Rentals Gone Wrong: Location or Mismanagement? | RE Investing

Who wants to manage tenants in a bad neighborhood? You’d be surprised!

I have a few rentals in not-so-great places. To sum things up, it’s been “an experience.”

While I haven’t had a lot of trouble signing on managers for these properties, observing the ways in which they’ve handled problematic tenants has at times been a pretty big letdown.

That being said, there’s one thing I’d definitely like to pass on to investors who don’t plan to manage rental properties themselves: you need to set very clear expectations for whoever you hire to do it for you.

Here are some of the things I’ve dealt with so far.

1. The Tenants Who Had Their Car Broken Into

My, my, this was an interesting one. Two of my tenants completely deserted a property—with no warning. Their car was broken into, and apparently they didn’t feel safe.

The funny part? This particular property was in a very safe neighborhood. I lead with this because, no matter where you buy, you may run into security issues that beg a similar outcome.

Upon noticing they left, we simply cleaned up the property and rented it out again. It was definitely a headache but low on the annoyance scale compared to other tenant issues I’ve experienced or heard about.

But could this have been handled differently by the property manager, in a way that assured the tenants it was likely a one-off issue that could’ve happened anywhere? Most likely.

2. The Drug Addict Who Trashed the Place

Honestly speaking, I think this situation was a product of the property manager’s creation. The tenant had prior evictions and recent felonies on her record, yet the property manager somehow approved her.

We ended up getting a ton of noise complaints from neighbors, in addition to other reported grievances. In general, she was a headache to deal with and all signs pointed to her using drugs.

So, what a shocker it was when, upon move out, we realized she had trashed the place!

But here’s where landlords need to tread lightly in order to avoid getting into legal trouble or wasting a lot of time and money—and so we did. Sure, we had the option to evict her many times for breaking the lease in several ways, but we chose not to act on it. It just wasn’t the best route financially speaking.

Even though we were aware of the condition of the property, when figuring out repair costs on top of eviction costs, we chose to let her ride out the remainder of the lease. To be sure, new carpets were needed (and more), and the property manager was dealt with—especially after multiple transgressions of a similar sort.

3. Bugs in Brand New Spaces

Some tenants were living in a newly remodeled duplex I owned that was located in a particularly poor part of town. They discovered they had bed bugs.

The property manager ended up billing them $815 for the inspection and eradication. Obviously, the tenants weren’t happy.

On the upside, the bed bug infestation was contained to just one unit. Unfortunately, after following proper protocol and inspecting the other side of the duplex, we discovered those tenants had their own pest problem!

There was evidence of roaches in the kitchen. This prompted the property manager to charge the renter a $250 fee.

This can be an expensive business. Neither of the tenants had the money to immediately pay these fees. They’re currently on a payment plan.

And, as mentioned, this property was newly remodeled! Needless to say, discovering pests in a property like that is never fun. It’s disheartening to think it’s a problem that may persist in the future or be rediscovered upon move out, as well.

Conclusion

The thing is, bad neighborhoods may attract a certain quality of tenants. They may not have the credit score or cash to follow through with the tenant approval or lease fulfillment process.

You can try combating this by hiring high quality property managers and by partnering with sponsorship programs (Section 8, mental health hospitals, etc.). These programs may pay rent for people trying to get on their feet or something similar. Plus, they often offer decent tenants.

Investing in “C” or lower neighborhoods is overall more work, but it can also generate a higher payday. In these cases, I calculate my estimated cash flow and compare it with how much time and stress I’m willing to dedicate to the property.

If the numbers work out (achieve a desirable hourly rate), I go for it. It has worked out for me thus far, but it definitely hasn’t been worry-free.

Do you have any notable tenant stories? How do you handle problematic renters?

Leave a comment below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.