Today I had the opportunity to clean a condo that was previously owner occupied (helping the family out for free). This condo would soon be a rental property for the owners, a decision I ultimately disagree with. The previous owners kept the place in fairly good condition, I would say about a 7.5 out of 10 clean and 7 out of 10 free of repairs. It had a few drywall patches to repair, the carpet had some waviness patches, and the bathrooms needed a deep clean, and it was slightly outdated overall, but it was fairly close to rent-able status as is.
While cleaning the condo, I thought “this wouldn’t be so bad, cleaning up this place (vacuuming, cleaning toilets, scrubbing showers, etc.) getting it ready for a renting.” The property itself would rent for probably $950 a month and probably could net $200 a month if fully occupied, and offered another $55 net tax benefit a month.
But then it hit me. This was an owner occupied condo, meaning odds are it was kept in extremely better condition than what a renter would. A bad renter’s goal is to hide damage from you, to get their deposit back. A renter will ride your appliances hard, oftentimes not reporting critically needed repairs (that later leads to bigger problems), and worst of all, they might have pets.
The thought of pets makes me want to vomit. Don’t get me wrong, I love dogs, but I feel that a lot of pet owners, should not be pet owners. I had a chance years ago to work on rehabs for Habitat for Humanity where they bought houses in bad condition and re-conditioned them for families. It simply made more sense to buy distress properties for dirt cheap than build them (although this chapter still built). During my experiences, I often ripped up old carpet. Carpet is without a doubt the most disgusting part of your home, especially if you have pets. You simply cannot clean it, and you pretty much live with filth below you at all times. The surface can look fantastic, but when you rip it up you see all the stains, both non-pet and pet related on the pad (sometimes even the subfloor), and if you get this pad wet (against your sweaty skin for instances), you will want to die. Nothing is worst than reconstituting years or even decades of animal waste, you wearing gloves and a mask is just a symbolic gesture of you wanting to stay clean.
Now don’t get me wrong, landlords also play the game, hiding damage and filth from potential renters. They aren’t about to disclose that their last renter got evicted for having three dogs that left messes everywhere (and the renter might of even left some messes post move out). Maybe a carpet cleaner gets 97% of the stains out on the top surface, good enough to get the next renter in the rental.
Now you might say, “As a landlord I would have a no pet policy”, but what happens when I as a renter, violate that policy (or any of your policies). I move in and get three dogs, are you going to evict me? Well it’s going to cost you to get me out of here (maybe a couple of months to evict, I have renter’s rights and a sob story to why I have the dogs of course), how about you just leave me be and keep cashing those checks, knowing I’m going to trash your rental. A veteran landlord would also tell you that this type of experience isn’t as rare as you think.
Furthermore, I think deposits, in practice, are a fairly flawed idea. If you get hit by a bad renter, who knows they are not getting their deposit back, the floodgate is open. They have no benefit (other than a recommendation for a future rental, which they probably wouldn’t get anyways) to try to keep your rental even remotely decent. Plus if their deposit is gone, they have the opportunity to gain a couple of months free rent through the eviction process, heck in many situations it would be a smart financial move (although not ethical). Not to mention they can give you a bad check or convince you to delay the eviction process, making it possibly even longer than a couple of months.
Remember that net $200 a month + $55 tax benefit? If it’s occupied for 95% of the time (optimistic), you are going to net $2907 pre-tax – repairs – loss rent income. If they trash your place (Say a couple thousand dollars of damage) and take two months to get evicted you have lost a thousand dollars for the year. Oh but wait, it might take most of a month to get the property back up to rent-able and a few weeks to get another renter in there. Let’s just call it a $2000-$3000 loss. So that bad renter just cost you a year of cash-flow.
The bottom-line is that landlords usually over-estimate revenues and tax-benefits, under-estimate vacancies and repair costs, and rarely put a value to their time (showing, repairing, late night phone calls, etc.) A good tenant can make it seem almost like passive income, but a bad tenant can make you scramble to stop the bleeding and hassle. Thus, why you will hate being a landlord.