Should I sue for back rent?

General Landlording & Rental Properties
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Should I sue for back rent?

Sharon S.
Member since 2019 · 55 posts · 55 votes

Hi everyone!

Just wanted some opinions on my current situation. I have a multi -unit home just outside of Boston ( SUPER TENANT FRIENDLY STATE). I live pretty close to the home and thought hey, I can handle this house, its in the next city over. WRONG !!!!! 

Long story short, I rented out one of the Units back in June, and I had nightmare tenants from the start. They paid late the second month, made every excuse in the book. Paid late again the third month, I had to serve a Notice to QUIT both months. Now, in September they didn't pay at all! I literally could not deal with them and ending up hiring Property Management. They reserved another notice to quit, and they vacated on their own. Thankfully. The girl had a wicked attitude and demanded her security deposit back. Which obviously I have to return because it can only be used for damages.

Anyway, its obvious I got stuck with what they call "professional tenants". I'm tired of people getting away with not paying and the landlord having to eat the cost. Property management advised me that its not worth going to court over. Its not the lost rent that irritates me, it is the principle, that they do this to other land lords and ultimately get away with it. Should I sue them in small claims court, or is it really not worth pursuing? Thoughts?

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Kyle J.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
7y

Why do you say “obviously” you have to return the tenant’s security deposit because “it can only be used for damages”?  Security deposits can be used towards unpaid rent, and that’s what you should be using this tenant’s security deposit for. Don’t let this professional tenant bully you into returning it if they legitimately owe you money for rent.

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  • Russ B.
    Investor · Cleveland, OH · Member since 2017 · 319 posts · 330 votes
    7y

    I would just make sure you do everything required in your state / city... don't miss any steps. 

    For example, in some states, you need to send them a written accounting of where their deposit went within X days.. If so, it's critical that you actually do so. 

    1Reply
  • Sharon S.
    OP
    Member since 2019 · 55 posts · 55 votes
    7y

    @Russ B. Yes of course! I intend on doing that!

    0Reply
  • Account Closed
    Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    7y

    @Russell Brazil A class properties have A class tenants, but A class property purchased in Boston is probably something neither you or I would recommend for buy and hold these days.

    @Sharon S.

    There are a lot of factors that go into this particular story, asset class being one of them. There's more to it though. 

    Understand the implications of landlord friendly laws in a market you choose to invest in. Select a high quality property management company. You've also got to pay attention to your pro-forma, is this property going to cash flow as much as the alternative options. Tenant friendly states tend to also be expensive to purchase property in. They also tend to appreciate more during upswings and crash harder during recessions. 

    I don't know MA well, but I would imagine C class property outside of boston is still pretty expensive, and pretty tough to manage. 

    For your next, hypothetical investment purchase, what do you see yourself buying and doing differently?

    0Reply
  • Sharon S.
    OP
    Member since 2019 · 55 posts · 55 votes
    7y

    :)

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    @Elliott Elkhoury

    Buying class A properties in Boston or other similar markets is actually what I do recommend.

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  • Account Closed
    Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    6y

    @Russell Brazil well there's a change of scenery. Are you recommending investors like Sharon do this on a consumer scale? SFr/2-4 unit? Holding on to them? Any particular strategy?

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    @Elliott Elkhoury

    The strategy is buying high quality high demand assets in high quality high demand locations. Its the easiest way to building wealth, and its done with minimal risk compared to higher risk assets and markets.

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  • Account Closed
    Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    6y

    @Russell Brazil even if they don't cash flow? Or if they'd be more profitable to sell?

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    @Account Closed  All properties cash flow.  I'll say it again to make my point.....all properties cash flow. (Assuming they are not vacant).  What you are likely alluding to is debt service.  The risk that comes from leverage is completely independent of the risk of the asset and the market.  What someones debt service or borrowing terms are have nothing to do with a properties and markets fundamentals.

    But also what most people on these boards, and really most novice mom and pop investors fail to realize (and thats the vast majority of landlords in the country) is that in any investment vehicle is that yield is a measure of risk.  The higher the yield...the market is telling us the higher the risk. In a dividend stock, a high dividend is the market telling us high risk. In bonds, a high coupon is the market telling us higher risk.  In real estate, the higher yield is the market telling us higher risk.  That higher dividend/coupon/cash flow is the reward you get for taking on the higher risk of investing in a higher risk financial instrument.  But what happens is because so many lack a fundamental education in finance, that small investors get this 100% backwards.  They believe that the higher cash flow is safety...when that is 100% the opposite of reality. The higher cash flow is the reward for taken on a higher risk asset.

    So would I take lower cash flow in a low risk, high demand market over higher cash flow in a low demand higher risk market? Yeah almost every time, unless Im purposefully looking to add a little bit more yield/risk to a portfolio.

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  • Account Closed
    Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    6y

    @Russell Brazil That's a pretty accurate general principle.

    However, there are many cases in which two like kind assets, of similar class, demand, market, etc... perform at different levels during the present and/or in the future. I'm going to latch onto the phrase you used: "the market is telling us ______ about the risk profile by setting the yield at ______." Many investors will do fine listening to what the market tells them. Some will underperform by defying the market. Some will outperform by defying the market. 

    The market deemed a lot of assets risky in 2010, but savvy investors knew exactly what they had in front of them while others avoided acquiring them. 

    I think everyone should question and aim to understand why an opportunity may offer a higher or lower yield than another, I don't buy that the only reason is lower quality or risk. It might be perceived risk, which may be what you were alluding to in the first place. 

    1Reply
  • David BarnettPro Member
    Rental Property Investor · Cambridge, MA · Member since 2016 · 634 posts · 415 votes
    6y

    @Account Closed Based on Sharon's profile, it looks like this property is in Revere.  Although a lot of funding and capital has moved into Revere, it's still quite rough around the edges.  Based on the purchase price and the number of units, my guess is that this property is not in a good part of Revere.  It's likely a high D, low C type property.  My personal opinion is I would never invest in Revere (even over by Wonderland - which is the end of the Blue Line on the T [subway system] - for those aren't local to MA).

    0Reply
  • Sharon S.
    OP
    Member since 2019 · 55 posts · 55 votes
    6y
    Originally posted by @David Barnett:

    @Account Closed Based on Sharon's profile, it looks like this property is in Revere.  Although a lot of funding and capital has moved into Revere, it's still quite rough around the edges.  Based on the purchase price and the number of units, my guess is that this property is not in a good part of Revere.  It's likely a high D, low C type property.  My personal opinion is I would never invest in Revere (even over by Wonderland - which is the end of the Blue Line on the T [subway system] - for those aren't local to MA).

    You actually dont know anything about the area my Units are in. I bought a fully renovated 2 Unit from an investor who had to unload on it quickly. So the purchase price does not tell you anything about the property at all. Dont assume what class neighborhood it is in and ask me directly. I dont appreciate your condescending comments. Nor do I see you owning anything in MA besides a “condo”. 

    3Reply
  • David BarnettPro Member
    Rental Property Investor · Cambridge, MA · Member since 2016 · 634 posts · 415 votes
    6y

    @Sharon S. Sort of amusing how you are defending the neighborhood by saying it is "fully renovated."  I hate to break it to you, the interior of the unit and the class of neighborhood are two different things.  It's like saying you have a fully renovated unit on Geneva Avenue or Dot (Dorchester) Avenue in Dorchester, which there are some (for those arent familiar with that area - duck).  You are correct, I don't know exactly which neighborhood your units are in.  However, based on your description of the type of tenant you had, the city (Revere), and it's well deserved reputation (going on decades), it's likely not in a good area.  Last and certainly not least, Boston metro area born and raised, and I live 6-10 miles southwest of Revere...

    2Reply
  • Timothy M.
    Arlington, VA · Member since 2015 · 60 posts · 100 votes
    6y


    Originally posted by @Russell Brazil:

    @Account Closed  All properties cash flow.  I'll say it again to make my point.....all properties cash flow. (Assuming they are not vacant).  What you are likely alluding to is debt service.  The risk that comes from leverage is completely independent of the risk of the asset and the market.  What someones debt service or borrowing terms are have nothing to do with a properties and markets fundamentals.

    But also what most people on these boards, and really most novice mom and pop investors fail to realize (and thats the vast majority of landlords in the country) is that in any investment vehicle is that yield is a measure of risk.  The higher the yield...the market is telling us the higher the risk. In a dividend stock, a high dividend is the market telling us high risk. In bonds, a high coupon is the market telling us higher risk.  In real estate, the higher yield is the market telling us higher risk.  That higher dividend/coupon/cash flow is the reward you get for taking on the higher risk of investing in a higher risk financial instrument.  But what happens is because so many lack a fundamental education in finance, that small investors get this 100% backwards.  They believe that the higher cash flow is safety...when that is 100% the opposite of reality. The higher cash flow is the reward for taken on a higher risk asset.

    So would I take lower cash flow in a low risk, high demand market over higher cash flow in a low demand higher risk market? Yeah almost every time, unless Im purposefully looking to add a little bit more yield/risk to a portfolio.

    Russell, curious where you come down on this - should OP (or any mom&pop investor) in their accumulation phase pick up an asset that has an extremely low rental yield (looking at you, SF, NYC, DC, Boston!) but is in a very desirable area? Genuinely curious to your answer on this.

    Take a hypothetical property that costs 500k but only rents for like 2.5k-3.0k a month. This is - by most standards espoused on this site - a terrible rental. Yes, the property cash flows if completely paid off, but the yield is extraordinarily low, and arguably worse than most other options (equities?). The equation looks even much, much worse if we are talking about slapping some leverage on that already-poor-yield play.

    So... in your opinion, what's a mom and pop investor to do? Buy that 500k property and hope it appreciates? Or buy 4-5 100k houses in more working-class areas which rent closer to 1k apiece? Or some hybrid in the middle? 

    (I'm talking long-term wealth creation here, not just looking at this from the rental income angle)

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y
    Originally posted by @Timothy M.:


    Originally posted by @Russell Brazil:

    @Account Closed  All properties cash flow.  I'll say it again to make my point.....all properties cash flow. (Assuming they are not vacant).  What you are likely alluding to is debt service.  The risk that comes from leverage is completely independent of the risk of the asset and the market.  What someones debt service or borrowing terms are have nothing to do with a properties and markets fundamentals.

    But also what most people on these boards, and really most novice mom and pop investors fail to realize (and thats the vast majority of landlords in the country) is that in any investment vehicle is that yield is a measure of risk.  The higher the yield...the market is telling us the higher the risk. In a dividend stock, a high dividend is the market telling us high risk. In bonds, a high coupon is the market telling us higher risk.  In real estate, the higher yield is the market telling us higher risk.  That higher dividend/coupon/cash flow is the reward you get for taking on the higher risk of investing in a higher risk financial instrument.  But what happens is because so many lack a fundamental education in finance, that small investors get this 100% backwards.  They believe that the higher cash flow is safety...when that is 100% the opposite of reality. The higher cash flow is the reward for taken on a higher risk asset.

    So would I take lower cash flow in a low risk, high demand market over higher cash flow in a low demand higher risk market? Yeah almost every time, unless Im purposefully looking to add a little bit more yield/risk to a portfolio.

    Russell, curious where you come down on this - should OP (or any mom&pop investor) in their accumulation phase pick up an asset that has an extremely low rental yield (looking at you, SF, NYC, DC, Boston!) but is in a very desirable area? Genuinely curious to your answer on this.

    Take a hypothetical property that costs 500k but only rents for like 2.5k-3.0k a month. This is - by most standards espoused on this site - a terrible rental. Yes, the property cash flows if completely paid off, but the yield is extraordinarily low, and arguably worse than most other options (equities?). The equation looks even much, much worse if we are talking about slapping some leverage on that already-poor-yield play.

    So... in your opinion, what's a mom and pop investor to do? Buy that 500k property and hope it appreciates? Or buy 4-5 100k houses in more working-class areas which rent closer to 1k apiece? Or some hybrid in the middle? 

    (I'm talking long-term wealth creation here, not just looking at this from the rental income angle)

     Hey Tim...good to see you, hope things are going well.

    Yes I am a big proponent of buying these types of assets.  Theres a reason why the highest concentrations of millionaires are in Maryland, and specifically the DC suburbs of Maryland. Then after that the highest concentrations are found in NY, then Boston, then the Bay area.....and the median incomes of those people are not nearly as high as someone would expect.  Its because they own their homes in high demand areas.  Where demand is high and supply is low, prices and rents will rise.  Ive got 1 door in Rockville where I now have free cash flow of $1600 per month. Anyone getting $1600 on a door in Kansas city....even after a decade of owning it? It took me 10 years to get to that $1600, but rents will rise dramatically where demand is high, and supply is restricted.

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    0Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    @Sharon Steenbergen actually, sounds like this could have been much, much worse. Congrats on being out of a bad situation.

    I would think about going through the process of small claims/housing court yourself on this so that you aren’t in ct the first time for an even more active dispute. Free education with little risk...

    C

    L

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    6y
    Originally posted by @Sharon S.:

    Hi everyone!

    Just wanted some opinions on my current situation. I have a multi -unit home just outside of Boston ( SUPER TENANT FRIENDLY STATE). I live pretty close to the home and thought hey, I can handle this house, its in the next city over. WRONG !!!!! 

    Long story short, I rented out one of the Units back in June, and I had nightmare tenants from the start. They paid late the second month, made every excuse in the book. Paid late again the third month, I had to serve a Notice to QUIT both months. Now, in September they didn't pay at all! I literally could not deal with them and ending up hiring Property Management. They reserved another notice to quit, and they vacated on their own. Thankfully. The girl had a wicked attitude and demanded her security deposit back. Which obviously I have to return because it can only be used for damages.

    Anyway, its obvious I got stuck with what they call "professional tenants". I'm tired of people getting away with not paying and the landlord having to eat the cost. Property management advised me that its not worth going to court over. Its not the lost rent that irritates me, it is the principle, that they do this to other land lords and ultimately get away with it. Should I sue them in small claims court, or is it really not worth pursuing? Thoughts?

    It's all risk vs reward.

    • How wealthy or poor is your tenant? Remember can't get water from a rock.
    • How much do they owe?
    • How much is the cost of litigation?
    • How much is the opportunity cost?
    • Do you enjoy sticking it to someone who screwed you over or do you despise conflict?
    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Sharon S.:

    @Lydia R. From what I understand is this - I can not attach it to their credit as a homeowner.
    ***** someone correct me if I am wrong*********

    If you want to attach things to their credit the credit bureau needs to come to your home/office and see how your store and file Creditor information. (Must be locked up and secure). I heard it was a huge painful process.

    Property Management can do this.

    Also, your idea is fantastic lol. If only.

    reporting to Credit is not an option for landlords.. we looked at this as HML er and its just so onorus.. even many commercial banks don't report to fico because of it.

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  • Shadonna N.
    Developer · . · Member since 2014 · 520 posts · 162 votes
    6y

    Regarding reporting to the credit bureaus, you can go to court, get a judgement and sell the judgement to a collection agency for about 30% of the value of the judgement.  In California, there is a way you can get the judgement on the credit report.  There are companies that will report but I don't know the cost.  You see all the commercials where renters can build credit by reporting their rents.  So one-sided. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Russell Brazil:

    @Account Closed  All properties cash flow.  I'll say it again to make my point.....all properties cash flow. (Assuming they are not vacant).  What you are likely alluding to is debt service.  The risk that comes from leverage is completely independent of the risk of the asset and the market.  What someones debt service or borrowing terms are have nothing to do with a properties and markets fundamentals.

    But also what most people on these boards, and really most novice mom and pop investors fail to realize (and thats the vast majority of landlords in the country) is that in any investment vehicle is that yield is a measure of risk.  The higher the yield...the market is telling us the higher the risk. In a dividend stock, a high dividend is the market telling us high risk. In bonds, a high coupon is the market telling us higher risk.  In real estate, the higher yield is the market telling us higher risk.  That higher dividend/coupon/cash flow is the reward you get for taking on the higher risk of investing in a higher risk financial instrument.  But what happens is because so many lack a fundamental education in finance, that small investors get this 100% backwards.  They believe that the higher cash flow is safety...when that is 100% the opposite of reality. The higher cash flow is the reward for taken on a higher risk asset.

    So would I take lower cash flow in a low risk, high demand market over higher cash flow in a low demand higher risk market? Yeah almost every time, unless Im purposefully looking to add a little bit more yield/risk to a portfolio.

    Exactly not sure why positive cash flow has been beaten into investors heads that's just one aspect.  if they want positive cash flow they need to buy cap rate properties.. for single assets the more important factor is safety and appreciation that's were the money is made no one gets rich making 200 a month on taking on high risk..  the money is made when the assets are sold or exchanged and they have gone up in value. 

    or your doing this for a living and run 50 doors yourself type thing like we see many mom and pop investors on this site do. IE I quit my job because nirvana to me is being a landlord  LOL.. and dealing with tenants .

    Whereas high End A class your dealing with much more stability and neighborhoods that don't have crime and all the other social issues of the day.. plus you can exit to homeowners your not stuck with the ONLY exit is to another investor who reads BP and is going to low ball you and they want a higher return than you do therefore you lose money at the exit..   prime properties if your going to have debt.

    low end OK with no debt.  and you have scale and want to do that for some odd reason  .. 

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  • Brent Paul
    Rental Property Investor · Shakopee, MN · Member since 2015 · 985 posts · 374 votes
    6y

    A tough situation to be in.  It would be a bummer if this lady did this to someone else.  But I understand how expensive it can be to fight it with a lawyer.  I do believe they can garnish wages in small claims court.  If this lady suddenly quits her job you will get nothing.

    0Reply
  • Mark Cruse
    Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    I have never went to court. Not worth the time or hassle. You are in a business where you will most likely encounter this over and over. You have to screen very well and chop some of it up to the typical loss you experience in business. Most of the people in that situation are not stable and spending money to chase them around to get nothing takes away from time you could be making money. I know some that have lawyers who specialize in this where they charge up a bunch of stuff and get a judgement against thier tax return. That may work for some but I just screen good and get them out as soon as I can to get another tenant. 

    0Reply
  • Anthony Rosa
    Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
    6y
    Originally posted by @Sharon S.:

    Thank you @Kyle J. for finding all that information! It is incredibly confusing for me, because I have Property Management telling me I can't keep it - and others in the area who are telling me the same thing. Then, seeing information online saying that I can!

    I tried consulting with an attorney in the beginning to serve my Notice to Quit's and they wanted to charge me a $3500.00 retainer just for the notices and first court date. I will try to consult with another on this matter.

    If they didn't do any damage then consider yourself lucky and only losing a months rent from this pro! It could be worse and not worth going to court over.

    0Reply
  • Brian Garlington
    Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    @Sharon S.   Sounds like you dealt with a professional tenant...the good news for you is that she actually moved out on her own. I just got done dealing with a "professional" tenant and it took several months to get her out....and even then it took an actual eviction. As for the "principal"....I agree with you. Here are a couple of things you can do in the future....

    1. Properly screen your future tenants.....and your new property manager.....

    2. Your current PM seems to be giving you incorrect information....how properly did you vet your current PM? 

    3. Whether your property is in a B, C, D or F neighborhood you may want to give very strong consideration to renting to a tenant that has a Section 8 voucher. I have rentals in the SF Bay Area and in Cleveland, Ohio. Exactly half my units are Section 8 and they are in neighborhoods that are in B, C and D areas. I self manage a couple of them here in the Bay Area that are on Section 8 and they are VERY low maintenance. My money comes in the 1st of the month like clockwork, I get a free inspection each year...and the tenants are very appreciative of having a quality place to live. I was also able to properly screen the tenants myself before letting them move in.

    2Reply
  • Tony Kim
    Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
    6y
    Originally posted by @Brian Garlington:

    @Sharon S.   Sounds like you dealt with a professional tenant...the good news for you is that she actually moved out on her own. I just got done dealing with a "professional" tenant and it took several months to get her out....and even then it took an actual eviction. As for the "principal"....I agree with you. Here are a couple of things you can do in the future....

    1. Properly screen your future tenants.....and your new property manager.....

    2. Your current PM seems to be giving you incorrect information....how properly did you vet your current PM? 

    3. Whether your property is in a B, C, D or F neighborhood you may want to give very strong consideration to renting to a tenant that has a Section 8 voucher. I have rentals in the SF Bay Area and in Cleveland, Ohio. Exactly half my units are Section 8 and they are in neighborhoods that are in B, C and D areas. I self manage a couple of them here in the Bay Area that are on Section 8 and they are VERY low maintenance. My money comes in the 1st of the month like clockwork, I get a free inspection each year...and the tenants are very appreciative of having a quality place to live. I was also able to properly screen the tenants myself before letting them move in.

    I second Brian's recommendation for Section 8. It takes a bit more time and effort to get things set up, but once the unit is rented, things become very stable and the tenant will stay on a long term basis. I also self manage some units here in Los Angeles and the program acts as a very good hedge against the nightmare tenant who knows how to bilk the system in a very tenant friendly place like CA. Also, my Section 8 tenants take much better care of their units than my non-Section 8 and never give me any trouble. Oh yeah, and there's also the electronic payments that hit my account on the first of every month like clock-work.

    2Reply
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