Being a landlord is no Swiss Picnic. You have to be very serious and astute, as you need to keep an eye on the bottom line. If you do not, you can run afoul of any number of laws, or worse yet, end up bankrupt.
Bad tenants can run you ragged - and they exist. In every city, town, village, or hamlet there are a core group of people who never pay rent, and go from one broken landlord to the next, destroying them economically.
The following are some real-life examples of tenants or prospective tenants, and how they played (or tried to play) their landlords.
1. Fred rented office space from Joe. Joe had owned the building with his partner Jimmy, who recently died. Joe's business didn't need the building, so when Jimmy's friend Fred asked to rent it, Joe said it was OK. However Joe was going to sell the building and made this clear to Fred.
Fred never paid any rent - and had a litany of excuses why he couldn't. Joe let it slide, as the building was just a hassle to him, and dunning Fred for the rent would have taken too much time. Besides, as his wife said, Fred was a good friend of dear old Jimmy, and Jimmy wouldn't want Fred evicted, would he?
Barry decided to buy the building, and Fred offered to "stay on" as a "holdover tenant". Barry was suspicious, as whenever he visited the building, there were stacks of mail from various creditors, addressed to Fred, marked "FINAL NOTICE - PAST DUE" or letters from the bankruptcy court. In addition, most of the light bulbs in the place were burned out and Fred seemed to be rarely around.
Barry asked Fred what he did for a living, and after a 20-minute explanation, Barry was none the wiser. Something to do with plastics, although Barry could not see how. Barry did a little investigating and by asking around, found out that there were a litany of pissed-off commercial landlords that had rented to Fred and never collected a dime in rent.
Fred asked Barry, as a condition of being a holdover tenant, to remodel parts of the office, re-carpet and make other improvements that were not only unaffordable, but unnecessary. Barry decided to take a pass on Fred and told Joe he would take possession of the building without any tenants.
Barry dodged a bullet. Fred went on to move in to Joe's own office, where he continued to pay no rent, until finally even Joe's wife realized that Fred was a deadbeat. Fred moved on, from place to place, one step ahead of eviction.
Barry learned from other landlords that such people exist - renting space from desperate landlords, who usually overprice their properties and wonder why no one will rent them. The Fred's of the world make a lot of money this way, as they has no overhead for their "businesses" which are often fraudulent. And as he runs a cash business, no one can sue him or attach his assets.
2. Barry rents out a half-Duplex and puts an ad in the paper. Two young women approach him, claiming to be sisters, and they are very excited to rent the place! It is so keen! The women are young and attractive and well endowed, a feature they never fail to shove into Barry's face when negotiating the deal.
Barry asks them what they do for a living, and again, he is treated to a 20-minute monologue that leaves him none the wiser. He runs a credit check on the two ladies, and it comes up empty. As the man from the credit bureau explains on the phone, "these people are ghosts - they don't exist". They are either working under the table or doing something illegal.
Like their perky breasts, these ladies have no visible means of support.
Barry asks for a reference from a previous landlord. They provide another 20-minute story as to why they can't - they are illegally subletting from another tenant, and the landlord would throw them out in short order. This concerns Barry, as they clearly have no compunction about screwing their landlord.
The last straw is when the sisters offer to pay him in cash "under the table" - "This way you don't have to declare the income!" they chirp. But of course, they might have trouble coming up with the security deposit and first month's rent. But if Barry can let them move in, well, they will have it in short order.
Barry's Momma didn't raise no fools. He politely told them that he could not rent to them.
2. Barry rents out a half-Duplex and puts an ad in the paper, again. The phone rings and a nice lady, Tonisha, asks about the place. She is looking for a place for her Momma and her brother Tyrell, and wonders if he will accept Section-8 tenants.
Barry has never rented Section-8 properties and tells the tenant he is unfamiliar with the program. The tenants ask if they can see the property tonight, and Barry agrees - but tells them he has to research the Section-8 program and cannot guarantee he can accept it.
He meets the family, who arrives in an aging Mercedes. Momma is ancient, Tyrell acts distant and belligerent, and Tonisha is more than very friendly. Barry realizes that Tonisha used to go by the name Tony, due to his/her extremely large feet, hands and prominent Adam's apple.
But discriminating on the basis of gender or race is not only wrong, it is illegal. And moreover, it is not necessarily a way to get good tenants. Tonisha and her family might be excellent tenants, for all Barry knew.
But when he called the County the next day to inquire about Section-8, he discovered it was a nightmare of paperwork and regulation to deal with. He was not, however required to accept Section-8 tenants.
He was unsure about whether this was a good thing. He met another landlord in an adjacent neighborhood, who was a Section-8 slumlord king who owned a dozen broken-down buildings with Section-8 tenants. That landlord explained the "system" top Barry.
"You take a crappy place, rent it through Section-8 at an inflated rent - say 50% over market value. The County and Feds pay 75% of this, and then tenant pays bubkis. You never collect from the tenant - not a nickle. But then again, you never do any repairs, either!" the slumlord continues, laughing, "After a few years, they trash the place, you toss 'em out, fix it up and start over again. Before you know it, the government has bought you a house!"
Barry is not sure that being a slumlord is such a keen idea. If housing prices are stagnant, it might make "sense" albeit not in moral terms. But in a tightening housing market, a well-maintained property is a better bet, in the long run.
Barry tells Tonisha that he has to respectfully decline, as Section-8 is too much of a hassle for him.
3. Barry offers a Condo for rent in Florida, advertising it in Vacation Rentals by Owner, for tourists to rent. He gets a call, right away from a local, asking if she can rent it. Barry explains that it is a vacation rental, and priced to rent by the week or month, not by the year.
Susie, the caller, explains she needs a place to live, and wouldn't Barry prefer to have a full-time tenant, instead of dealing with all those temporary tourists? Against his better judgement, Barry agrees to show her the place. Susie shows up an hour later with her son, Brad, who is a 4-year-old brat, who immediately starts prying up the pavers around the pool, and throwing them in.
Susie says she loves the place and would like to move in right away, just her and her son. She is going through a messy divorce and needs a place to stay! Barry points out that as a one-bedroom condo, there is no place for her son to sleep. But Susie says it is OK, Brad can sleep on the couch. Barry considers this and realizes the wicker couch will be destroyed in short order.
Susie gives Barry the 20-minute explanation of what she does for a living, and once again, Barry has no clue, after this explanation as to what Susie does.
Susie then offers to pay him in cash "under the table" - "This way you don't have to declare the income!" she chirps. But of course, Susie might have trouble coming up with the security deposit and first month's rent. But if Barry can let them move in, well, she will have it in short order.
Barry asks Susie if she has two sisters, to which Susie says, "What?"
The last straw is when Susie calls Barry and tells him that in addition to herself and Brad, her soon-to-be ex-husband may come by and stay "for a while" meaning there are now three people in the apartment.
Barry declines politely, pointing out that that is too many people for a tiny one-bedroom apartment. Susie screams epithets, threatens to sue, and shows her true colors.
Barry rents the apartment to some nice Canadians, who leave it cleaner than when they found it. And despite the "hassle" of vacation rentals, makes more than twice as much as he would have, with a full-time tenant (assuming the full-time tenant even paid, of course, which they wouldn't).
4. Sandra buys the Condo from Barry and decides to rent it. After owning the place for a few years, Barry has a stellar rental record, with the unit being rented almost every week. Barry shows Sandra how easy it is to use VRBO or other sites to get high-paying tourist rentals for most of the year.
Yet, Sandra decides this is "too much hassle" and decides to rent the place, full-time. She puts an ad in the paper and a young woman, Melissa, shows up. She looks at the unit and says how nice it is, and fills out an application for Sandra.
"I'll have to go home and pray about this" Melissa says. Sandra is enthralled. "Are you a Christian?" Sandra asks.
Melissa says yes, and before you know it, Sandra has decided to rent to Melissa, even without a background check. In short order, Melissa talks Sandra out of a security deposit and first month's rent, citing her "tithing" as the reason she is short on money.
Sandra is convinced that she is a smart Christian businesswoman, and will use her Biblical principals to get ahead in the world!
The problem is, Melissa is not really a Christian, but closer to a Satan-worshiper. The only tithing she makes is to her crack dealer. Melissa saw the Jesus fish on Sandra's car and the gold cross around her neck and figured she had a patsy here and she'd try the religious angle.
And it worked. Sandra never got a dime in rent from Melissa. Eventually, the condo went into foreclosure, when Sandra lost her job and could no longer afford to make the mortgage payments on the condo - with no rent coming in.
A shame too, as if Sandra tried a little harder and found legitimate seasonal tenants, she would have made money.
5. Tom rents apartments in a four-unit building in a college town. Larry, who is a Junior at Party U., rents the apartment with several of his friends. Tom likes these multiple-tenant arrangements, as he has more than one party likely to pay the rent.
But Larry and his friends are more interested in partying than studying, and quickly turn the joint into a frat house. Since they don't want to be bothered with finding parking spaces on the street, they all park on the lawn, quickly turning it into a muddy mess. Worse, they invite their friends over, who also park on the lawn.
Larry and his buddies have a keg party in the back yard, and invite over 100 people to attend. The entire block is jammed with cars, and loud music blares from the speakers in the back yard. The other tenants and the neighbors complain, the police are called, and Tom gets a lot of phone calls from his tenants.
Even when not having keggers, Larry and his buddies are loud - they play the stereo loud, the television loud, and even their cars are loud - and one or more of their cars are generally in pieces all over the back yard at any given time. While watching a football game one evening, Larry and his friends decide to rough-house and play tackle football - inside the apartment. One of the boys tries to tackle the other, piles into a wall, and tears right through the sheet rock.
Not content with the damage, the boys decide to practice their football passes in the corridor, much to the chagrin of the other tenants, returning from class, who are hit by whizzing footballs. One pass bounces off the ceiling, hitting a sprinkler head, knocking it off and flooding the hall. The fire department is called.
Trying to evict Larry and Company would cost thousands in legal fees and take months, if not years, in the liberal State that Tom lives in (where all Landlords are "assholes" and tenants are "victims"). Fortunately, the school year ends, and Larry and his friends leave of their own volition.
Tom goes into the apartment and inspects the damage. In addition to everything else, Larry and his pals were keeping a Rottweiler and a Pit Bull, in violation of the terms of the lease. And apparently, they never trained either, as the dogs shit and pissed all over and even gnawed part of the Formica counter-top apart (an event which Larry later described as "awesome, dude!).
The entire apartment will need to be re-carpeted, the wall rebuilt, the cracked sink the bathroom replaced, and a new counter-top installed in the kitchen. His cleaning staff will spend days cleaning the place. The oven looks as if was used to roast a live goat.
Tom loses a lot of money on this rental, and he tries to go after the boys for the damages - which far exceed the security deposit (again, in the bleeding-heart State he lives in, laws were passed limiting the amount of security a landlord could ask for to less than a month's rent). Tom sues, wins, but never collects.
Larry, of course, can't fathom why Tom is upset. So they caused a little damage. So what? After all, Tom is getting "all that rent money" which has to be, like, you know, pure profit, right? Right?
Larry later graduates and becomes an "Occupy" protester - he is that clueless.
What do all these scenarios have in common? Bad tenants. Some are truly evil people who set out to defraud landlords - particularly amateur landlords - from the get-go. They pay no rent, or as little as possible, and try to use every excuse in the book to not pay a security deposit, either. They live as long as they can in an apartment or house, and they know the law, down the the letter.
And hour before you show up with the Sheriff, they are GONE - and so are all the appliances in the property. These people are not fools, nor are they disadvantaged, they are calculating criminals, working out a way to live for FREE, on someone else's nickle.
Others, such as Larry, are just irresponsible people - youngsters who have no clue about anything in life or how the world works. They are just spoiled brats who take what they want and don't think much about how it impacts others. Sort of a Sociopath, Jr.
Still others, such as Tonisha, are probably nice people, but can't afford to rent the place you are offering, and no, you are not required to take Section-8 tenants.
How do you avoid problem tenants? If you rent a lot of places, eventually you will get one. They are very good at hiding their tendencies, which only emerge once they are completely ensconced in the property. And if you do Section-8 or rent in a college town, you will get more of them, as well. Renting better properties in better neighborhoods helps - but is no guarantee that someone will be a good tenant.
Here are some basic tips I've learned:
1. Run a Credit Check: This costs about $25 (which the tenant pays) and tells you volumes about who you are dealing with. Bad credit is not always something that spikes a tenant. I've had a husband-and-wife who were great tenants. He had bad credit (being a young college fool) and now is married to a young lady from money, and was trying to turn his life around. If both of them had bad credit, well, that's another story.
2. Ask for References - employers, friends, previous landlords.
3. Don't Listen to "Stories" - if a prospective tenant has a long-winded story about what they do for a living, or why they can't have you run a credit check, provide references, or pay the security deposit, just say no, period. If someone can't tell you, in 10 words or less, what they do for a living, they are lying, period.
4. Always get money before handing over the keys - and by that, I mean checks clearing the bank. CASH their check at their bank, if necessary. Yes, bad tenants write bad checks. Act shocked. Don't take any excuse as to why they cannot afford the security deposit or first month's rent.
5. Beware the glib tenant - The smooth operator will try to intimidate you with his fancy car and fancy clothes. He's rich, and of course he can afford the rent and security deposit - which he does not question. But he always seems to "forget" to bring his checkbook, and he has scheduled his movers already for tomorrow. You don't mind giving him the key, right? He'll pay you tomorrow. Or later. Or never. Nice shoes, though.
6. Make sure they can afford it - On your tenant application form, don't be afraid to ask for income - and proof of income. Believe it or not, I've had tenants ask to rent a place that would have cost them more than half their gross income. After taxes, that would have left them virtually nothing to live on. Chances are, they were hoping to bring in roommates or sublet, to make ends meet. You don't want tenants like that, and you don't want tenants who are stressed financially. This is not to say you can't negotiate slightly on the rent - a tenant who asks this is often a good tenant - they are actually thinking of how they can afford to pay. The con artist, on the other hand, rarely asks for a reduction in rent - they have no intention of paying it, anyway.
There are a host of other things you can do as well. But make sure you are complying with local, State, and Federal laws. As a landlord, you have some pretty wide leeway in deciding who gets to rent your property - and it is a huge investment for you and you should make sure that this property - worth hundreds of thousands of dollars - is well cared-for.
And the point is, all it takes is one bad tenant to sink the financial ship of a small-time landlord. While a company renting hundreds or thousands of apartments can afford to deal with such things (and has attorneys on retainer) you, as an individual, cannot afford to have a tenant miss more than one or two rent payments, before the mortgage and other expenses start coming out of your pocket.
You could lose it all, over one bad tenant. So take every step to make sure you don't get one!