these repairs and at our wits end figuring out next steps. Any advice is appreciated. This is our first LTR and we are devastated. We fired the first PM that PLACED her because they did a terrible job. Therefore we’re trying to be proactive, however it’s a mess.  Not to mention, we are evacuated from this cat 5 hurricane at the moment and really having a difficult time thinking clearly at the moment. We do appreciate any advice on what we can do to be better.

[Nate Monson]

Hi @Jamie Dupont I'm very sorry this is happening to you, that is awful for them to do that. It sounds like the tenant is still there so priority number one should be getting them out. If you haven't hired an attorney I might consider doing so as this situation sounds like it could get ugly. 

Regarding this insurance issue, I would certainly try to get new insurance without making any repairs. There is a chance your best option will be to go over the asbestos siding with vinyl. But be sure to consult with the city for their local guidelines. 

As far as how you move forward from this, if you are confident in the area and acquiring a new tenant that will treat the property better, you can view this incident as a sunk cost and move on that way. If you aren't confident in other management prospects then liquidating the property and looking at some other investment avenues may be the best option. 

I wish you the best of luck and safety in the storm.

[Jamie Dupont]

Quote from @Nate Monson:

Hi @Jamie Dupont I'm very sorry this is happening to you, that is awful for them to do that. It sounds like the tenant is still there so priority number one should be getting them out. If you haven't hired an attorney I might consider doing so as this situation sounds like it could get ugly. 

Regarding this insurance issue, I would certainly try to get new insurance without making any repairs. There is a chance your best option will be to go over the asbestos siding with vinyl. But be sure to consult with the city for their local guidelines. 

As far as how you move forward from this, if you are confident in the area and acquiring a new tenant that will treat the property better, you can view this incident as a sunk cost and move on that way. If you aren't confident in other management prospects then liquidating the property and looking at some other investment avenues may be the best option. 

I wish you the best of luck and safety in the storm.

Thank you for the advice. The tenant has been removed. PM sent pics of all the damages. They have a person that sounds legitimate lined up. This person is unemployed but willing to pay 1 year rent up front to the PM company and sign a 12 month lease. They are relocating per their story (whether this is true) and he is unemployed but expecting a baby. He is an alleged engineer. Having a full year’s rent in our hands seems to be ideal. We are considering other avenues, but with our plate being this full we are just very stressed. I have a savings that will offset these costs, it’s just seemingly one thing after another. I know the numbers work for this house and we do have equity that we could get out and 1031 into something else, but I think this house is in a good market with good appreciation. I just hate coming out of pocket for this and I feel the tenant should be responsible. I also feel the PM should have done a better job managing, however they also took us on mid rental. I just am putting out my feelers on how pros would address these issues.  Did PM do what they should letting her go a whole month without paying last month’s rent? What are they doing about screening these next tenants? These types of questions that I am unsure of. We have our home in Fl and STR it part time right now. Trying to make it a full time STR but its like one barrier after another. We keep getting pummeled by hurricanes! Im just losing my hope in real estate investing as a newbie. I feel at a loss at the moment but do appreciate your reply. 

[Nate Monson]

@Jamie Dupont Well you aren't alone in having struggles in the early going in real estate investing. We've all had them. Think of it as starting a business, no one who has done so has had things go perfectly. And while you may be experiencing worse than average issues here, if you can stem the tide for the time being financial you will come out of the other side learning a lot and you will be ok. 

Without being in the situation it's tough to say for sure what exactly the PM should've done. It could be possible they tried to collect rent, and with the tenant knowing she's leaving, chose to not pay. And for you to recover rent at that point wouldn't be worth the hassle of suing. The good news is that this person is out and you can do the repairs and move on which is a better situation than some people end up in. 

When you select the next tenant I would certainly ensure that you have your eyes on the applications that are coming in, and ask that you are involved in the decision making process. 3x income, clean credit and background checks should be a minimum for approval, even if it takes a month or so to find someone. 

[Preston Garcia]

I think it depends on 1) what kind of profit/loss you’d make if you sold it and 2) whether fixing repairs and replace the siding would increase the next tenant’s rent

I hope that helps some! I’m a local agent in the area, feel free to reach out.

[Ashish Acharya]

@Jamie Dupont From a tax perspective, you can deduct repair expenses related to the damages caused by the tenant as long as they’re for restoring the property (e.g., fixing holes, broken fixtures). If the repairs are capital improvements (e.g., replacing entire siding), you’ll need to capitalize and depreciate those over time.

The unpaid rent is considered a loss, but it’s not directly deductible. Instead, you’ll report it as lower rental income on your Schedule E. If legal fees or eviction costs arise, they’re also deductible as ordinary and necessary expenses.

Keep detailed records of every expense for accurate tax reporting!

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

[Jamie Dupont]

Quote from @Ashish Acharya:

@Jamie Dupont From a tax perspective, you can deduct repair expenses related to the damages caused by the tenant as long as they’re for restoring the property (e.g., fixing holes, broken fixtures). If the repairs are capital improvements (e.g., replacing entire siding), you’ll need to capitalize and depreciate those over time.

The unpaid rent is considered a loss, but it’s not directly deductible. Instead, you’ll report it as lower rental income on your Schedule E. If legal fees or eviction costs arise, they’re also deductible as ordinary and necessary expenses.

Keep detailed records of every expense for accurate tax reporting!

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Thank you for this advice. We may file small claims as it’s only $20 to file plus having someone deliver the paperwork to the tenant. We don’t want to let her get away with this again and it’s more about principle at this time. We will see about garnishing wages, etc. I never thought about the tax implications so thank you for mentioning this. We are prepared to eat the cost and call it a loss but not without a tiny fight to show her that she can’t just do this to people. We will only be repairing not replacing all siding if possible. It all depends what insurance allows us to do. I appreciate the advice.

[Nathan Gesner]

Applicants offering to pay a year of rent upfront is a red flag. The money isn't legally yours until it's earned, which is every month when rent is charged. If the tenant breaks their lease after three months, you are obligated to find a new renter, only charge the original tenant for rent up until the new tenant takes over, and then refund any unused funds. In other words, spending it would be foolish.

I suggest you spend a little time researching other property managers. Use this turnover as an opportunity to research and find a manager that can stabilize the property and take control of the situation so you can focus on other aspects of life.

Remember: cheaper doesn't mean you'll make more money.

Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Try interviewing at least three managers.

1. Ask how many units they manage and how much experience they have. Feel free to inquire about their staff qualifications if it's a larger organization.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, a leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Consider all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. A tenant complaining online might indicate that the property manager handled them appropriately, so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything possible to expose properties to the broadest possible market? Are their listings detailed with good-quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!

[Drew Sygit]

@Jamie Dupont a lot going on here!

1) You mention the PMC did a poor job screening the previous tenant.
- What specifically makes you think that other than the parties and damages? How stable was their employment & income?
- How well did you discuss the PMC's screening critieria before hiring them?

2) How many parties did the tenant throw that generated complaints?
- How quickly did the PMC address this issue?

3) Tenant Damages: if the tenant was breaking things, why were you paying for them?
- How sure are you the tenant caused the damages?
- When did your PMC go over the lists of damages to ask if they should charge you or the tenant?
- What does the PMC lease state about tenant-caused damages?

4) Last Month's Rent: how did the PMC let the tenant skip out without paying?
- What do you think they should have done? Starting the eviction process when the tenant  is moving out is a waste of time and legal fees (your money!).
- What does your mangement contract state about the PMC chasing tenants for past due balances after they move out?
--- Most PMCs do NOT do collection work!

Appears the PMC has done a terrible job of communicating expectations with you about their services.

Regarding the tenant that wants to pay 12 months of rent upfront:
1) They better have great credit or no-go.
2) Have them prove they are an engineer with a copy of their degree.
3) Get last year's W-2 to prove they were working. 
--- How will you know W-2 is not fake? Sent verification form to that employer!
4) How logical is it to move w/o lining up a new job?
--- Get a written explanation for this! Hopefully it makes sense!

[Martin Grizzanti]

@Jamie Dupont I run a local meet up here in Rochester-might be a good idea to come and learn strategies on how to find better tenants and contractors.

[Jamie Dupont]

Quote from @Martin Grizzanti:

@Jamie Dupont I run a local meet up here in Rochester-might be a good idea to come and learn strategies on how to find better tenants and contractors.

I have a PM that is supposed to be doing this. We actually fired the PM that signed this tenant and came to find out that he closed his PM business, but is still a broker in the area. I would love to do this if we lived locally. We currently live in Fl. Thank you for the offer!

[Carini Rochester]

I have a single family in Greece, NY. I've owned it nine years. I have found that careful tenant screening is critical. My current tenant hardly ever calls about any problems. Repairs and maintenance costs have been pretty low. Depending on your current financing and monthly payments, you might get this to cash flow once you get it repaired and get a better tenant in the house. It sounds like your property manager isn't doing his job. My house was appraised nine years ago at $95,000. Now Zillow estimates the value at $210,000, so Greece houses have appreciated nicely in the past three to four years. Double check market rents. Consider the fact that these areas are appreciating nicely. You'll probably do well whether you sell at the appreciated value, or hold on to it and get a better tenant at current market rent.

[Jamie Dupont]

Quote from @Carini Rochester:

I have a single family in Greece, NY. I've owned it nine years. I have found that careful tenant screening is critical. My current tenant hardly ever calls about any problems. Repairs and maintenance costs have been pretty low. Depending on your current financing and monthly payments, you might get this to cash flow once you get it repaired and get a better tenant in the house. It sounds like your property manager isn't doing his job. My house was appraised nine years ago at $95,000. Now Zillow estimates the value at $210,000, so Greece houses have appreciated nicely in the past three to four years. Double check market rents. Consider the fact that these areas are appreciating nicely. You'll probably do well whether you sell at the appreciated value, or hold on to it and get a better tenant at current market rent.

I agree. Who do you use for PM or do you self manage?

[Carini Rochester]

I self-manage. I think getting a PM is the next step to allow me to grow. But I haven't begun that process yet.

[Jamie Dupont]

Plot twist. My wife told her we will be filing small claims to recover the funds we are owed. She is very good at communicating. The tenant was resistant and we knew we were just trying to throw spaghetti at the wall to see if it would stick. She sent us $1000 today! Like never did we ever think that would happen. So now it’s a $3500 lesson and not $4500. I call this a win in my book.

[Jamie Dupont]

Quote from @Nathan Gesner:

Applicants offering to pay a year of rent upfront is a red flag. The money isn't legally yours until it's earned, which is every month when rent is charged. If the tenant breaks their lease after three months, you are obligated to find a new renter, only charge the original tenant for rent up until the new tenant takes over, and then refund any unused funds. In other words, spending it would be foolish.

I suggest you spend a little time researching other property managers. Use this turnover as an opportunity to research and find a manager that can stabilize the property and take control of the situation so you can focus on other aspects of life.

Remember: cheaper doesn't mean you'll make more money.

Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Try interviewing at least three managers.

1. Ask how many units they manage and how much experience they have. Feel free to inquire about their staff qualifications if it's a larger organization.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, a leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Consider all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. A tenant complaining online might indicate that the property manager handled them appropriately, so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything possible to expose properties to the broadest possible market? Are their listings detailed with good-quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!

 Nathan,

Thanks for this advice. The PM has vetted this tenant and says their credit and current W2/Job does check out (over 700 scores and W2 income to support their story of being an engineer). The only reason we asked for this up front cost is due to lack of employment from relocation. They are expecting a baby and moving back to the area from CT for family support. The PM seemed to think they are a quality tenant that would be good for us after this disaster. We do not have access to this money, nor do we want to spend it. We just wanted it to be in a PM account to pay the rent for year 1 until the tenant has employment. PM has thoroughly discussed how they will move forward with this tenant and we have level set with them our expectations. We are giving them a chance since they were not at fault for this terrible tenant and we fired the PM that was. Hard lesson learned.

I am currently open to other PM companies but it has been quite a difficult task. Mainly because I am a rookie, but also because I did not know these questions to ask when starting out. I am learning by drinking from a firehose. 

Thank you so much for the website recommendation! I do not think that we are being “cheap” by any means. We have 10% cost for PM plus half of 1st month rent for placement and the fees to do maintenance, etc. I will start looking more into detail at these recommendations and be more in depth with my search as I move on from this real estate trauma. I would rather vet these folks myself, however I am also not confident in doing so. I also know that in NY we legally need to have PM if we do not live close to the property. Crazy enough, the property will still cash flow (very little) with this hit. 

I greatly appreciate the though out post. I will be referencing this in the future as I continue to invest. I am currently drinking from the STR firehose as well. It seems to be way easier to self manage since I am local to the property as well as get marketing exposure since I have more control. I honestly feel like the juice is worth the squeeze in STR/MTR and may even continue this strategy as I find myself to be more adaptable and capable of performing. It's more work on the front end, but LTR shouldn't be this difficult.

[Jamie Dupont]

Quote from @Drew Sygit:

@Jamie Dupont a lot going on here!

1) You mention the PMC did a poor job screening the previous tenant.
- What specifically makes you think that other than the parties and damages? How stable was their employment & income?
- How well did you discuss the PMC's screening critieria before hiring them?

2) How many parties did the tenant throw that generated complaints?
- How quickly did the PMC address this issue?

3) Tenant Damages: if the tenant was breaking things, why were you paying for them?
- How sure are you the tenant caused the damages?
- When did your PMC go over the lists of damages to ask if they should charge you or the tenant?
- What does the PMC lease state about tenant-caused damages?

4) Last Month's Rent: how did the PMC let the tenant skip out without paying?
- What do you think they should have done? Starting the eviction process when the tenant  is moving out is a waste of time and legal fees (your money!).
- What does your mangement contract state about the PMC chasing tenants for past due balances after they move out?
--- Most PMCs do NOT do collection work!

Appears the PMC has done a terrible job of communicating expectations with you about their services.

Regarding the tenant that wants to pay 12 months of rent upfront:
1) They better have great credit or no-go.
2) Have them prove they are an engineer with a copy of their degree.
3) Get last year's W-2 to prove they were working. 
--- How will you know W-2 is not fake? Sent verification form to that employer!
4) How logical is it to move w/o lining up a new job?
--- Get a written explanation for this! Hopefully it makes sense!

 These are all excellent points. I want to know what you would have done to do better. In NY we can only collect first and security. How would you as a PM go after someone in the last month of rent? How would you handle this situation?

In regards to the new tenant, credit is over 700. It’s not logical to move without a job, but it’s also not logical to pay 25k up front unless they are a drug dealer. I will find out real quick if that is the case from my neighbors. We are having a full on discussion today regarding our expectations and asking all of these great valid questions while doing so. 

[Drew Sygit]

@Jamie Dupont we automatically send eviction notices for nonpayment, in Michigan, it's referred to as a 7-Day Notice. 

After the 7 days, we can send to an attorney to file for a court date - which incurs attorney & court fees for owner.

We would have had a chat with the owner at this point to discuss pros & cons of waiting vs filing. Often, safer to file with the understanding those fees may be wasted, but better than waiting and then the tenant does NOT vacate (causing more lost time/rent).

Usually court date will be 2-3 weeks after filing, which means 1st or 2nd week of following month. If tenants vacates, can cancel court date and minimize attorney fees. Otherwise, if tenant did not vacate, attorney appears in court and more fees.

Once tenant vacates, we'd have a chat with owner about their options to pursue tenant for collection - which we MAY assist with, but with a disclaimer we're not experts and will be low priority. Otherwise, owner can pursue collections on their own.

The credit score is like the "1% Rule" - a decent filter, but NOT something to rely on.
-- How many active tradelines produced that credit score? We've seen 700+ FICO scores based soley on a Chime tradeline. Chime is a company that has created a bank account system that allows them to report "payments" to the credit bureaus, but it is NOT a vaild tradeline in our opinion. 
-- To consider a credit score as valid, we look for at least two open tradelines that have a minimum 24 months positive history and two more at least 12 months. Otherwise, we start focusing on rental pament history(s).

DM us if you'd like to discuss in more detail!