Vacant Rental Property or Bad Tenants?

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evict bad tenantsYesterday, forum member vegastud asked an important question regarding a property he recently acquired:

Do I sign a suspect renter because I need renters or wait? Do I lower the price? I am frustrated.

First, I want to share what one of our resident experts, All Cash, has to say:

NEVER, NEVER, NEVER rent to “suspect” tenants. By that I mean anyone who clearly is stretching too much to pay the rent, or has to have “some buddies”, or other “extra” tenants move in to help afford the rent.

You stated that this is your first rental so let me explain about the TWO kinds of vacancies. The first kind is what you have now; now income coming from a “market ready, showable, move-in-able” place. All you need now is a paying tenant to turn around your situation.

The second kind of VACANCY is the kind you have once you’ve allowed a “suspect” tenant, aka a DEADBEAT to move in. At that point you still don’t have the income, you’re facing extra expense to get the deadbeats out and bring the property back up to where you were on February23rd.

After close to 30 years of doing this, with 16 SFHs at one point. The FIRST kind of vacancy is the best.

AllCash is dead on with this one. You are better off with no tenant, then with a bad one.
MikeOH, a new member of the site had another extremly important suggestion:

I would suggest coming up with a written policy regarding tenant screening. Then – don’t violate it.

So where does that leave us?

Here are a few tips for new landlords

1 – Establish your own set of standards that you follow EVERY TIME regarding tenant screening.
2 – If you have a choice between renting to someone who is below standard or waiting for another tenant, WAIT!
3 – Make sure your property is going for close to market rents. An overpriced rental will sit on the market for much longer then a fairly priced one.
4 – Be patient. If your property is fairly priced and in good condition, you will eventually find a good tenant.

What are some of the downfalls of renting to someone who doesn’t meet standards? Here are some examples of what I’ve personally dealt with (most of which I inherited when acquiring properties):

1 – Tenants who damage your property
2 – Tenants who don’t pay the rent or who constantly pay late
3 – Tenants who break the law (drugs, etc)
4 – Tenants who violate your lease agreement (e.g. have 10 family members living in a 2 BR apartment)
5 – Tenants who need to borrow, beg, or steal to cover their payments (got in over their head & you allowed them to)
6 – Tenants who don’t throw away garbage, but leave it in the property

You get the idea . . . All of the above present problems to you. The lesson here is to have patience and wait out the right tenant instead of jumping the gun in order to get units filled. Evicting bad tenants will cost you a lot more time and money then will waiting for the right tenant. We’ll talk about some good screening tips in a future post.

REMEMBER VACANT PROPERTIES ARE BETTER THEN PROPERTIES FILLED WITH BAD TENANTS!

About Author

Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded BiggerPockets.com when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 600,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.

18 Comments

  1. Yea you’re pretty much dead on with this one. I broke the rules on my first tenant and it cost me dearly. I lost time, rent, gas, court fees, plus she damaged my property which cost me over $800 to fix. But she gave me something that was priceless… EDUCATION!!! I don’t break the rules anymore.

    Business is business, friends are friends. Don’t try to mix the two.

    Great article.

  2. I agree with this blog. I have clients calling me nearly every day with brand new, vacant homes in Cape Coral & Lehigh Acres. Most of which are ‘upside down’ on their loan vs. market value. They say they want to get a tenant in, at all costs to help them afford this home. For starters, rents here are about 1/3 to 1/2 of what a typical high ratio mortgage payment is. Not only that, but at the end of the year lease you have an undesirable property on your hands. Waiting for a good tenant or simply taking a loss is the best bet – always.

  3. I lost time, rent, gas, court fees, plus she damaged my property which cost me over $800 to fix. But she gave me something that was priceless… EDUCATION!!! I don’t break the rules anymore.I read this article is very interesting.so click on the link for more details

  4. Follow the advice of this article or learn on your own. Either way it is the truth. Well written and a great read. Last thing I’ll say is Chapter 13 of John Shaub’s book Building Wealth One House At A Time is a great manual on how to work with tenants, as well.

  5. Pingback: RE Agent in CT » 4th Consumer Focus Carnival Of Real Estate

  6. This happened to my dad one time some years back, and he never let it happen again. He was fortunate to not have his homes trashed again. Everyone is not so lucky.

  7. Well this is a no brainer. DO NOT rent to an undesirable applicant. Use as many of your resources as you can to market your vacancy.
    Multiple internet rental and classified sites.
    Signage on the rental and bandit signs.
    Newspaper and buy sell paper ads.
    Real estate clubs.
    Shopping center billboards.
    Finder fees to your tenant base.
    And many more…be creative!!!

  8. I have a tenant who is nasty don’t pay rent and was asked to move out in January and its now June and she still wouldn’t move. She also have her son move in. Trust me when I tell you, never to rent your place to anyone. Shirley Patterson and son Micheal swem is the worse tenants ever. We can always use the extra money but its not worth the stress.

  9. I am landlord and I have the tenant from tenant hell. She is a prostitute and has a different John there everynight. She said she only had 1 child when she really has 3. She has caused $3,000.00worth of damages and that is just to the outside and plumbing of the house. She has had me and my father arrested. She came from out of a shelter and is on a DHS program. Be careful of DHS programs!!!! I cant wait until she is gone. What a lesson learned.

  10. This is helpful advice and I especially appreciate the tips list. I’m a relatively new landlord and I’ve already made too many stoopid mistakes renting to folks that I just knew in my gut weren’t going to work out. I’ve been relatively lucky in that none of them has been too much of a bust, but next time I’m going to follow my gut and “just say no” to “suspect” tenants.

  11. The above is absolutely the truth for the average landlord, expecially with single family; however, when I (single, otherwise unemployed mother to 4 & 5 year olds) “bought” a 25 unit property with 4 mortgages, 100% LTV, & Monthly cash flow <$1000. All my personal expenses were paid in quarters from the laundry, I was more desperate than my worse tenants to generate as much cash flow as possible, so I specifically let to the tenants that would make make most gray, but compensated for the risk by charging a high premium in rent, collected on a weekly basis, stiff late charges, (which may not even be legal in many areas), and I didn't live on the premises, but was often there. I also advertised specifically for those who had recently filed bankruptcy or had foreclosure and wanted to "rebuild" their credit. I charged 2 months security and first and last months rent. One sketchy couple paid 4 months in cash. Having grave doubts of their history, I called them to alert them that "I had just gotten a call from the FBI asking questions, and just thought they'd want to know". They had a moving truck there in 30 minutes, emptied the apartment in an hour, and left behind 2 teenagers who arrived home from the park to receive instruction from the resident manager for them to take the bus to Papa's. In all, I starved the first 10 years plowing everything into paying debt and upgrading the property. It's been 20 exciting years, the building are paid off, and put both kids through college. I can honestly say, even my worst tenants taught me valuable lessons, some became excellent long term (10+ years) tenants, grateful for a chance to get things right. If you've got the stomach for it, there's money to be made. I'm 48 and spend my time helping my adult children build their multifamily "empires" and traveling. I figure if my kids wanted in, it must not have been so bad!

  12. I don’t know. I’m experiencing the worst year of my life in real estate all due bad tenants. I hired a property manager who I swear found THE worst tenants to rent my properties, two of which completely destroyed the houses. All of my rentals are single family (unfortunately), and one has been boarded up for several months after the tenant destroyed it. Another cost me close to $3000 to repair, so I’m inclined to say WAIT. I’ve taken over leasing out my own properties again, and I’ve been finding excellent tenants.

    Mary (#15), your story is amazing! I’m so intriqued, and I’d love to hear more about how you managed to hold on. Please contact me via email if you can at [email protected].

  13. @Kate. I can tell you from painful experience that trusting your gut is the only way to go in the landlord business. People send you plenty of signals as to their character. Listen and trust your gut.

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