Real Estate: Troublesome Tenants, Lawsuits, 2 a.m. Calls, and Running Toilets
Posted: Thursday, May 08, 2008
by Jeff Brown
Inner Projection
Dear Wimpy Investor:
I hear that you are comfortable with your 401(k), your Certificates of Deposit, your IRA's, and the like. Well, I have some sad new for you, it's time to COWBOY UP. Why?
YOUR LIFE DEPENDS ON IT!!!!!
Signed,
Willie "Rid em High" Investwell
__________________________________
As I've said before, the state of the financial nation is not well. The level of financial ignorance is alive and well and possibly growing. According to the big financial guys like Donald Trump and Robert Kiyosaki, America 's Financial IQ is sliding downward rapidly toward single digits. If your Financial IQ is low, you have the DUTY to yourself, your family, even YOUR COUNTRY to do the right thing.
Why is your Financial IQ so important? Why do you have to take responsibility for your financial well-being? I cover that in detail in my article "There's a 94% Chance You're in Poor Financial Shape: How to Be Financially Fit Today to Retirement." But to quickly recap, the reasons are as follows: death of pensions and social security, instability of Medicare and Medicaid, weakening dollar, ever rising cost of retirement, lack of job security.
If YOU don't take your financial future into your hands, no one else will.
So what's all this got to do with my topic? Well, if you think problems with tenants, lawsuits, and maintenance are reasons not to invest, then you don't understand the severity of the problem. You need to invest in real estate, must invest in real estate, can't invest in anything else if you want to, need to, got to make the necessary money that you need for retirement.
As I've said in previous articles, the majority of those retiring now depend on the government and family and friends. Well, to tell you the truth, I don't want to rely on anyone who doesn't care about my financial well-being less than I do. And I'm not too interested in going to family and friends. You know where that can end up.
Enough said. Let's get into the issues at hand.
Troublesome Tenants
First and foremost, STAY AWAY FROM RENT CONTROLLED PROPERTIES.
Here's why. My wife and I managed a property that was rent controlled. One of the tenants had her husband living with her. Not a problem in most cases, but he was not on the lease contract (lease being an agreed on set period of time (in this case, one year) before going month-to-month). Actually, she had her mother on the lease, who only stayed with her a brief period of time but hadn't lived there for months. The mother is still on the contract but that's another problem.
So we ended up taking the case to court citing breach of contract. Simply, her husband wasn't on the contract but was living there.
Before going to court, our attorney suggested that we not collect rent since the tenant was in breach of contract. Three months went by and we went to court. Now keep in mind that the tenant was in obvious breach of contract, but since the judge was pro-tenant and this was a rent-controlled building, the judge ruled in favor of the tenant.
On top of this problem was the fact that the husband was a suspected gang member who oftentimes had meetings with several of his unsightly members. We had neighbors complain and even move out because of this guy living there, but this guy and his "breach of contract" wife were protected by the court.
To continue the story, the tenant may have won the decision but she continued NOT to pay the back-rent. After the court decision, she only paid the rent for the current month due. Why? Even though she had been told by the judge that she could stay, she "assumed" that she didn't have to pay the back-rent because she had won the case. But we needed the back-rent, so we took her to court again.
At court she told the judge (a different yet still pro-tenant judge) she assumed that since she had won the decision she didn't have to pay the back-rent. The judge asked her if she called the landlord to ask if this was the case. She said that she didn't. The judge sympathized with her and simply told her to pay the back rent, which she did. Case closed.
I tell you all this because if this was not a rent-controlled property the decision would have more than likely gone in favor of the landlord. Case closed.
Also, check your references. The problem with most landlords or owners is that they don't do a proper background check for potential tenants. The bottom line is that you have to do a thorough job or you pay for it in the long run. One owner even checks the tenant's car while his wife is showing the apartment. If the car is sloppy . . . well, good chance the tenant is not going to be a conscientious renter.
But do not fret. With the proper planning, consulting of attorneys, drawing up of contracts with proper provisions, hiring of managers, and adequate maintenance coverage, and all the proper provisions, you don't have to deal with most if not all of these problems. The little bit of homework and legwork you have to do to set up your property is minimal compared to the financial rewards gained in the long run.
They are FANTASIC.
I know of a couple of investors, one who does it part-time and another who does it as his main source of income, who visit their properties rarely and put in only hours a year in maintaining and dealing with their investments.
Lawsuits
Certainly this is a big concern for the novice or nay-sayer. But with a little bit of effort and the proper provisions any and all problems can be avoided. And in actuality, lawsuits occur very seldom.
Nevertheless, the landlord's main responsibility is to ensure a safe living space for tenants, visitors and all who come onto the property. To do so, you need to follow a very simple rule. Every time a tenant moves in or out, renews the lease, or major repairs are done to the property, an inspection must be done. The bottom line is not to take anything for granted. Cross your T's and dot your I's. Do the little work that is required and you'll stay out of problems.
2 a.m Calls and Running Toilets
First of all, never got 'em . . . the 2 a.m. calls, that is. Why would a tenant call at 2 a.m.? Well, it better be for a serious emergency. What constitutes a serious emergency? Well, if it's the toilet not flushing, sink's backed up, air conditioner not working, not an emergency. If a pipe's broken and the bedrooms are flooding . . . OK, the plumber needs to be called. But in all the time we've been managing properties that call never came.
And the best way to avoid dealing with these problems at all is to hire good managers and good property management companies. You may not be able to do so at first, but as your income increases it's highly advisable that you do. But make sure that you get a referral on your property management company of choice. I was told by one owner / investor that the company she hired "nickel and dimed" her to death.
So bottom line, do your homework, your due diligence, and with some time and practice you'll find yourself making a great income with very little if any hands-on work at all.
All things considered, what with the massively-amazing return on investment, tax breaks, consistent and steady increase in value, and other advantages, real estate outweighs other investments many times over. And when you're looking at needing $1 million, $1.5 million, $2 million just for retirement, you seriously have to look at what your investments will yield for those retirement years.
And if want to retire early with an investment that is safe and secure, one that will make you lots of money on a steady, consistent basis, real estate is the only way to go.
And there is no other investment that requires so little "time" investment with such significant, consistent returns.
In all actuality, you can't afford to not invest in real estate.
Stay tuned. I'll be brining other helpful tidbits of knowledge, insight, and words of comfort and encouragement regarding the only investment: real estate.
-------------------------------------------------------------------------------------------------------------------------
Please read my other article on real estate if you missed it.
Why Real Estate is Your Only Investment Option
This Article has been viewed 393 times. (Not updated in real-time.)
No comments yet.We want your comments! If you can read this, you don't have javascript enabled, so you can't use this comment system. Please enable javascript.