you win some and you lose some. I lost this one.

you win some and you lose some. I lost this one.

Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes

   My Father and Both grand parents were realtors and Landlords.  I grew up immersed in real estate, dinner talk was easements, right of ways, surveys,  evictions, Etc. Etc.  For many years I avoided real estate.  I had several businesses, worked at some really good w-2 jobs and 10 years ago I decided to try my hand at being a Landlord, while still working my w-2 job.   Real estate was not new to me, and I've had some pretty good success both buying and selling, and buy and hold. 

  So jump to today.  I have no bad debt, and work 2 jobs (70 hrs. a week) to save money to invest.  I buy 1-2 properties a year, mostly duplexes.  Life is good Right?  Then how did I fall into this one?

  While getting my taxes ready for my CPA, I notice one duplex had not only fallen short of its projection for 2015, it was below its 2014 figures.  Curious I checked out the year ending statement and discovered one of the units had gone vacant in May and re rented in late June or July.  The new tenant failed to put the gas and electric in his name.  The landlord revert left them in my name.  Both the PM, and the bookkeeper (she pays the bills) for the PM failed to notice.  Total loss is $540 dollars.  If you are only getting $100 dollars a month CF.(lucky I do better than that) That's 5+ months right out of your pocket. 

  The real error here was me because I too failed to notice.  I get one check, and a monthly statement for each of 5 rental units from this same PM. company.  I never looked closely at the Statements, just filed them and cashed the check.  SHAME on all of us, But DOUBLE SHAME on me!!  Its MY rental and MY money.  Its now 6 months later and having just discovered this goof up I will need to make a decision as to weather or not I can collect the back utilities or not, or just bite the bullet, take the loss now and make him put the utilities in his name immediately.

 I know I have some options here, but the reason I'm writing this isn't to discuss them, but to bring to light a point.  Every day I see people on here focusing on the 2% rule, the 50% rule, the good tenant, the bad tenant, this problem, or that problem.  Many people on BP want to wholesale or some other real estate related job while also investing, or they are focused on learning everything they can about RE, what to buy when to buy or where to buy.   It made me think about how I missed the utility thing.  I was focused on buying new properties, 2 Jobs, and everything else under the sun.  I was not watching my rental's income. POOR management on MY part.

  IMO the lesson here is pretty big.  You first and foremost must manage and oversee your investments.  Its no different than owning your own business, in fact it is your business. Just the same as a restaurant, or car wash.  You have to be aware of, and watch everything about every door you have.  It is as important to be on top of your rental after you have bought it, as it is to knowing a bunch of rules, good locations, or how to correctly analyze a property before you buy it.

  Its my idea a newbie should study as hard if not harder at how he is going to manage a property as he does at the metrics that go into buying that property.  After all he is going to spend way more time trying to make it pay than he did buying it.  Every property is a winner and every property is looser. ( sorry Kenny)  The difference is the management.  If the property is purchased right its easier to make it a winner, and the rewards are greater but make no mistake it STILL can fail as well.  The question then becomes can you afford the mistakes of learning to manage your properties?? 

Just my .02

RR               

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Residential Real Estate Broker · San Antonio, TX · Member since 2016 · 506 posts · 311 votes
10y

Doesn't the lease require the resident to have the utilities in their name?

Ours do, with specific wording that they are responsible for utilities during the occupancy.

The charges still belong to the resident, notwithstanding the delayed billing.

Time to settle up!

See this reply in the discussion

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  • Flipper/Rehabber · York, UK · Member since 2013 · 895 posts · 453 votes
    10y

    Great post, thanks for your honesty.  I agree that focusing on fundamentals and fine tuning what you have to make it the most profitable should be a constant focus in this business.

  • Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Micki M.thanks for your reply. If you lose your concentration it's pretty easy to make a costly mistake. I see your from Denver   The rental I was referring to is in Pueblo Co.

  • Investor · Burlington, VT · Member since 2016 · 110 posts · 59 votes
    10y

    it was a lesson learned , and much cheaper than most of us will pay when we make real estate mistakes :)

  • Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Peter Amour  yeah I've made a lot bigger mistakes but for somebody that made a mistake in analyzing a property then followed it with this one it would have been hard to make the mortgage payment. Thanks for your reply. RR

  • Investor · Pueblo, CO · Member since 2012 · 96 posts · 63 votes
    10y

    Which property manager was it here in Pueblo?

    I'd say go ahead and name them.  

  • Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Sam Dangremond  the property manager did mess it up.  So did the book keeper and so did I.  The same pm however has been responsible for my buying 2 duplexes including the one I wrote about. Both off market leads both bought for below market/appraised value. She has made me far more than the 500 dollar utility thing.  It's pointless to lay blame. She works for a very old and well respected real estate office in pueblo.  RR

  • Pueblo, CO · Member since 2016 · 7 posts · 1 vote
    10y

    When I first joined BP I didn't count on seeing many people from Pueblo. It's nice to know I'm not the only one

  • Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Aaron Cagnoni

    Aaron I'm a Colorado boy that ended up in Alaska.  I see a few people on here from that area, the springs, pueblo but not too many.  Quite a few from Denver, Collins and Greeley also.

    RR 

  • Residential Real Estate Broker · San Antonio, TX · Member since 2016 · 506 posts · 311 votes
    10y

    Doesn't the lease require the resident to have the utilities in their name?

    Ours do, with specific wording that they are responsible for utilities during the occupancy.

    The charges still belong to the resident, notwithstanding the delayed billing.

    Time to settle up!

  • Phoenix, AZ · Member since 2015 · 345 posts · 138 votes
    10y

    Thanks for posting!

    Vigulence and due diligence is a constant it sounds like.  I am scheduled to close Friday and take on my first property @Ralph R.and you nailed it with all the questions and concerns that keep popping up in my head.  Do I have a system to handle this issue, am I protected, are my rules and regs good enough, how far should I go with updates, etc... lol Such a learning curve but after reading your post I am realizing that its one day at a time and evaluating the debits and credits every month as I shape and mold with the new experiences I gain... Thanks again for posting!

    Cody 

  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    10y

    @Ralph R.when a tenant signs a lease we give them a list with all utilities with phone numbers. We tell them to call a couple days prior to move-in and set the utility change date for the first day of their lease. On the day of move-in we call the utilities to verify that tenants changed over billing. It takes 5 minutes per utility to do this. This is part of our standard procedure for tenant move in. Almost every tenant has at least one utility that has not been switched. They always say they planned to call them that day. How does the saying go? Trust but verify.

  • Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Robert Melcher

    Yes of course that's in our lease.  problem is enforcing the lease cost even more money.  If I say pay up or I will evict you he's left with 2 choices.  If he can he will probably pay.  if he can't pay then I have the added expense of an eviction, money spent to get rent ready again, and vacancy expenses.  This all compounds my already $500 dollar loss.

    What I think I'm going to do is bill him for the utilities, and keep the original utility receipts. If he pays great.  Problem solved.  If he doesn't pay I'll say no more.  Then when he does move out, I can deduct the back utilities from his damage deposit.  That avoids the vacancy in March, and expense of eviction thereby cutting my losses.  This is the course of action we are checking out now.

    It would have been a lot easier if I would have been watching the monthly P&L statements.  This could have been stopped a long time ago.

    RR     

  • Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Joe Splitrock

    Joe

    I have land lord reverts on my properties.  When the tenant closes their account the utility reverts to my name.  That way the heat stays on preventing a freeze up in winter.  Im not sure what happened here but the utility bills both reverted back to my name in June.  That indicates the tenant (Moved in in March) called and got the utility in his name then closed the account triggering the revert.  Or.....maybe the utility company has made some error here.  when we called them today they said both accounts were in the tenants name as of November, but we did have a December bill.  something is fishy here.  More research is needed for sure.

    RR

  • Investor · Minneapolis, MN · Member since 2015 · 173 posts · 53 votes
    10y

    reminds me of my experience with my duplex. 3 different accounts for one address and they tried to put 600 dollars of random unpaid bills in my name. When you can in they look at it by address not account number so you never knew what account they were looking at

  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    10y

    Good reminder post. I also have the LL roll over on my rentals, but the bill comes to my house. I would know in short order a tenant didn't turn them. And I give them a deadline, but I tell them the following: "Be sure to call and have everything turned by Monday because everything is scheduled to roll out of my name on Tuesday, and they will turn the utilities off if no one is signed up". Works every time so far.

    Skyline Properties
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  • Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Byron Bohlsen   I'm thinking they may be doing something like that here. It's gonna require some more vetting. Everybody's out to get your money. If you arn't paying attention they will get it too

  • Rental Property Investor · Cedar Park, TX · Member since 2014 · 414 posts · 272 votes
    10y
    Originally posted by @Ralph R.:

    @Robert Melcher

    Yes of course that's in our lease.  problem is enforcing the lease cost even more money. 

    What about the  tenant's security deposit?

  • Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Bob H.

    Yes of course that's in our lease. problem is enforcing the lease cost even more money. If I say pay up or I will evict you he's left with 2 choices. If he can he will probably pay. if he can't pay then I have the added expense of an eviction, money spent to get rent ready again, and vacancy expenses. This all compounds my already $500 dollar loss.

    What I think I'm going to do is bill him for the utilities, and keep the original utility receipts. If he pays great. Problem solved. If he doesn't pay I'll say no more. Then when he does move out, I can deduct the back utilities from his damage deposit. That avoids the vacancy in March, and expense of eviction thereby cutting my losses. This is the course of action we are checking out now.

    It would have been a lot easier if I would have been watching the monthly P&L statements. This could have been stopped a long time ago.

    RR

  • Investor · Cathedral City, CA · Member since 2014 · 481 posts · 170 votes
    10y

    If you used FREE PM software with good accounting that issue would be alerted to you within 10 days, or less.

  • Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    10y

    The other lesson implied but not explicitly stated is you need to manage your PM. Just because you hire a PM, don't assume that they are managing your properties well or properly ... trust but verify. For me, it is often more work to manage my PMs than it would be to just manage the tenants myself ... whenever I have to ask myself "What am I paying you for?" I now know that it is time to find a new PM ...

  • Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Jeff Gates  maybe but these rentals are out of state. I use a PM because she can find and vet tennants for me as well as Handel repairs/ maintainance. They also track all expenses and issue me a statement every month as well as a year ending statement. It's all part of the fee. So is their bill paying service. All I do is send the year ending statement and mortgage 1098 form to my CPA to do my taxes. And cash my check each month. They are switching to an online version that will auto deposit my checks and allow me to watch each property closer. RR

  • Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes
    10y

    This reminds me, I need to balance my checkbook! 

    :) 

    $540 bucks seems like a drop in the bucket if you are buying 1-2 properties per year. In 5, 10 or 20 years you will have built up a lot of equity from your tenants paying the mortgages and be in a great position. Chin up. 

  • Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @David Faulkner  not only implied, but I stated the very same thing in the original post.  That was the intention of the original post, to point out that you cant let your guard down at any time.  I said something like this 

    "IMO the lesson here is pretty big. You first and foremost must manage and oversee your investments. Its no different than owning your own business, in fact it is your business. Just the same as a restaurant, or car wash. You have to be aware of, and watch everything about every door you have. It is as important to be on top of your rental after you have bought it, as it is to knowing a bunch of rules, good locations, or how to correctly analyze a property before you buy it."

    RR

  • Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    10y

    Great Great post!! I love it when people share transparent stories as i too have made the same mistake. I have found the same thing being on top of the landlording is as important as finding a great acquisition if not more important when keeping my properties safe. 

    PS- Not sure if you can do this but I have a $50 handling fee if I have to bill back for utilities. It helps encourage people to pay and gives me money if I have to deal with it.

  • Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    Thanks @Elizabeth Colegrove

    @Elizabeth ColegroveThat's a great idea.  Maybe we can put some language in our contract assessing a fee for back billing utilities.

     Thanks also for recognizing that I wasn't whining about how to avoid or fix my goof up, but trying to stress the importance of maintaining a close watch on everything going on with your business.  You have to pay attention to many things, and when you think you know all the tricks somebody manages to come up with a new one. 

     The most blatant one was the tenant that traded her old non working refrigerator for the new one I had just put in her unit.  she disappeared in the night after I had to evict her for non payment and so did my refrigerator.  She left and old one in its place so it had to be hauled off. Nothing I could do about it as she was long gone.

    RR      

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