Real Estate Investing: dream or nightmare?

[MJ DeMarco]

Multiple posts deleted from this thread due to douchey, PUA shit.

Let's start over and remind ourselves that there are women here who don't want to hear your gender worldviews. Freaking keep it to yourself, or sanitize it. Thank you.

 

[MidwestLandlord]

Old thread, never saw it before. I know this is not the reason this thread was bumped, but I had to speak up...

A word to the wise for everyone about discrimination, since this thread is downright scary.

Social media, including this forum, CAN AND WILL be used against you in a discrimination complaint or lawsuit.

I HAVE BEEN on the wrong side of discrimination complaints before (in retail, not rentals) and part of the investigation(s) included my social media accounts being searched for evidence that I had a "history" or "propensity" to commit discrimination.

I "won" all 3 cases (age, race, & gender) against me because I protect myself, and I legitimately do not discriminate, but my "award" for "winning" was combined attorney bills of over $100,000 and they took over 2 years each to complete.

I now take my employees through HOURS of anti-discrimination and anti-harassment training.

When I interviewed tenants myself and didn't use a manager(s), my application included not only the date, but also the TIME they applied. If 2 qualified people applied on the same day, I picked the one that applied first based off the time.

The EEOC and the EHOC are NOT to be messed with. (keep in mind these have both state and federal departments)

Be careful what you write on this forum and anywhere else on the internet.

That concludes the MidwestLandlord PSA for the day, now back to our regularly scheduled programming.

 

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[Chazmania]

(I'm clearly not up to speed on all rental laws and big thanks to @SteveO and @jon.a for clarifying some of the legalities regarding these situations. I posted to try to educate others but have become the educated in the process.)


*** Little bit of a rant with a moral to the story below ***


Ok you have the building itself and you have the people that you rent to. That's mostly what you have to deal with when renting out for cashflow. There's more of course but basically that's it.

If I could offer one piece of advice that might save anyone some real misery, new or not so new to the game of landlording, it's this:

Choose your tenants like you'd choose your husband or wife. Don't compromise.

If someone is desperate for a place to rent like immediately and they have some kind of story that indicates any kind of potential headache for you then absolutely 100% pass on them. I don't care how much you are losing in vacancy, find someone else. Trust your gut feel.

In other words, only go with a slam dunk. Income, credit, personality, and story must all be a slam dunk.

Why am I posting this? Because I just broke my own long standing rule recently and I knew I shouldn't have, but I did it anyway. And I am regretting it.

A woman comes to look at an apartment I have and she loves it. She loves how clean it is and the fact that most everything in it is new and freshly painted so she immediately wants it. Loves the place.

She seemed ok to me at first but there was something about her that gave me a little weird feeling in my gut. Something about her demeanor just seemed a little off. I ignored it. I wish I didn't.

I was in a hurry to get the place rented after going through a grueling period of renovations, repairs, and multiple vacancies. Those costs really add up fast!

She said she was going through an ugly divorce and she needed to get out of her house. She assured me there would be no drama spilling over but she needed a place like yesterday. Of course me being a good guy, I decide it would be nice to help this poor woman who clearly needs it.

Well you can probably guess the rest: she turns out to be an obnoxious nutcase, refuses to cooperate at all, complained that the place was filthy (!), accused me of all kinds of crazy things which arent' true, she's making the other tenants uncomfortable in the building, she wants to change all the terms in the lease after we agreed to them and signed weeks ago, and then of course we'll see what happens come rent collection time in a couple weeks....

She gives me the creeps when I talk to her now because it's obvious now that she's mental and irrational.

Aye. I sense an eviction coming.

Good tenants are like superstar employees. The bad ones not so much. Things run sooooo much smoother and easier when you have all superstars. So much that you might take it a little for granted. Please learn from me on this one. Dont' take it for granted. Rent to superstars only.

I thought I was really helping this lady but no good deed goes unpunished. Truth.



Edited: Originally wrote "dead" instead of "deed". Wishful thinking (freudian slip) I guess lol
2nd edit: I changed my description of the tenant a little bit

 

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[JustAskBenWhy]

The property you buy, what it is and where it is, does 85% of the qualifying and disqualifying for you so you don't have to

 

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[SteveO]

I don't understand why you say this. A PM business is just like any other business -- if you operate it well, it's "fastlane." If you don't operate it well, it's a "job."

A friend of mine owns a PM business that manages 1900 units. If he wanted, he could completely extract himself from the business and collect dividend checks on an island somewhere. How is that not fastlane?

I know someone that manages over 10K units with the bulk of them in three states. He works it as a job for sure but generates a large amount of cash. He has been given ownership stakes in a number of 200 plus unit apartment complexes.

But, all in all, I don't like the business either. PM is a necessary evil.

 

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[Chazmania]

Thanks a lot.

You're in New Jersey right, so I guess this is a case of a New Jersey property?

Any idea how costly the eviction process is? Suppose you send a notice of eviction and the tenant does NOT move out.

What happens then? Contact the sheriff's office?

How much does a forced eviction cost you where you need cooperation from the local authorities?

Yes in New Jersey.

Fortunately I haven't had any part of the eviction process for about 8 years because everything has been a good fit.


But if someone doesnt pay my process is like this:

Keep in mind I've already explained how it works to the tenant from day 1 so there's no surprises. I tell them if not paid I have no choice but to start the eviction process immediately.

I dont give them notice myself, I just go right to city hall and file for eviction to get the process going. That fee is about $50, which I'll add to the tenants amount owed. So now they owe the rent + late fee + court cost to be all caught up.

Landlord and tenant both recieve a postcard in the mail from the court listing date and time of court date, and that's usually 4 - 6 weeks out. No lawyer is required for either party, but either could get one if decide to.

%90 of the time they would pay before the case is even heard.

For the ones that end up in front of the judge you just hope that the judge sees that no pay = automatic win for landlord, but you never know. It depends on the city/town because each one is different. (This is why I really try to nail the criteria listed above so it never gets to the point of going to court!)

If landlord wins I think the court grants about 5 - 7 more days for them to leave willingly. If they still havent left then I need to go to the sherrif's dept and pay a fee (not sure how much these days) and they set up a day to go to the house and physically remove them if that's what's required.

Obviously this is why we want to put the right tenant into the right property and keep them happy! Happy tenants usually pay, and when they pay it solves a whole bunch of problems upfront.

So from start to finish:

They already owe the rent + court cost that you paid out of pocket + you're waiting about 6 weeks for your court date + another 5 days for tenant to leave willingly + paying the sherrif to come out + the time it takes them to get there (I think another 3 -5 days...) + and now you're left with a house full of their shit to get rid of + fix whatever they broke + paint + put it back on the market and wait for Mr and Mrs Wonderful to show up to rent it........

That's a whole lot of vacancy, repair costs and headaches!



Now you see why I'm shifting my focus from real estate to internet-based fastlane compliant businesses!!

 

[SteveO]

Folks, I don't know how many rentals are required before you fall under fair housing laws but it is not many. Some of the advise in this post can totally ruin your business. If you are found guilty of violating fair housing the penalties are VERY STIFF.

There is good advice in this post but the part about selecting your tenant can get you into serious trouble. I would recommend taking a fair housing training class.

By law, you must take the first tenant that applies for your rental that meets your minimum rental criteria. You are not allowed to pick and choose.

The rental business is tough. Set your guidelines appropriately so that the applicants have enough work history and income. Decide the dates and severity of criminal convictions that you will take. Set the criteria for past evictions if you are going to take them at all.

When multiple people apply, take the first one that qualifies.

 

[Chazmania]

Care to elaborate on the system(s) you currently use?

Sure.

It's a very loose 'system' just based on common sense and my own experience:

1. Always try to pick well qualified tenants that show me during the 1st viewing of the place that they totally LOVE the place. I want them to really want the place almost to the point of showing nervousness that they'll lose it. That tells me I have a motivated qualified customer. I don't want them to kinda like the place. Which prompts point 2...

2. Make sure the place is in excellent working condition and completely spotless when showing. Provide a quality product. Basically try to provide as much value as possible and give them what they want. Try to include as many things that they would find attractive: curb appeal, storage space, off street parking, laundry, allow pets sometimes, nice yard for bbq etc, and instill confidence in them that I'm committed to making sure they're happy while they stay there. Basically good management. I want them to move in and stay in as long as they are renting.

3. I price just a little under the market most of the time.

4. Always treat them with dignity and respect, and ask how everything is going - especially with the rental unit. I want to find any problems before they bring it up, and then squash it, so I ask when I see them or when collecting rent. I can fix/build/repair almost anything so I'm always right on top of issues. It keeps my busier than I could be, but overall it's the right way to do it.

5. I try to make sure I like the people and have a good gut feel about them, and that they respect my position as the boss. That way I never need to pull rank, so to speak, because I'm renting to someone that as long as treated fairly and getting good value, they will never really challenge my position. This is the one thing I didn't stick to with the tenant in the story above.

For the most part that's it I think.

Provide good product. Provide fast and effective service. Choose good peeps that respect authority (so I never need to use it), and try to only rent to people that I'd enjoy dealing with...within reason.

Can't always get every point on the list perfectly but I've done pretty well with it over the years.

 

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[Bellini]

Folks, I don't know how many rentals are required before you fall under fair housing laws but it is not many.

True, @SteveO - in my state it's five rentals.

You can own up to five rental units and be as picky as you want about who goes in them.

Any more than that and you move under Federal Fair Housing Laws.

That's the way it was several years ago anyway.

Like Steve said, I would advise each person to know their individual state laws and take a short fair-housing seminar in your state.

Unfortunately, the law has historically favored the tenant, so know your stuff!

 

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[MidwestLandlord]

Some of the things I wrote in this thread at the time certainly wouldn't be considered good legal advice, but they were written from experience to help small property owners avoid some of the problems that can come when you put the wrong tenant in your REI. It can be a nightmare. The same conversations I've had privately with other landlords I know and I was also a bit emotionally charged at the time I wrote it, so yeah - maybe a bit too much info.

Take it all with a grain of salt - or just disregard it completely if there's nothing useful.

Yeah, I wasn't picking on you specifically. More just a general warning to the group.

This is actually one of the biggest reasons I use a property manager, is not only do they keep up on the laws concerning equal housing, but it also takes the emotion out of it for me. I just make sure I buy properties that tend to attract the kind of tenant I want, and let them do the rest.

Specifically, families tend to be the most stable, so I buy family homes. If I can get a family home near a school, even better because people are less likely to move (and therefore more likely to pay) when there are kids involved.

I don't buy 1 bedroom places, places near colleges, etc. I have a 2 bedroom condo, but it's luxury so it attracts the professional type, and they tend both pay and be gentle with my property.

I go so far as to take any form of heating out of my garages, so I don't attract the "do it yourself mechanic" types, who tend to trash the place. In the places where I can still easily rent without accepting dogs, I tear out any fencing so I don't attract tenants with dogs in the first place (and less likely to sneak one in later).

I paint my property manager's number above the washer/dryer in each place. This way tenants easily have the number if they need to call, and I am less likely to get complaints to the government that they didn't have hot water or whatever. At the very least this gives me defense if they do complain to the government but we were unaware of the issue.

There's ways to get the tenants you want, keep them, and protect yourself, while staying 100% in the clear with the law. But it starts with the property, not the tenant application.

I'd just hate to see someone get in trouble with a discrimination complaint or suit, because it is a living nightmare to go through.

 

[Chazmania]

Yes landlording does involve bullshit for sure but it can be minimized.

Since 2007 I can count on 1 hand how many arguments or incidents I've had with any of my tenants, and those were quickly worked out and minor. Zero evictions or court dates and I have multiple 3, 4, and 5 year tenants. When all fits well it's very minimal friction.

Many years ago when I first started landlording it was almost nothing but bullshit because I didnt have a system down.

 

[H. Palmer]

Yes landlording does involve bullshit for sure but it can be minimized.

Since 2007 I can count on 1 hand how many arguments or incidents I've had with any of my tenants, and those were quickly worked out and minor. Zero evictions or court dates and I have multiple 3, 4, and 5 year tenants. When all fits well it's very minimal friction.

Many years ago when I first started landlording it was almost nothing but bullshit because I didnt have a system down.

Care to elaborate on the system(s) you currently use?

. Tenant selection

. Property manager selection

. Property selection

. Eviction procedure

. Maintenance and inspections

. Insurance

. Sell property

... More?

 

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[Chazmania]

Do you do a credit report check on potential tenants ? I do, just to see if they have a history of late payments.

I do ask references from previous owners as well, and proof of employement

I do a credit/background check and verify employment.

I don't ask for refereces from previous owners becuase I feel that if the tenant was a bad apple then the landlord might lie and exaggerate in the other direction telling me how great they are just so they could get rid of the tenant.

I personally feel that if credit/background/employment checks out, and I have a good gut feel about them, then I trust my own judgement.

I'm also secretly gauging and judging everything they do and say during those first interactions. I'm looking for consistency in their actions, punctuality, demeanor, do they seem to have their act together, etc.

I try to rent to people that I'd be comfortable living next to with me and my wife.

 

[jon.a]

Yea I'm willing to risk it - but on the surface I'm not sure any potential tenant would know the difference. They all get treated equally when viewing the unit, all get the same questions, and I tell them I'm collecting applications from whoever is scheduled. Then I run the best pick and boom it's rented. Maybe I'm wrong to do it but....

I'm very sensitive to the protected classes list.

 

[JustAskBenWhy]

Landlords, house flippers, blah blah...Look, you can look at this from several angles. If you've got any contracting/construction experience, find something that has good potential for a flip, go for it. Why? I've seen properties where a house was in such bad shape the owner wanted it just gone, and priced it well below even the market value of the land it sat on. If you can fix that, sell it, imagine your margins. Now, imagine scaling this. Imagine doing this enough where not only you make a bunch of cash, but you also build credibility to raise a real estate asset management fund that works on larger properties.

No one said it's easy. But, the reason I don't pay taxes is because I own real estate - and it makes money too - and it builds the balance sheet in its own right... When folks look at RE is a means of instant gratification, more that 75% of the benefits of RE are being overlooked

 

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[Bila]

Do you do a credit report check on potential tenants ? I do, just to see if they have a history of late payments.

I do ask references from previous owners as well, and proof of employement

 

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[Chazmania]

The property you buy, what it is and where it is, does 85% of the qualifying and disqualifying for you so you don't have to

Yes couldn't agree more. Good peeps want to live in nice houses in nice areas, and usually conduct themselves accordingly.

 

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[Chazmania]

I'm very sensitive to the protected classes list.

Exactly. Everybody that walks through the door gets the VIP treatment. Super nice and courteous from start to finish even if their 9 kids are doing wrestlemania in the living room.

 

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[jon.a]

I'm very sensitive to the protected classes list.

One thing that surprises some folks is that the mentally ill are protected. Be careful.

 

[SteveO]

The property you buy, what it is and where it is, does 85% of the qualifying and disqualifying for you so you don't have to

I agree with this but having a nice rental in a great location will not stop the problem tenant from trying to get in.

On the other hand, having a poorly maintained property in a bad location will certainly eliminate most of the great renter pool.

 

[JustAskBenWhy]

I agree with this but having a nice rental in a great location will not stop the problem tenant from trying to get in.

On the other hand, having a poorly maintained property in a bad location will certainly eliminate most of the great renter pool.

Damned if you do and damned if you done't...lol

All I am saying is that management cannot fix issues in a property which inherently attracts trouble, and that's a function of people having to make too many compromises. At the end of the day, we want tenants who have options, and yet they chose our property, because of what it is and where it is. In the absence of that, we'll have to spend ourselves trying to convince people to live there, and that's not a winning formula...

 

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[SteveO]

Being a landlord / property manager is a slow lane business.

It can be. But like most anything else, you can make a lot of money off of it. Now I am at the point of collecting strong monthly income without doing much.

It is all about having a plan and a process. For the most part, I would make over 200% annually while active in the "investment cycles". Sometimes, much more...

 

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[Finance_Machine]

I will elaborate:

First, if you are spending your own time primarily working on property management, it is indeed slowlane. Not all slowlane is bad.

I invest heavily in property management because it gives me control. If PM didn't give me control to drive the value of my assets, then I wouldn't do it. It is a necessary component of having a fastlane business (the real estate investment company).

If you look at a company that focuses on just property management (or even mostly property management)...what you will most often see are people that have built themselves a "job".

On the other hand, if you have a property management business to ensure control of your product (meaning, tenants get a high quality product and you are creating a financial product of which property management helps you manager results), then you have a completely different animal.

In summary, a property management business by itself is indeed slowlane. If you invest in human resource systems (property management) to get a better result from your real estate investment company, then it is just an added and necessary component to a fastlane business.

Lastly, I know very few people that were able to amass the "chips" necessary to play the REI game by being solely a property manager. Even if you do convince some people that your PM skills are so valuable that you should get a crumb of ownership, it isn't the kind of skillset that warrants people throwing huge junks of equity your way.

 

[MJ DeMarco]

but the member who posted his crappy reply.

Which was deleted. My post wasn't in reference to your thread topic which is a legitimate discussion.

 

[jon.a]

Folks, I don't know how many rentals are required before you fall under fair housing laws but it is not many. Some of the advise in this post can totally ruin your business. If you are found guilty of violating fair housing the penalties are VERY STIFF.

There is good advice in this post but the part about selecting your tenant can get you into serious trouble. I would recommend taking a fair housing training class.

By law, you must take the first tenant that applies for your rental that meets your minimum rental criteria. You are not allowed to pick and choose.

The rental business is tough. Set your guidelines appropriately so that the applicants have enough work history and income. Decide the dates and severity of criminal convictions that you will take. Set the criteria for past evictions if you are going to take them at all.

When multiple people apply, take the first one that qualifies.

I must be a criminal then. I take the best qualified.

 

[Chazmania]

Folks, I don't know how many rentals are required before you fall under fair housing laws but it is not many. Some of the advise in this post can totally ruin your business. If you are found guilty of violating fair housing the penalties are VERY STIFF.

There is good advice in this post but the part about selecting your tenant can get you into serious trouble. I would recommend taking a fair housing training class.

By law, you must take the first tenant that applies for your rental that meets your minimum rental criteria. You are not allowed to pick and choose.

The rental business is tough. Set your guidelines appropriately so that the applicants have enough work history and income. Decide the dates and severity of criminal convictions that you will take. Set the criteria for past evictions if you are going to take them at all.

When multiple people apply, take the first one that qualifies.

You would definitely know better than me - you've done many multiples of my experience. I knew you can't discriminate in any way shape or form with tenants but I wasn't aware that we're required to rent in that way. What I do would appear to be in line with that though anyway.

I certainly don't want to steer anyone in the wrong direction, but when it comes to putting a potential problem in there or a good fit, I'm willing to make sure I've got the fit. Putting a bad one in there is asking for trouble.

I'll always give an app to anyone that asks but the first and potentially only one that gets run is the good fit. I call the others back and tell them sorry its been filled and I meet them over there to give app fee refund and wish them the best.

Honestly I didn't know that I may be violating any laws - I've just always done it that way.

I'm glad you posted.

 

[Chazmania]

I must be a criminal then. I take the best qualified.

Yea I'm willing to risk it - but on the surface I'm not sure any potential tenant would know the difference. They all get treated equally when viewing the unit, all get the same questions, and I tell them I'm collecting applications from whoever is scheduled. Then I run the best pick and boom it's rented. Maybe I'm wrong to do it but....

 

[Chazmania]

Just a thought here to anyone reading:

Listen to @SteveO if there's any doubt regarding tenant selection.

I posted to try to save headaches for landlords, certainly not to create a new one.

 

[Nicko]

I don't really know how the market works in the US so there may be some differences, but over here I have a property manager look after mine. And I rarely ever have a problem at all. I screen and carefully select a property manager once, and they then screen and manager all of the tenants on an ongoing basis.

There are people over here that like to manage their own property, but I'd rather pay the 5% and have someone professional do it. Besides, the management fee is just another cost I factor into the rent I charge anyway.

I also have comprehensive landlord insurance on every property which includes; denial or prevention of access, malicious or accidental damage, theft, legal liability etc.

And whilst being a property manager (professionally) may be 'slow lane' being a land lord can generate considerable passive income. But like any other investment, you have to do your due diligence.

 

[JustAskBenWhy]

Being a landlord / property manager is a slow lane business.

Haha - Really? Explain...