Two birds, one stone. After the first year.

Previously, I shared my experience with purchasing and renting out 2 properties to my first generation of tenants. Needless to say, I learned a lot about my instincts and the importance of following a recipe. 

It wasn't what I wanted, and I tried to stagger the vacancies, but I managed to vacate the 2 properties. The repairs to both properties were expensive, but I rationalized the added cost because both properties had appreciated in value by almost 30% each over the course of 12-14 months; little did I know that the housing bubble was about to burst soon.  

On one of the houses, I replaced damaged, urine soaked flooring, patched and repainted damaged walls, repaired the damage to the yard. On the other house, I had to repair damage to the walls, repaint the entire house, and removed furniture that was left behind. 

I decided to do it right the next time around. I took photos and set up a website to showcase and describe the features of each of the properties. That made it easier to just insert a URL in the various posting services to direct prospective tenants to my site so that they may view the properties and download an application form if they were really serious. I found this to be an effective advertising strategy. 

I used an online service to pull credit reports on prospective tenants, and followed up on their references. When information was available, I not only checked the previous landlord, but all landlords listed. Sometimes the previous landlord will say anything to get rid of an undesirable tenant, so I didn't want to leave any stone unturned. I checked employment history to make sure prospective tenants had stable jobs; I didn't want excuses and hard luck stories after signing a lease because a tenant lost their job. The entire process was time consuming, and I lost an entire month's rent for each property while I searched for suitable tenants.

I was on the fence on the issue of pets. Renting townhouses attracted mostly pet owners, so I found myself considering small pets. I later decided that although I may permit small dogs, I will never again allow cats in the house.

I found a more responsible tenant for one house who had a family, a stable history of employment, good credit, and a small dog. He paid the rent on time and took good care of the house, but he was extremely demanding. 

Prior to signing the lease, he asked me to replace the carpet with hardwood because the carpet smelled bad and looked worn. I made a deal with him that if he loaned me half of the material cost (about $1200), and signed a 2 year lease, I would deduct $50 per month from the rent. I figured this was a win win; he got beautiful hardwood floors for his family, and I improved the value of my property without breaking the bank. That tenant stayed for 5 years and left the house in immaculate condition when he finally moved out.

I didn't have quite as much luck with the other house. I initially signed the lease with a young couple who had good credit, but they wanted to sublet to a cousin, and they had 2 cats. Given that I was looking for tenants in November, they were the best candidates I could find at that time of year. 

They kept the place clean and paid the rent on time, but the cousin was a bit of a handyman. He rewired outlets and switches, installed wall anchors in the brick fireplace to mount a flat screen TV, replaced the front door lock set with a cheaper one, and installed a satellite dish on the roof without clearing any of it with me. The cats used the carpets throughout as their scratching pads, and when they moved out 3 years later, I had to repair the roof, fix and repaint, replace door locks, and replace the carpet again. I felt bad about holding back the security deposit, but the carpets were brand new when they moved in. In reality, I was more upset about the satellite dish they installed on the nearly new roof.

The repairs were made particularly painful by the fact that the housing bubble had long since burst, and I was now underwater on both properties. I endured and stuck to the original plan because I knew that rent values would continue to increase over time and home values would eventually recover.

In my next blog posting, I will share my impending exit strategy and next steps as I continue my adventure as a real estate investor.