How Much Will a Bad Tenant Really Cost You?

So you’re a new investor, and you’ve read investment blogs and articles online, and talked to your investor friends, and you feel like you’ve got a solid understanding of how everything is going to work.

But does that understanding extend to just how much a bad tenant can cost you? And why it is absolutely critical that you perform your due diligence when screening and selecting new tenants?

I hope so, because most of the newbies I talk to really don’t grasp just how much damage one bad renter can do - and I’m not talking about just to their property. Allow me to run down some of the costs you can expect to incur once a bad renter has taken residence:

• Late and/or partial payments - This is one of the hallmarks of a bad tenant - they don’t pay on time and in full. There’s usually a fun story to go with it too, like they’ve been really sick and unable to work, or they had to spend the rent money on their dying grandmother, or their dog ate their paycheck. I could probably dedicate a whole post just to some of the excuses I’ve heard. Suffice it to say, when they make late/partial payments, it’s you that’s eating that cost.
• Eviction process - So you’ve finally had enough of the bad renter and decided to evict. Well, get ready to shell out even more money. There are court costs, fees to file paperwork, expenses to get the sheriff to serve the paperwork, and more. If you need to hire an attorney, go ahead and tack those fees on as well. And sorry, but YOU’RE the one paying for all of it, not your crappy tenant.
• Repairs and cleanup of the property - Great! You’ve finally got the awful renter out, and now you can get in there and see how much damage they’ve done. More often than not, it’s a lot. At a minimum, you’ll have to pay for someone to come and deep clean the place and slap on a fresh coat of paint, but oftentimes there is a need for new flooring and appliances as well. So, there goes even more $$.
• Vacancy - Meanwhile, you’re still paying the mortgage on the property, and there’s no paying tenant whose rent money is helping to buffer it. Ouch.

Obviously, you don’t want to find yourself living this nightmare. So what do you do? You screen your potential tenants like they’re applying for a NASA security clearance. Well, not really, but you catch my drift. Background and employment checks are essential, and so is requesting references from previous landlords so you can get firsthand info on how they are as tenants. Don’t approach this with a “I’m a good judge of character” attitude, because if your character radar is even remotely off, it’s you who will pay the ultimate price.

Another option is to hand this task over to the pros. A professional and experienced property management group can handle tenant screening and selection, and they have all the resources and tools necessary to perform the most thorough check. It’s well worth the fee to know that the selected tenants are high quality ones who will pay rent regularly and treat your property with respect.

My advice to newbie investors is this: do not underestimate how much one bad tenant can cost you. I’ve seen cases where properties were damaged seemingly beyond repair, investors lost thousands of dollars, and some even gave up real estate investing entirely - all because of one bad seed. Don’t let this happen to you. Take tenant screening and selection seriously to ensure that you end up with high quality renters who won’t cost you an arm and leg when their lease is up.