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Real estate investment is one area I have been itching to get into in the near future.
I’ve felt the urge to buy rental property ever since I was in college.
That urge intensified after Mr. FAF and I bought our first home in DC and I got a taste of what it’s like to purchase property.
We are still trying to pay off the mortgage on our primary residence before buying our first rental property.
While waiting for that day to come, I have been learning about property management and the buy-and-hold strategy through online resources and from my landlord friends.
When the The Side Gig Guru reached out to me about guest posting, I checked his website and knew right away that I could learn from his landlording experience.
The Side Gig Guru used to work in the high-flying world of finance until an accident put him on the sidelines.
Since then he has made a living performing side gigs when he can, including his most profitable to-date as a landlord.
He is located in Toronto, Canada, and his real estate investments were spread between the cities of Toronto and Hamilton.
His blog at thesidegigguru.com explores various side gigs and hustles and is slowly building up a library of posts.
Without further ado, here’s a guest post from The Side Gig Guru about his landlording nightmare.
One side gig that has netted me $800,000 over the past 7 years is investing in four rental properties (from a condo to a triplex) as a landlord.
Real estate can propel your way to success and wealth as it has produced 7% of billionaires in the US. You will find many articles on how you can achieve riches with real estate.
What most articles don’t tell you, however, are some of the horrors of being a landlord.
Being prepared, as they say, is the best way to deal with all eventualities. I’m hoping that by sharing some of my experiences, I can offer a more realistic look at what it’s like to be a landlord.
Story 1: The Troubled Tenants
I was in hospital in 2015, and my wife had hired a real estate agent to find us a tenant for an empty apartment in a Victorian house.
You would think a real estate agent will do a bit of pre-screening as part of their job. However, our real estate agent seemed to have sent the very first tenant that expressed an interest in renting.
My wife had checked their background in terms of previous landlords, employment, etc. At the time, we didn’t check the tenant’s credit history as it was impossible to do as an individual landlord. Luckily, services like Naborly have now appeared to fill that gap.
Upon getting out of the hospital, I hopped in my truck and drove out to meet the tenant.
The first clue I had that something may be wrong was the appearance of the tenants. It’s hard to put in words the subtle signs, but my Spidey-sense had been tripped.
The second clue was that they were supposed to bring a bank draft for their last month’s rent with them. When I asked for it, the husband said “Do you really need that?”.
I dispatched them off to the bank and was surprised when he came back with $2,000 in cash.
Non-payment of rent
After their first month of moving in, we began to have issues collecting rent. Not only that, the wife was aggressive in dealing with my wife on the matter. (My wife tended to deal with the tenants on “customer service” matters; I did the renovation and maintenance.)
One party moved out without telling us
Within a couple of months of moving in, the wife and kids mysteriously disappeared. We’re not 100% sure when or where they went, but it was alarming.
Luckily, we wrote our lease to be “collectively and severably responsible.” That meant that we could hold the wife accountable if we found her, and that we could also hold the remaining husband accountable for his wife’s half of the rent otherwise.
After the wife and kids moved out, we started to get vibes that there was drug use going on in the unit. A neighbor mentioned this to me when I was at the property doing some yard work. I shared the bad news with my wife, who was not at all happy.
Hiding from us
On several occasions my wife or I went around to the property. Bear in mind I lived an hour away, so I couldn’t just pop around.
We were sure that someone was home and hiding. Unfortunately, we couldn’t just enter as the law states we had to provide a written notice 24-hours in advance. And we weren’t even 100% sure there was anyone there to receive it.
Eventually, we decided to pursue eviction. In our jurisdiction, eviction generally takes about three months and actually involves the landlord (and possibly the tenant) appearing in court.
We delivered the notice of attending court to the property, and that must have been enough to scare the tenant to leave.
When I went back after having appeared in court and won an eviction order, it was clear that there was nobody living there. I let myself in and had the shock of my life.
On entering the property, I was presented with:
— Dog poop everywhere
— Drug use residue
— A huge amount of belongings including two couches, a bed, chairs, dinette table, toys, books and magazines, and a full kitchen
With respect to the dog poop, I can only presume that their dog had been left in the house alone for some time. I honestly can’t even imagine someone doing drugs living like that.
Along with the general mess, there was physical damage to the property beyond just cleaning and painting.
The kitchen ceiling had caved in because a leak had sprung in the back roof. Since the tenants weren’t paying their rent, they had apparently decided not to tell us.
Eventually, the drywall came down. This meant replacing an 8-foot by 4-foot piece of fire code drywall, texturing it to match the rest of the ceiling, and painting it.
In the basement, there was also drywall damage from a toilet leaking in the powder room above. It was proof that even a small leak, over time, can do serious damage. The tenant never told us because they weren’t paying their rent.
All in all, this ordeal lasted about six months. It probably cost us around $10,000 including lost rent from the tenant, repairs and lost rent while we did the repairs.
Story 2: The Costly Repairs & Exorbitant Legal Fees
We had a unit in a Victorian house that spanned the first floor and the basement. The basement was a finished living space.
We assured the tenants that the basement was dry. However, shortly after the tenants moved in, they reported that a small amount of water had appeared on the floor.
Given the age of the house, we assumed it was a foundation leak of some sort. It was a stone foundation that had never had any sort of waterproofing treatment.
To complicate the matters, most of the exterior of the house around the foundation had asphalt pathways and were in close proximity to the next door properties. This meant that traditional exterior foundation waterproofing was out of the question.
We interviewed a couple of companies and selected one who could water proof from the inside rather than outside.
Waterproofing the basement from the inside required breaking open the concrete slab that forms the basement floor. The contractors then had to carry outside every piece of broken slab by hand. The work was messy, to say the least.
To compound the problems, the tenant had a lot of furnishings and belongings in the basement. We literally built a “tent” out of polythene, complete with zippers for doors, to contain the construction whilst protecting the tenant’s belongings.
The tenants immediately started freaking out about their lost space, the potential mess, and general disruption to their lives. Of course, in some respects, they were entitled to be.
We had arranged for all the work (digging up the concrete slab, laying trench for waterproofing, refinishing slab, and refinishing affected drywall and tiles) to happen in two consecutive days. This required a lot of coordination.
We ended up getting into a legal tussle with them over compensation. We’d offered them approximately half a month’s rent as compensation, which we felt was fair.
They wanted more.
Eventually, we even had to engage a real estate lawyer. The lawyer politely explained to the tenants that no court would likely award them anymore than our generous and fair settlement.
Poor us: the legal fees outweighed what it would likely have cost just to make the tenants happy in the first place
In the end, whilst they were digging trenches for waterproofing, they found the leak was from the junction between a waste pipe and the ground and not from outside the foundation.
$12k of repairs and an angry tenant later, we found out that all we needed for the repair was a $20 rubber boot.
I could have cried. Besides the large financial expense, it was emotionally draining to deal with an aggressive tenant.
After having experienced the two unfortunate incidents above, I have drawn four main lessons about landlording:
Never rent to someone without seeing their credit reports, and don’t assume a real estate agent is pre-screening candidates.
When I met the tenants from Story 1, I’d actually texted my wife during the time they went off to get their money and asked her if they were background checked. They had spooked me a bit. She said they’d checked out.
My instinct, however, was not to rent to them, and I should have followed that. Who turns up to sign a lease on an apartment without the money?
As soon as you get lawyers involved, money starts flying out of the window. It would have likely been cheaper for us just to give the tenant a free month’s rent, although we felt our original offer was fair. Sometimes you just need to cut your losses.
Get repairs done as quickly as possible. We did this in story 2 (two days was an amazing piece of coordination for the amount of work done). But we let things linger after the tenant had moved out in story 1.
Leaving an apartment empty is like leaving money on the table. It’s often cheaper to hire trades and get it done quickly rather than trying to do it yourself and taking your time.
Being a landlord is not all roses. It was definitely hard work, and we learned a lot (the hard way) in the process. We also did very well financially. Between the four properties we had, we netted nearly $800,000 before taxes.
I have now sold all of my rental properties since it has become increasingly difficult to make cashflow where I currently live. However, I will likely be a landlord again at some point in my life.
If you have questions, or comments, I’d love to hear (and answer) them! You can follow my exploits at thesidegigguru.com.