Our First Investments: Lessons Learned

So there we were living in an apartment and paying $1100 a month on a house that had been sitting vacant.  "What are we doing?" we kept asking ourselves.  "What if we never find a renter?"  We had wasted our time driving an hour to the property and showing it to caller after caller who ultimately weren't qualified or interested.  I was more than happy to hand that job over to property management.  

The stress of a vacancy was weighing heavy.  When property management called with an interested applicant, we more than welcomed them.

Our first tenants looked good on paper and property management had nothing but good things to say about the couple.  They passed their background checks and had no prior evictions.  Our prayers had finally been answered.  We had a renter!

The first red flag appeared almost immediately.  The tenants were not going to be able to pay the full security deposit before moving in and asked if they could pay in two increments which lined up with their paydays.  We accepted.  We could not afford any more vacancies.  

The tenants made good on their word and over the first couple months, we did not hear from them.  Everything was presumably well.  Being a landlord was easier than we expected.  All we had to do was provide a nice, clean house and collect a check every month?  If there were any problems, property management would handle everything.  This was a dream come true.  Why wasn't everyone doing this?

As we entered the holiday season, everything went south.  The tenants made a late payment, which we were forced to apply a late payment penalty.  They kept telling us they could not afford the full rent but could pay some now and the rest later.  We took the payment because we would rather have some money than none at all.  We kept letting them string us along, month after month.  It wasn't until a conversation the tenant had with us explaining that they couldn't pay us the promised partial payment because "How else am I supposed to afford my cigarettes!" that we lost it.  

I began researching eviction and discovered that those partial payments I had been taking constituted a payment made by the tenant which would not allow me to proceed with a notice to pay or vacate.  I felt lost, uneducated, and taken advantage of.  

We waited until the next month, did not accept their partial payment, and requested property management to deliver a notice to pay or vacate.  Although they said they would, five days later they had still not delivered the notice to the tenant.  

Enough was enough.  We fired our property management company and took action ourselves.  That night, in the pouring rain and darkness, I hand delivered two Pay or Vacate notices to the tenants, posted two on the front door, and took photo evidence of the delivery.  

We eventually talked the tenants into moving out early.  We promised a full refund of their security deposit as long as they made a good faith effort to bring rent current.  They began making small deposits into our account and we counted down the days until their departure.  

If this is how being a landlord was going to be, there was no way I could keep up.  Something in the back of our heads told us not to give up.  This was the learning curve.  It was only our first experience.  Many of the books on success I had read talked about learning from your failures and failing your way to success.  This gave us the necessary motivation to not give up, learn from our mistakes, and get back into the game.  

I immediately placed the house up for rent and had showings scheduled the day the tenants moved out.  I decided to arrive a couple hours before the showing to make sure the place was tidy for the showing.  On opening the front door, I was hit with the odor of pet urine.  The carpets were stained, some doorknobs were broken and there was a hole in the bedroom door.  

I began ripping the living room carpet out, only to find that the urine had soaked through the pad and stained the sub-floor.  I had the entire living room stripped when the people arrived for their showing.  

I took them through the house anyways, explaining the situation and apologizing for the odor.  It was embarrassing to show such a disgusting house while demanding about $150 over median rent for the area.  In my head, I was sure this was a waste of time.  My promises for a clean, odor-free home on move in must have been enough because those same tenants put in an application and eventually moved in.  

Lessons we learned:

1.  We could not trust property management to care for our investment as we would.  It was an inconvenience for this company to deliver notices to the door of the property and they did not play an active role in communication with the tenants.  We learned that, in the beginning, it would be in our best interest to screen tenants ourselves.  Through trial and error, we developed a pre-screening worksheet that we run every potential applicant through.  Properly screening tenants has been a major priority in our business practices.

(We included a LINKto the screening tool we use.  Fell free to use it!  We borrowed it from some guru and modified it to fit our situation.  Hope this helps!)

2.  Do not allow tenants to make partial payments.  The tenants could not afford their full security deposit on moving in, which was a huge indicator of future problems.  Find the right tenant who can easily afford your rental unit.  

3.  Be familiar with the steps necessary when things go wrong.  Know and understand your rights and responsibilities as a landlord.  We should have been better educated on the eviction process and delivering notices to the tenants before a problem arose.  We also should have taken those steps immediately, instead of allowing the tenant to string us along for so long.

(We also included a LINK to the Pay or Vacate notices we use, which include instructions on how they should be delivered.  These are for reference only.  They were obtained for free from Eller Law Firm PLLC's website and may be specific to Washington State).

4.  Never give up.  In order to be successful, you have to be determined to win no matter what.  Although we felt defeated at times, we kept our long-term goals in focus.  When I told my parents about the disaster we had just experienced, they asked, "What are you going to do?"  I told them, "I am going to rip the carpets out, seal the smell, put new carpets in, and get this place rented."  

In the next blog post, we will share the story of our very first actual investment property purchased.  

See you there!