{"id":43508,"date":"2013-05-21T08:00:10","date_gmt":"2013-05-21T14:00:10","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=43508"},"modified":"2021-03-16T10:06:56","modified_gmt":"2021-03-16T16:06:56","slug":"2013-05-21-tenant-or-a-professional-bum","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2013-05-21-tenant-or-a-professional-bum","title":{"rendered":"Tenant or a Professional Bum \u2013 Do You Know How to Tell?"},"content":{"rendered":"

A go-to favorite in the Leybovich household is a romantic comedy Hitch<\/i> starring Will Smith, Kevin James, and Eva Mendes.\u00a0 In one of the scenes early in the film Hitch, played by Will Smith, is shooting pool with a buddy at one of New York City\u2019s high-class up-town bars.\u00a0 Hitch takes a shot, which rattles in and out of the pocket, at which Hitch shows frustration and tries to convince his friend that the shot should count. In response to this, his buddy gives one of the most profound \u201cHollywood\u201d monologues I have ever heard; it is short but makes a lot of sense and goes something like this:<\/p>\n

You know what your problem is, Hitch? You\u2019re all about the short game.\u00a0 You pick your shots based on what you see first, and not what\u2019s necessarily best for you in the long run\u2026<\/i><\/p>\n

For\u00a0landlords both new and experienced, there is no better piece of advice to take to heart than the sentiment expressed in the above.\u00a0 In an article from a few months ago entitled It\u2019s Not My Fault They Keep Trashing My Unit \u2013 Actually it Is<\/a>, I brought forth the notion that our capacity to attract great tenants is a function of the building more so than our qualification standards or management systems.\u00a0 But having said this, management can definitely impact our chances of success, which is the subject for today.\u00a0 I am going to tackle this by describing to you a situation that I was involved-in a few weeks ago.<\/p>\n

Those of you who have seen my article entitled How I Bought a 10-unit with 1.5% Down \u2013 Case Study<\/a> know that I purchased a 10-unit apartment building on February 4th<\/sup>, 2013.\u00a0 There was a bit of delayed maintenance, however I recognized early on that the real reason the building was being sold was because the owner was completely burnt-out on landlording.\u00a0 In the middle of negotiations people usually try to be \u201ccool and nonchalant\u201d and tell you that everything is honky-dory at the building; that everybody pays on time, and nobody is out of line in any way.\u00a0 But this seller told me right away that he was tired of cleaning-up every time people trash his units, which he said happens consistently.\u00a0 He told me that he was tired of having to do evictions, and tired of knocking on doors to get the rent check.\u00a0 He said that he just wanted out\u2026<\/p>\n

If it\u2019s not the building\u2019s fault, then it\u2019s yours!<\/h2>\n

As you know, and as I\u2019ve discussed in other articles on the BP Blog, trashed units and evictions are symptomatic of either the unit itself attracting the wrong kind of tenants, or lack of proper management and qualifying process<\/a>.\u00a0 In this case knew that there was nothing wrong with the building.\u00a0 It was situated in a perfectly desirable location and the units were entirely comfortable both in size and amenities.\u00a0 This meant that if there were problems with the tenant base it was because the previous owner was mismanaging the application process; one way or another he was choosing tenants unwisely and they were causing grief in his life.\u00a0 This was my theory and I soon became convinced that I was right.<\/p>\n

Upon my review of the standing leases as part of the due diligence process, I noticed that 6 out of 10 tenants had been in the building for less than 12 months.\u00a0 This could just be a simple coincidence, but turn-over did seem high for a building such as this in this location…<\/p>\n

Who are the Troublemakers?<\/h2>\n

In my experience, there are two types of tenants who tend to be largely responsible for high turnover at a building.\u00a0 Some are well-meaning folks who, for the lack of better phrase, simply don\u2019t have their \u201cstuff\u201d together.\u00a0 Due to unforeseen<\/i> circumstances that should have been entirely foreseeable, they are eventually unable to fulfill their lease agreement and move-out early, either voluntarily or upon eviction.<\/p>\n

The other type commonly responsible for high turnover is simply unscrupulous folks who choose to live very close to the edge of what you and I would consider morally corrupt.\u00a0 They find a way to dupe an unsuspecting landlord into giving them possession, but they have every intention of screwing the landlord from the very get-go \u2013 their moral compass allows for this type of thought process and behavior.<\/p>\n

Well, thankfully I\u2019ve learned that there are several red flags that expose both types, which can be seen by following-up on the information they disclose in their rental application.\u00a0 Thus, in an attempt to thoroughly prepare myself for what I would be dealing with after closing, I requested that the seller make available for my review the rental applications on file for each of the tenants…<\/p>\n

The Reason He was selling<\/h2>\n

His answer confirmed what I had suspected all along.\u00a0 Although the seller was indeed an honest, friendly, well-reputed, and fair guy, he had made major management mistakes which were causing him terrible stress.\u00a0 My proof was in the discovery that he did not use written rental applications<\/b>!!!<\/p>\n

This meant that there were no Social Security numbers, which in turn meant that there were no criminal background checks; there was no income and employment verification; there were no references; there was no verification of previous residence\u2026there essentially was no information by which to qualify tenant-worthiness.\u00a0 Is it any wonder that the poor guy\u2019s stress level warranted that he should bring money to the table in order to sell a perfectly good building for less than what he paid a decade ago?!<\/p>\n

Food for Thought:<\/i><\/b>\u00a0 We get burnt once in a while even having done it the right way, but doing what he did virtually guarantees management heart-ache.<\/p>\n

Segue\u00a0one Month<\/h2>\n

In March, which was the first full month of my owning this building, I performed my first eviction of a tenant who decided that paying rent to the new guy was a suggestion and not a contractual obligation \u2013 don\u2019t you love these kind of tenants?\u00a0 But get this.\u00a0 My attorney called me after having filed the eviction paperwork to tell me that the clerk at the courthouse took one look at the defendant\u2019s name and said:<\/p>\n

Oh yeah, we see this name come through here about every three to six months\u2026:)<\/i><\/b><\/p>\n

It\u2019s a Pro\u2026Cool!<\/h2>\n

The previous owner managed to place a \u201cprofessional bum tenant\u201d into one of his units, and now she was my problem.\u00a0 I had called her; I put a note on the door; I served her with a 3-Day Pay or Quit<\/i> notice \u2013 all to no avail.\u00a0 She did not show-up in court for the hearing, and did not make any attempt to contact me.\u00a0 Until, that is, four days before the bailiff was to show-up at her door \u2013 she suddenly called to let me know that she had all of the money\u2026<\/p>\n

She was absolutely stunned and amazed when I refused \u2013 I don\u2019t think she\u2019d ever met a landlord that she couldn\u2019t play this way before.\u00a0 She is a pro at playing this game, and here is my best guess at what her methods are:<\/p>\n

She skips a rent-payment.\u00a0 She does not answer the phone, open the door, or respond to any attempts of contact.\u00a0 She certainly does not initiate contact, but simply waits to see what the landlord will do.\u00a0 A lot of less experienced can become intimidated by this tactic and procrastinate dealing with the issue, which buys her time in the dwelling free of rent.\u00a0 Often, by the time the landlord files for eviction and the case makes its\u2019 way through the system, she can easily be in a dwelling free of rent for two, three months or longer.<\/p>\n

Her primary exit strategy is to find another dummy landlord to let her in prior to the bailiff showing-up at her door.\u00a0 And if she can\u2019t find another place, her back-up plan is to call the landlord and offer money, which in her experience is too much for those \u201cgreedy landlords\u201d to say no to\u2026<\/p>\n

But, things did not work out for her exactly as planned this time.\u00a0 Her behavior has finally caught-up with her \u2013 I said NO!<\/p>\n

Having answered the call, I politely explained to her that had she reached out early on, I would have more than likely chosen to work with her.\u00a0 In fact, I told her that I allow all of my tenants 2 payment-pledges per year without any late fees or penalties of any sort, so long as they act responsibly and make arrangements with me ahead of time.\u00a0 But under the circumstances, because she avoided me and because she only called me when it finally became apparent to her that nobody else would take her, I told her that I now believe that she is not a person with whom I can have a business relationship!<\/p>\n

How Did She Ever Get In?<\/h2>\n

This woman\u2019s winning formula is to FLASH the CASH<\/i><\/b>.\u00a0 In her mind and in her value system, cash moves people more so than any other motivator.\u00a0 Therefore you might want to right this down:<\/p>\n

\"Biggst_NONO_in_Landlording\"<\/p>\n

I\u2019ve said for a long time, and I will continue to say that real estate is not about money \u2013 it\u2019s about people!\u00a0 It was beyond her comprehension why in lieu of taking her money, I would choose to assume the costs of the eviction and a remodel.\u00a0 But, I have my reasons.\u00a0 \u00a0Had I chosen to accept her money (she was offering all that she was behind, plus another month upfront), I know it would only have been a matter of time before we were dancing this dance again.\u00a0 This proposition never appeals to me \u2013 it\u2019s not how I run my business.<\/p>\n

But more than this, I simply chose to deal with honorable people; they don\u2019t have to be rich, nor do they need to be fancy, but they do need to have a clear moral compass if we are to do business together, which is precisely how I see this relationship.\u00a0 In short, I prefer to deal with people who know wrong from right.\u00a0 These are the people who pay on time, who call when something breaks, who plant flowers, who wouldn\u2019t think of trashing my units.\u00a0 A building full of tenants like that constitutes stable<\/span> passive cash flow today and tomorrow.<\/p>\n

This is why I did not take her money.\u00a0 I realize that in picking a tenant, I am establishing a long-term relationship, and just because someone hands me the money, doesn\u2019t mean that taking it is the best thing for me in the long-run.<\/p>\n

My game is more about what\u2019s good for me in the LONG-RUN, is yours?!<\/span><\/i><\/b><\/p>\n","protected":false},"excerpt":{"rendered":"

A go-to favorite in the Leybovich household is a romantic comedy Hitch starring Will Smith, Kevin James, and Eva Mendes.\u00a0 In one of the scenes early in the film Hitch, […]<\/p>\n","protected":false},"author":810,"featured_media":43588,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5183],"tags":[],"class_list":["post-43508","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-landlording"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/43508","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/810"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=43508"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/43508\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/43588"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=43508"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=43508"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=43508"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}