What makes a slumlord
IL · Member since 2010 · 46 posts · 1 vote
Ok for the landlords out there question.
I did math on a bunch of properties and saw in my area the only way to make positive cash flow on a property is that it starts around 6+units which is like 800k starting, and the only other way is slumlord in crappy neighborhoods and who says you will get any rent money from these guys?
What am i missing?
Please define "crappy neighborhood".
My rentals are working class, mid to lower income housing. I provide a clean house at a fair price. They cashflow well. I have had my share of good tenants and bad. i am not a slumlord. I reinvest some money into maintenance on my units. I have them cleaned between tenants.
I have friends that have high end rentals. They have their share of good tenants and bad.
To me, a slumlord is a person that takes the cashflow and never does any maintenance on his property and runs them into the dirt. Then he wants to sell them at top dollar and is outraged as to why he isn't successful. Just my opinion.
Please define "crappy neighborhood".
My rentals are working class, mid to lower income housing. I provide a clean house at a fair price. They cashflow well. I have had my share of good tenants and bad. i am not a slumlord. I reinvest some money into maintenance on my units. I have them cleaned between tenants.
I have friends that have high end rentals. They have their share of good tenants and bad.
To me, a slumlord is a person that takes the cashflow and never does any maintenance on his property and runs them into the dirt. Then he wants to sell them at top dollar and is outraged as to why he isn't successful. Just my opinion.
Mike
Have you done any diligence on your geographic scope prior to this?
Meaning: it may be very possible that the area you are looking at will not support your intended business process.
Landlording is a business - plain and simple. If you can't afford to run the business; there's no business.
Where are you looking?
Well is seems odd in my neighborhood, its seem like to have positive income monthly I need to buy either a crappy house(150k or less) or buy a 6+ unit building for 800k+.
Kind of sucks nothing is in the 300-500k rage
Chicago, IL
Mike,
I am from Chicago, IL myself and I don't completely agree with your assessment of the Chicago market. There are some great opportunities in this market. You may have to start looking at properties in suburbs (Aurora for instance) to find some good cash flowing properties.
If you need more info, please feel free to email me. You can send me a colleague request and we can exchange PMs. Or you can get my email address from my website address in my signature.
Thanks!
slum (sləm) n. - a densely populated, usually urban area, marked by crowding, dirty run-down housing, poverty, and social disorganization
slumlord (sləm'-lôrd) n. - one who rents out property in such a place
I agree with Greg. I have properties in 2 of the poorer neighborhoods in Denver. (not that Denver has a true slum), I keep the properties clean between tenants and require my pm to stay on top of upkeep. I will not have ugly houses. BTW, I also live in one of those neighborhoods.
Many of the landlords in those areas do not keep up the properties, will allow any tenant in, and have no regard to neighbors or the neighborhood. Some by choice, but most by lack of understanding of what takes to be a landlord. They also lack any reserves.
Those are the slumlords.
Guess what happens to those people, they do not cashflow in the long run and cannot afford the extensive delayed repairs when it comes time to sell. They then sell to me at a deep discount.
"Slumlord" definition: What people who are losing money in real estate call people who are making money in real estate.
But wouldnt you rather rent out in a very nice neighborhood NOT have to worry about if there gonna pay you this month or evicting someone, just to make a few grand a year on a couple units? And in a nice neighborhoods once the market turns around it will be appreciating fast than the not-so good neighborhood cuz you will have a better school system, etc...
Thanks, Mike
LOL, for those who believe that cash flow makes you money. A measley 100 dollars a door, 1200 a year does not make one wealthy. Double that and your return on an economic basis only keeps you above water, all you have is a job! Over the long term, at only 3% inflation your rents will, increase if the properties are maintained and in demand, more so if you do a better job. That alone on a $35,000 2 bedroom leads to more in appreciation that your rents after taxes. Collecting rents while slumlording is a false sence of "making money" chances are you're losing money! Someone is thinking that under current conditions, there is no appreciation and it's better to take the cash and let it fall in. Well, that property certainly will not appreciate and infact it will be of less value than one maintained, so when you sell it....and ALL real estate is sold or transferred at some point and is ultimately carried at a book/appraised value to determine wealth (even if you drop dead and your kids end up with it) you lose the potential value.
Maybe some slumlords have not yet been involved with municiple regulators about property conditions, but eventually they will. Putting off required maintenance in today's dollars is alot cheaper than repairing the roof five years from now...and doubt that your rents increase to compensate. IMO, while there are several lower life forms in real estate, that scratching the bottom is a slumlord.
I'm glad to say that I was largley responsible for removing over 40 sub standard housing units in about five years in my area, some were revived some areas converted to public use as a park and greenscape. And, simply putting those landlords out of business.
I won't even touch on the social aspects in a community that slumlords contribute to directly and most are so consumed in their greed and self that they don't even realize the impact caused, and some wouldn't care....as they think they are making money. If you're only goal is to make money without regard to anyone else on the planet, you might as well just be a pimp....in a way, that's what many are! LOL, bet by now you can tell I don't care for slumlords.
Examiner, you actually make my point. But you didn't really define what makes a slumlord. Lower income folks need housing just as much as middle and higher income folks. Hopefully, the landlord on the lower income property is not lazy and takes care of the property.
Like you, I have actually torn down a house and built a new one, after owning it for around 5 years. It just wasn't worth repairing any more. $10,000 a year for repairs or $100,000 to build a brand new house, not a hard decision to make. Then I sold it for $130,000 (should have waited 2 years, could have gotten $200,000)
I am currently contemplating tearing down a "slum" property that I have, I spent $22,000 repairing it (a 5 plex) last year. But the current tenants pay $800 a month (this is in Orange County, CA) and if I build a new 5 plex, the units will rent for about $1,400 a month. If I do this, I displace 5 low income families. How does that help society? Am I a slumlord? By some folks definition, yes. Am I providing housing for a needy part of society? Absolutely. Like I posted before, someone has to own it. I think I am taking good care of the property but it was built in 1925 so age is taking over BIG TIME.
The truly wealthy RE investors I have met personally made their money through appreciation. They bought & held, & held, & held. Of course, it may be easier to do that in California than in other markets. Out here, cash flow is what simply allows you to hold the property while you wait for its value to increase. In the long run, the cash flow is chump change compared to the appreciation in SoCal. :wink:
Mike, IMO, you are not a slumlord by the virtue of owning lower income or valued homes, a 900 sq ft. residence does not make a slum.
A slum, my definition, is one that fails to provide suitable housing needs and fails to meet safety and health requirements for occupants. When properties are held that are in disrepair, that pose a dangerous condition, that lack security because a front door can simply be pushed open by an eight year old or has a septic system that backs up often, you probably have a slum property. It has nothing to do with the value of the property or the amount of rents paid.
What you have are property owners who think that if they put $500.00 in a roof repair, they can't raise the rent for it, so they don't fix it.
IMO, no property owner should lease any property that they themselves would not spend the night in, or have their son or daughter live in. Think about the conditions of the property, rather than the value.
Saying that my tenants can't afford to pay higher rents is a cop out, their rent level is not dependent upon your equity or appreciation of the property. What that customer is buying, first and foremost, is a clean, safe and healthy living environment. If that property can't meet those basic living conditions, it should not be available on the market fo anyone. The displaced families have other alternatives, or should, in every community. There is the PHA, Habitat for Humanity and other housing organizations that take up the slack. The demand may exceed to supply and if so, it could be that they are trying to live in the wrong community based on their abilities. But, before it ever gets to that point, there are usually services, government loans and grants available to landlords to bring property standards up if they will agree to lease the property to lower income tenants.
Who bought the property anyway? If you buy a house for $12,000, obviously it needs repairs, it's probably a piece of trash to begin with. Buying properties like that is the responsibility of the owner to make them safe and free of health hazards. It's the buyer who sees a property like that and decides to prey upon more simple minded and economically deprived individuals, tooting their horn as if they are doing them a favor, that is most unconscionable. If there is an electrical fire or if the furnace blows up, is that what is said at the funeral, I really liked that dumb poor old slob, I really helped him out with a place to stay dry, even though he died living there?
I think "investors" know when they are
buying a piece of crap to rent out for the sake of a dollar. If they can't buy that $12,000 house and bring it up to standards, don't buy it, step aside and allow a more responsible property owner to take it and improve it. Buy a better property that makes more in the long run from an economic aspect.
Mike, I applaud you for tearing down a slum property and repalcing it with something better. If you put that much money in a property and it still isn't a decent rental, who made that mistake? Maybe you should have torn it down then. I'm sure there are housing programs to assist your tenants in Co.
Should I sell drugs on the street and say if I don't provide them, someone else will? Should I make them available and say that I'm doing the user a favor because I'm keeping them from going through witdrawls? Should I pimp out some girl and say I'm doing her a favor so she can eat? I don't think so. There are social programs for these people.
I had a slumlord ask me the same thing, where would they go? Obviosuly he had a financial interest in having someone in the property that couldn't afford to move out of, and I asked him, if you're so interested in the homless, have you ever taken someone into your home, did you eve take someone off the street? Did you ever even pay for a room at a motel to get someone out of a storm? Well...no, he says...
Mike, have you ever looked into non-profit housing organizations in the area, I'm sure they exist. If they don't and you choose that economic level to deal in, you can start one and probably make more from a non-profit than having the problems of having such properties as a property owner. It just takes an effort.
Most of the slumlords I have seen are older people. They really didn't care about anything but their checkbook. They lack the motivation to make any repairs or improvements because there is no early payoff, and being older, they won't see any benefit in the next year, so they lack the motivation. Those people need to sell those properties and move on.
Poor, substandard housing is a big problem. It effects the entire family that has to live in such properties. Kids don't invite other kids into the home for example because they are so embarrased. They get depressed, their grades fall and bascially, such properties are the root for many social problems. You don't help anyone renting them a dump.
And, what was called lazy, above, can also be a situation where a property owner is unable to perform maintenance. But really, there is no excuse for a property owner to rent out any proeprty that is a hazard or fails to meet health standards. Putting the responsibility of ownership off by saying the tenant can't afford to pay me for the repairs is not an excuse, they didn't buy it, they didn't make the investment decission and they aren't responsible for it standing and being placed in the rental pool of that community.
That is why I will most likely either sell or replace that 1925 property. Hopefully, I can give each tenant a moving allowance and help them find suitable housing. But in the meantime, I am keeping the units as livable as possible, including installing new stoves, new carpet, new paint, new sub floors, etc...
To answer your question, yes, I have given homeless sleeping bags, I have put up homeless in hotels, I have bought meals for the hungry, I have even had them sleep in my house. I believe every one should give back to society, especially those of us who have been blessed with a successful business.
Mike, good deal, I never though you were really a slumlord type! If you're putting major dollars into the property and it will need to be leveled shortly, I suggest you leave an original wall up, maybe more, making your project technically a rehab instead of new construction. That should allow you to pull that furnace and reposition it and incorporate other "used" materials. New construction will generally require you to use brand new appliances, HVAC, etc. a rehab won't. Good luck with it, and keep it clean, healthy and safe.....Bill
I honestly think about the neighborhood affect of bad properties. Rentals can be maintained to decent standards in low income neighborhoods. But deadbeats landlords who choose deadbeat tenants only hurt themselves.
Increased repair cost, decreased neighborhood appeal and property value, and the shear waste of time dealing with hassles. A neighborhood is defined by its occupants.
Decent folks, no matter the income, will not live in slums.
It also takes a Village to raise a good landlord!
My definition of slumlord is pretty simple.
It's a landlord who doesn't care about the value of the neighborhood.
Economic level has nothing to do with it. You can have a slumlord in a very expensive neighborhood. If he puts a drug dealer into his nice house, or 55 undocumented aliens, and he allows disrepair and trash, then he hurts the value of the neighborhood, and he is a slumlord.
A landlord in the cheapest most desperate neighborhood is not a slumlord if he keeps repairs up, does not rent to scummy tenants, and does what he can to protect the value of the neighborhood.
Very good points from all.
I hope everyone realizes my definition was a little tongue-in-cheek. After all, in order to define a slumlord, we have to define a slum. It's like trying to define art, we may not be able to, but we know it when we see it.
That said, slums often describe an area or a neighborhood, not typically one unique property. But it can.
Obviously, if you're a conscientious landlord and maintain your properties so they are safe, operable, and usable, then you're not a slumlord even if the surrounding area is a slum.
By the same token, as P NW said above, you can be "alien stacking" 10 families in a 5 bedroom estate in a good neighborhood, never repair a thing, and threaten your tenants with eviction against local laws every time they complain (hoping they don't know any better) and be the quintessential "slumlord" we all know and hate.
What makes a bureaucrat rather than an investor?
And, I had investments of my own during the entire period, had nothing to do with these activities.
This does not include the homes I have had shut down for code vilolations with frequent violators. People would ask me how to get out of the lease, the lights sparked, wires hung down out of the ceiling sinks dripped with the tenant paying the water bill. How, simple, call the fire department and have them inspect it for complaince. Any tenant can invite any inspector to inspect a unit. Well, they won't pass, and they get red tagged. Called the landlord and said, you violated the terms of your owner responsibilities and the lease is terminated, send them the deposit back or face further action.
Scum bags even tried arguing with me, can you imagine tenants right out of there! You have to understand too, that these are landlords that think they can rent anything regardless of how dangerous it might be and they think they have them by the you know whats. They believe they are just the smartest property property barons known to mankind, they know it all. It just makes it that much more enjoyable to give them a good jamming! Lowest life form in real estate, IMO. I have more friends than enemies. Those types of landlords are less worthy than the poorest one amoung them all!
It's really satisfying to see that what went around now comes around, and eventually it will catch up with landlords like those! Good luck, Bill
To the landlords here,
I'm sure I'm not the only landlord here to have experienced a nonpaying tenant make a lot of claims about b.s. repairs needed, often from damage they created, in order to break the lease and try to get their security deposit back. I just had one this week threaten to make an EPA lead paint complaint for nonlead paint she put up in violation of the lease (figure that one out).
It's not up to some bureaucrat to tell you what your lease should have been or what the laws should be. Choose an area with judges that have their heads on straight and get your day in court. I know from personal experience that Springfield, Missouri judges see right through these tenant games and apply the law as it is written well. What a bureaucrat threatens doesn't matter as long as you're following the law.
Tim