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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.
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30 thoughts on “A Landlord’s Worst Nightmare Comes True”
Wow. Since we are hoping to one day be landlords, I find these kind of stories really interesting. And have lots I can learn from them.
I can’t believe that the first tenant’s story was only 6 months long, yet the damage….wow. Looking back, besides not renting to them in the first place, was there any other way you could have gotten them out faster? I’m sure that’s something that you’ve asked yourself a million times, especially right after and during the repairs.
Thanks for sharing all this! There is so much to take away and use in our future rentals!
Hi. Thanks for the comment. They say hindsight is “20/20” and there are likely things we could have done to get the first tenant out quicker. My health wasn’t good at the time, which complicated matters. Depending where you live, eviction can be a long, complicated matter. In the Toronto area it’s virtually impossible to get someone evicted within the first three months of default — just waiting to go to court can take that long.
Oh man, these sound awful, but I’m glad you were able to get through them! I think the added stress and complication around real estate (along with our current need to save a bit more before finding an investment property) has delayed Mr. AR and I from jumping in. Haha- they may go up and down, but index funds won’t leave dog poop everywhere 😉
I’m not going to lie, it was very stressful. Couldn’t even go on vacation without worrying. Maybe we just had worse luck with tenants than most people.
Lol I laughed so hard at this. No, index funds are angels…??
Ouch. My brother has two duplexes and a six-unit building (I think six units? maybe just 4, not sure now…) and he’s had relatively good luck so far. I want to get into the business as well, but stories like this always ground me a bit and remind me – like you said – it’s not all roses. Glad you got through it all 🙂
Thanks for sharing!
I deliberately stayed away from single family units after the condo. Not because they’re bad, but because our cashflow forecasts always came out better with multis. We’re glad we got through it too 🙂
Wow! Those stories sound horrible. I’ve given a lot of thought into real estate in the past but could never get past the potential of running into these types of problems. One bad tenant can easily ruin a year or two worth of earnings from a single unit.
You’re unfortunately exactly right: a bad tenant can ruin a year or two of profit on a unit. If you read the “Lessons Learned” piece on my blog you’ll notice that we accounted for 5% of rent for vacancy and 5% for repairs. We roughly used that amount over the 7-years we were landlords. So, if you account for it upfront (and actually set it aside, unlike us!) then you’ll be better prepared.
Oh man, that’s another horrible landlord story. Thankfully, I haven’t had to deal with tenants like that yet. I’ve been a landlord for 10 years now. Maybe I should get out while I’m ahead. I do my own screening and maintenance, though. You can’t trust agents and property managers. They are too busy and don’t have time to do everything right.
I think a landlord really needs to do their own screenings and maintenance: you’re right that you can’t trust real estate agents and property managers to have your best interest’s at heart. And my experience is a property manager just calls you when there’s a problem, anyway!
My husband and I have thought about purchasing real estate and being landlords in the future. Stories like this make me afraid to do it, but I guess you have to take the good with the bad. It’s nice to hear that your experiences haven’t turned you off from the idea of being a landlord again in the future.
I think knowing the “dark side” of being a landlord helps you be better prepared. There’s nothing worse than someone buying a property with zero cashflow, not thinking they’ll ever have a major problem, and then being blindsided by one financially
Thanks for sharing the dark side of being a landlord. Tenant screening is by far one of the most important steps. Luckily as a landlord, we are able to use many credit report services now and even get an idea for their lifestyle.
In terms of buy and hold strategy, I recently wrote that it’s quite difficult to do that in Asia as the cap rates simply doesn’t make sense since most Asian properties rely on property appreciation rather than rent for investment returns.
For the U.S. and Canada, I think Naborly definitely fills a void in terms of background checks (not just credit).
I had no idea that the Asian CAP rates were so low! Thanks for sharing.
Holy mother flippers. That sucks, but I’m elated about your profits!!! Excellent reward for the amount of trouble. Thank you so much for sharing our story. Do you have any tips on how to find good tenants? I didn’t know you can use an RE agent for screening.. I don’t have a good feeling about RE agents. A lot of them half ass their work.
Do you have any experience going with a property management company? Or is self screening better? My friend told me to hire a lawyer to draw the contract before getting any tenants in.
I’ve met some good agents for the buy/sell transaction, but never met one that’s really in your corner for renting.
We always used classifieds to find tenants. I recently found out about Naborly (background checking for landlords) and would have used that going forward. We *always* checked with employers, previous landlords, character references.
I’ve had very luke warm experience with property manager’s. To be frank, I think a lot of them just sit back and take your money and then get you involved if there’s a problem — what’s the point of the property manager? Plus it really eats into your cashflow.
Our lease is 9 pages long and covers such diverse topics as running a business (a big “no”) to waterbeds 🙂
One source is property managers. Many property managers offer tenant screening services. They don’t get paid until you get a tenant. Ours will let me know of prospective tenants and although I don’t meet any of them (that’s why we have property managers), I dig into their background. The most important matter to me is their credit score. People who have good credit scores pay bills on time. Period. Another tip I’ve read/learned is, if possible, peek into their cars. If their cars are a disaster, they’re not going to care about your home(s). Most people I talk to complain about property managers. I have my share of complaints but they’ve been keeping good tenants in because I’m involved in the process.
Thanks for providing perspective from your experience. Those problems sound like they must have been very stressful. However, making $800k from all of your properties seems well worth it. Do you recommend only investing in low cost of living areas for real estate?
I’ve invested in both Toronto (expensive real estate) and Hamilton (cheaper real estate). We invested in Hamilton just before real estate there took off and we made far more money from our “B” real estate than our “A” quality real estate. I also prefer properties that need a little bit of work — you often get them at a discount to what it really takes to get them fixed up, and that results in gains when you sell.
The financial gains made it worth it in the end. 🙂
Wow – this was interesting to say the least. We’ve been meaning to get in (building a cash cushion in the mean time), and it’s good to see some real experiences. Glad that it hasn’t scared you away. What doesn’t break us makes us stronger…
Well, the say you learn more from your mistakes than your successes 😉
Thanks for sharing. Being a landlord is definitely a job in many ways, especially if you’re self-managing. However, the gains can be tremendous as you’ve shown. Sounds like you’ve dealt with a lot so I’m sure you’ll be able to handle whatever comes your way the next time you jump in.
I’m looking more for cash flow situations to replace my current income. Investing in my area doesn’t produce any cash flow as well, so I’ve been looking elsewhere as well.
What I didn’t mention in the post was that our triplex were over an hour away…and that’s taking the fast toll-road. Probably wouldn’t do that again 🙂
Good luck with your adventure!
I was a landlord for 8 years and while overall it was a great experience, there were definitely some challenges along the way. In this season of my life it’s easier to put my money into passive index funds than deal with a phone call at midnight due to a flooded basement. But if/when I retire it’s definitely something I would consider doing again.
The one thing I love about real estate is it’s generally a leverage investment and therefore there’s a return multiplier versus something like an index fund. But having dealt with the midnight flooded basement calls too, index funds sound nice about now 😉
Great post! I’ve myself always shied away from thinking about getting into real estate. My father owns an apartment in a city back home in India. He has rented this unit out to tenants on multiple occasions with similar problems that you faced. Property damage seems to be the worst issue. Maintenance of the house and possibility of losing money over legal tussles are barriers to entry into real estate investing. In India this is even worse as the price to rent ratio is much larger than just 30 or 40.
Later on in life I might decide to jump into some kind of a real estate investment but I am avoiding it for the time being as I might be in the US for a limited period of time. Buying something in my home country of India is possible but not unless the prices come down to a more reasonable level.
The price to annual rent ratio on these properties was about 50. It’s hard to make money when buying at those sort of ratios, I’ll agree.
I had a tenant who refused to pay rent and refused to vacate the house. I hired a lawyer, who got the job done eventually, but lectured me about how the tenant was having hard times and I should be more generous. I looked at him and said “who’s lawyer are you? I’m the one paying you but it seems like you’re more interested in tenant” and that shut him up. I lost over 3 months rent and $2,5000 in lawyers fees. Luckily, I’ve had the same tenants since then (going on 6 years now) and they have been wonderful. But that was an incredibly stressful and expensive summer.
That sounds like a true landlord horror story. I’m glad you had it sorted out and found a new tenant that paid rent and stayed for a long time. 🙂