Tenant Causes $14k Damage to IN Rental Property

ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes

You are kidding, right, Diane G.?

It is the PMs responsibility to MANAGE the investment, not just accept a rent check each month. If it were me and it was my property, I would have ZERO problem sitting down with my "Pit~Bull" attorney and seek strong legal advice.

This has EVERYTHING to do with that property management company, doesn't matter if the property is in an "A" neighborhood or an "F" neighborhood. Period.

Yes, the investor has responsibility AS WELL as the PM company. What would you think of a new tenant every 4 months? That is o.k.? Never!

Alright, I'm done.

~Daniel F. Harb

Tom GimerBusiness Member

DMV · Member since 2017 · 3k+ posts · 3k+ votes

Unless the PM was helping toss the couch out the window and putting his fist through walls there is ZERO liability.

Pit-bull attorney LOL.

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ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes

Tom Gimer, esq.?

Doubt it.

Tom GimerBusiness Member

DMV · Member since 2017 · 3k+ posts · 3k+ votes

@Daniel F. Harb Not sure what your comment means.

Research the concept of "proximate cause".

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ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes

Tom Gimer...

Research "Esquire", friend.

If you don't think the PM has a portion of responsibility, you need to think again. Friend.

Tom GimerBusiness Member

DMV · Member since 2017 · 3k+ posts · 3k+ votes

@Daniel F. Harb

Wager?

This will be covered by the hold harmless and indemnity provisions in the management agreement. There will be a specific threshold for any liability to fall on the PM and it won't be simple negligence.

Regards, Thomas H. Gimer, Esq.

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ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes

Very Nice, Thomas H. Gimer, Esq.

"Hold harmless and Indemnity provisions"? What if your investment is burned to the ground, they have no liability?

The threshold is over $14,000.00?

How can the PM company get away legally, unscathed?

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

@Daniel F. Harb I had a tenant do far more damage than this in one of my houses I bought brand new for 200k they did about 40k plus in damage.. PM not their fault and no liability.. Insurance went after the tenant like a pit bull.. and that is what needs to happen here.. this is beyond normal wear and tear .

its also critical that landlords go through their insurance policies with a fine tooth comb most don't understand they are woefully under insured.. like this little tid bit most policies if your home is vacant for more than 60 days ( EXTREMELY COMMON) your insurance just lapsed you have a fire NO INSURANCE you need a special rider for that.. some is 90 days.. but it can't sit there vacant.

the revolving tenants is extreme.. although this just also goes with the asset class.. people move in they move out break the lease happens very often and it will happen to you.. most C class or below if you can get rent 8 months in any 12 month period over time your doing about average.

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ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes

Hello Jay,

I am at a loss why the PM would have no liability with 14K or 40K damage? What hope do new investors "Out of State" have in finding a PM that has zero responsibility if the home is "leveled" or burned to the ground?

That is pretty scary.

Thank you, Jay Hinrichs.

Kudos to Thomas H. Gimer, Esq.

~Daniel

Ryan Mullin

Real Estate Broker · Indianapolis, IN · Member since 2009 · 575 posts · 496 votes

Its definitely not the zip codes fault. 46205 includes one of Indy's wealthiest neighborhoods. Of course, on the other hand it also includes this property. I was able to look up the property on tax records (using zip code, sq ft, and year built) and yeah... its pretty hood right there.

The question is... who sold you the property and who quoted the rental rate..? (rhetorical). IE; is the PM the turnkey company? If not then it probably isn't their fault.. and possibly set up to fail by TK provider. if it is the same company then its just a classic case of inflating the rent to sell the house for a bit more. Which, unfortunately is the norm in TK. Both scenarios have the same ending. And this is it.

In terms of leasing and property management its pretty 101 to rent to folks that have garnish-able wages, decent credit etc. But if you're managing this property and the owner says rent it for 850... and its only worth 750, then you either rent it to who ever will rent it, or let it sit vacant. Either way, in that scenario, the PM looks bad on the BP threads.. :)

On a more positive note, I did see some addresses on the tax records that are in appreciating areas closer to the wealthy neighborhood I mentioned above.. "Meridian Kessler" ..also Mapleton fall creek.

Try to look at the positive in this and learn from it. Get your portfolio performing! Even if you have to accept a lesser rent amount on some of these properties. If you do switch PM's be sure to give your new company a clean slate and don't bring existing problems (rental rates, sub par rehabs etc..) into a new picture. Start fresh and remember this was never a short term play...

Tom GimerBusiness Member

DMV · Member since 2017 · 3k+ posts · 3k+ votes

@Daniel F. Harb What I meant by "threshold" is not a dollar amount... but a conduct threshold. The PM would need to be more than simply negligent -- something like grossly negligent or even willful, it depends on the agreement -- otherwise no chance for recovery.

Nobody here is saying the PM did their job perfectly... but the liability for this fiasco falls on the tenant kicking doors down.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

@Daniel F. Harb not sure what you expect you expect a PM to take on that liability for the little money they make. .come on .. that's insane...

@Ryan Mullin Daniel I know our dying to buy one of these lower end houses or price point houses.. Ryan and Ashely I have known for about 15 years.. they know these price points as well as anyone.. you should talk to them.. they will give you the best service they can but they are not going to guarantee you don't take a loss.. you should check in with them.. When I have had issue with some of my personal C class in INdy it was Ryan and Ashely who rescued me.. and I like to think I have some experience at this but that all said you still need that quality ground person.. but I don't expect them to guarantee the teneant will do no damage ( right Ryan LOL ) say hi to Ash for me.

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ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes

@Tom Gimer, how does a new investor OOS (or anywhere for that matter) protect themself from losing potentially thousands or tens of thousands of dollars?

Are all PM companies absolved of all responsibility across the board?

Should one have a super~comprehensive investment insurance policy for protection?

Thanks in advance.

~Daniel

ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes

@Jay Hinrichs, I understand, but I am new to PMs out of State, so I am just getting my legs trying to understand the dynamics. I know PMs get a small sum monthly, but I just want to understand what I need to cover myself "IF" a tenant burns down the house. Now I know that the PM is not responsible or liable, at least that is what I am understanding.

I would definitely need to have comprehensive rental insurance to protect against this. I don't mean to beat a dead horse, but I would rather know from the outset.

I have to insure I don't get a 14 thousand dollar bill after my rental is reduced to rubble.

Just learning.

~Daniel

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Originally posted by @Daniel F. Harb:

@Jay Hinrichs, I understand, but I am new to PMs out of State, so I am just getting my legs trying to understand the dynamics. I know PMs get a small sum monthly, but I just want to understand what I need to cover myself "IF" a tenant burns down the house. Now I know that the PM is not responsible or liable, at least that is what I am understanding.

I would definitely need to have comprehensive rental insurance to protect against this. I don't mean to beat a dead horse, but I would rather know from the outset.

I have to insure I don't get a 14 thousand dollar bill after my rental is reduced to rubble.

Just learning.

~Daniel

No way to 100% protect yourself.. although proper insurance is a big step forward.. I know it saved me 30 plus thousand on the one that my tenants ( for whatever reason decided to trash a 200k Mid west brand new brick home :)

and you know the mid west 200k brand new home is pretty nice and is A class.

There are other paths to real estate rich's other than landlording.. you may want to look at crowdfunding syndications there are some great HML in your market Like Norris that take investor money..

Bottom line though the cheapest home in a given MSA or most of your sub 50k or 20 to 50k homes in a 2 million metro in the mid west are simply going to have on going management challenges and COSTS no two ways about even if you get your rent the folks will move on average of every 18 months you will have turn over cost that you have to eat the tenant is entitle to normal wear and tear and you have placement fee's and vacancy..

Were as other invsetments as I stated above have no disruption of cash flow at all or cash calls like rentals do but your returns are fixed.. however there is one thing that is certain the 40k homes we speak of or 60k homes we speak of I was funding them for the exact same dollars 2003 and they sell for today.. so if they don't go up in value why buy them..

For locals the idea is scale they are so cheap locals can end up owing 20 , 30 , 40 ,50 of them and then its a business its what they do.. and like your work your business or profession .. they are working theirs and make a decent living.. its not a freedom like MOrris likes to tout but it is self employment.. which is what most cubicle workers want .. I really don't know I have never worked for anyone my entire life.. always been self employed in RE so I don't know that emotion of hating my job.

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Steven Gesis

Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes

Originally posted by @Mary Ann Casey:

Thank goodness for BiggerPockets! Hoping you can help me with an issue I have on a tenant-damaged rental property.

The property is in Indianapolis IN and managed by a Property Management company; I live in California. The PM screens and selects tenants, manages the property and it's tenants, performs any evictions, etc. I receive a monthly owner statement.

The property manager recently evicted the tenants at this Indianapolis property for non-payment of rent. The tenants were there less than a year. I received an estimate yesterday for the damages to the place and work needed to get it ready to rent again, $14,400. Yikes! He's going to get 2 more estimates.

The property manager explained to me that the place was trashed by the tenants. When he went to the property after the tenants moved out, he put the key in the front door and it caved in (the top two hinges were either taken off or busted). He also said there are 4 broken windows, all interior doors have been removed and a couple of them were nailed to the wall to cover the busted windows, and a couch was half way out another window. The new carpet that was installed last year was unsalvagable, all the blinds are damaged, there are holes in the wall that require re-sheetrocking, lights are damaged, etc.

The property manager says there's really no recourse we can pursue from the tenants that would be worth our while. I questioned this, from a back-rent-payment and a damages-payment perspective, and he discouraged my taking any action. He said he thinks drugs/meth was involved, and we're not likely to ever see a dime of restitution from the tenants since they have no money.

What are our rights as landlords in this case? What process do you think I should follow to get a resolution on this issue?

Thank you BP community!

Wow, sorry to hear about that. In Ohio you would need to pursue this post-eviction and get a second cause judgment, send it to collections, try to garnish wages. Have had this happen to me and yes, also some managed homes, it's almost inevitable (physics) - in my world, this is an extremely rare situation, but this situation can and has existed. Personally, I have had tenants move-out and take the furnace, the toilet, hot water tank, A/C and appliances with them, and we vetted them and checked them up and down, even had this happen many years ago to a shorter term tenant placed by an insurance company because their personal property burnt down. Its just wild what kind of stories come from situations. Beyond the basic vetting, personally and professionally I require the background, multiple month coverages, high credit score and in many cases just as a contingency plan a co-signer. If the people responsible were the only ones on your management agreement, you have to pursue them. Even the best of the best teams, PM, operators, hotels, trailer parks - have this occurrence in some capacity or another. The next big question is how do you overcome and strengthen your borders, for this not to happen again.

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

@Steven Gesis just look at what rock star's do to hotel rooms good point !!!

the other issue with this really low value assets is it may not even be the tenant.. you lose a tenant and your house is vacant 4 days .. your PM calls and the house has been broken into and completely stripped. and don't get me started in the deep south about condenser units.. there is a reason some company came up with lojac's for condenser units..

bottom line there is simply risk.. how you mitigate it or as you state circle the borders is whats important and in my mind you do that by not setting yourself up for this buying the lowest price properties in a given market.. that simple step will save you time and grief.. leave those for the locals or the guys and gals that do it for a living.. you don't want to be a CA landlord busy at your job worrying about your low value asset rental.. that's no bueno .

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JD MartinBusiness Member

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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

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@Jay Hinrichs is right on the money. You turn it in to insurance. They will abrogate the damages against the tenant. You are out your deductible. That's why you carry insurance.

I am familiar with this because I have had it happen to me, on the receiving end. I once rented a house from a guy that had a falling down screen porch, one of those add on jobs. He gave me permission to dismantle it. After I moved a couple years later, he turned it in to his insurance claiming I damaged the property. They paid him and sued me for the damages. They had virtually no case, but I still had to hire a lawyer. I ended up settling for $500 and no admission of guilt. It was cheaper than paying my lawyer another grand.

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Account Closed

Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes

I own 8 rentals in Indy also. I have had 2 evictions and one very expensive turn (not this bad but still). Both those were tenants placed by prior sellers. With my own PM I have almost 5 years of tenants on 8 properties and no evictions. Turns always cost something but usually in the 1K range and I claim most back from security. Every few years have to change some carpets or paint but thats normal. The PM makes all the difference. Screening matters. Sometimes its better to take slightly lower rents and get a better tenant selection. Make sure your leases end in summer when there are more tenants. My properties are not in that neighborhood but more outside the loop. But the price points I bought them at were between 42K and 50K. Of course now they would be between 60-80K. Expenses including PM seem to track the 50% rule very closely on the portfolio. Im paying off on 10 year schedule and have more than doubled my initial investment in 4-5 years. So you can make money on these properties even from OOS. But your PM will make or break the investment.

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Maugno M.

Flipper / Landlord · Tyler, TX · Member since 2016 · 255 posts · 126 votes

14k is an inflated price. I'd be able to fix that stuff here in Texas for less that $1500 easy. And that is giving a high number.

Tom GimerBusiness Member

DMV · Member since 2017 · 3k+ posts · 3k+ votes

@Maugno M. Good point. If this asset is just going to be trashed by the next tenant, why on earth treat it like it needs to be prepared for the Royal Family's arrival?

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

@Tom Gimer if its going section 8 it has to be repaired to certain standards.. and then you have the competition.... remember these areas are full of rental houses and turn key and landlords so they do compete for tenants.. its not like here in PDX were we have less than a 1% vacancy factor.. you put an add on craigs list for a house to rent and you have 30 plus calls in 3 hours with majority 800 fico or above. this is just not the case in these markets.. so you do need a product that will entice a good renter to rent yours as opposed to a semi or full blown slumlord type home..

NOw if the owner wanted to cut corners not go section 8 and lower the rent there are trade offs for sure. but then she is right back whence she came.. taking a risk on tenant

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Originally posted by @Account Closed:

I own 8 rentals in Indy also. I have had 2 evictions and one very expensive turn (not this bad but still). Both those were tenants placed by prior sellers. With my own PM I have almost 5 years of tenants on 8 properties and no evictions. Turns always cost something but usually in the 1K range and I claim most back from security. Every few years have to change some carpets or paint but thats normal. The PM makes all the difference. Screening matters. Sometimes its better to take slightly lower rents and get a better tenant selection. Make sure your leases end in summer when there are more tenants. My properties are not in that neighborhood but more outside the loop. But the price points I bought them at were between 42K and 50K. Of course now they would be between 60-80K. Expenses including PM seem to track the 50% rule very closely on the portfolio. Im paying off on 10 year schedule and have more than doubled my initial investment in 4-5 years. So you can make money on these properties even from OOS. But your PM will make or break the investment.

Anish you bought B class for C class prices what we have here is flip flopped especially the MOrris stuff.

but yes PM is critical component.. and providing a home in a decent area and in decent condition also helps the PM be successful its team work.. outside the loop in INdy is as you know much safer than many of the inside the loop inner city areas that are just dodgy.

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