So, you wanna be a landlord….
The realities of dealing with a nightmare tenant
By Buddy Kane
For those of you that read “Rich Dad, Poor Dad” and utilized this playbook to acquire rental properties prior to Covid, interest rate hikes, and the vanishing of real estate inventory, Bravo! You’ve done well in acquiring rental properties that now command increasing rents and low vacancy rates. It’s good to be you. Life is even better when using other people’s money to pay your mortgages down while collecting cashflow from a hard asset in an inflationary environment. Not to mention the eventual capital gain potential over the long term. This is the good news.
That being said, it’s important to be aware that every sparkling opportunity on the surface has its own dark underbelly that makes its presence known from time to time. In this case, a difficult tenant that can inflict unprovoked and unconscionable hell upon you, and the beloved living quarters you have entrusted to them under contract. All because they may have a bad day, week, month, or year that has nothing to do with you, or the contractual obligations you have upheld on your end of the deal.
Oh and… they still have rights that can tie you up in litigation for longer than you may realize, in accordance with a legal system that often moves at a snail’s pace.
When the topic of rental properties is raised, it often evokes images of “slumlords”. Those evil people that charge excessive rents, neglect the basic needs of their renters, and laugh all the way to the bank. Rightly so, in some cases.
While landlords are often stereotyped in this light, we don’t often hear as much about nightmare tenants; rental applicants that aren’t properly vetted, via thorough background checks to ensure the safety and sanity of property owners leasing space to these renters. Many candidates are approved based solely upon positive references issued by mere acquaintances, without landlords doing their homework. To be clear, tenants tend to get a pass with respect to their active role in leasing and rental disputes.
The reality of what the law permits and restricts, in rare situations we don’t often see, is startling to say the least.
As an example, let’s flesh this one out.
Exhibit A: A real life scenario unfolding right now on this very topic.
*A local homeowner cum landlord, is transferred overseas pursuing a job opportunity
*Rather than sell his house, he elects to rent it out, with the long-term option to move back in upon return from abroad
*A tenant is procured and approved, upon a glowing reference from a local acquaintance. A basic background check is performed
*A rental agreement is drawn up with all standard terms & conditions for both parties to uphold their contractual obligations
Here’s where it gets interesting….
*The tenant has a history of substance abuse patterns previously addressed and treated. (Fair housing laws prohibit landlords from inquiring about this)
*An unfortunate relapse of substance abuse occurs. The tenant begins engaging in behaviors ranging from less than savory to downright illegal. This creates a debilitative affect not only on the tenant and his own well-being, but also directly impacting neighbors both near and far, depending upon the daily severity of his declining and compromised state
*Upon learning of this, landlord contacts tenant to address the problem in an attempt to quell an escalating situation that could end badly for both parties. All in response to repeated complaints from the local community, documented by the local authorities
*In response to inquiries from the landlord, tenant proceeds to inflict material and costly damage to the house, rendering it unlivable, warranting his physical removal from the property, but not yet an official and binding eviction
*Landlord contracts commercial cleaning services to address and limit the extent of immediate damage done specifically to stem the severity of said damages. At the behest of legal counsel, landlord is advised to perform basic functional cleaning only, as all contents of the living quarters, no matter how vile or objectionable, remain property of the tenant. Tampering or removal of these items could open the landlord up to being sued himself by the tenant. Try that one on for size…
*To date, the tenant has officially breached several laws and been detained in a local facility for evaluation and necessary treatment. Depending on the length of this detainment, it could be quite some time before any forward progress on this matter will commence. The tenant’s belongings remain in the residence. Legal counsel for the landlord has once again advised strongly against the removal or even adjustment of these belongings as part of any effort to even begin the necessary repairs and commercial cleaning needed to return the house to legally livable status.
*Barring any small miracles, the property, and its contents, are to remain in their current state, pending further developments. In short, this property will likely be tied up for months at the bare minimum.
*In the face of this nightmare scenario, the landlord has demonstrated an unusual degree of class, dignity and most importantly, business savvy. Prior to renting the property, the landlord took out an aggressive insurance policy with attached riders that will likely cover not only the damages to the home, but all back rent that may have been lost as a result. The landlord will likely be indemnified and made whole.
*You can be certain this is not a garden variety policy providing coverage this extensive. The premiums on this most certainly exceed the amounts many landlords would agree to pay. As a result, these very same landlords would be faced with exclusions and other policy limitations that would stick them with a much larger bill they would have to pay themselves
Time will tell how this all plays out. For now, the landlord can sleep at night from overseas knowing that he will likely be covered for all damages incurred. In the meantime, you can bet he’ll be sharpening his investigative skills in vetting new tenants if he ever decides to rent out this, or any other property ever again. To be fair, this is a rare instance most landlords never face but, ITS POSSIBLE and it can happen to you if you choose to become a landlord. Enough said.
The lesson to be learned here is risk mitigation, especially in cases like this where you are placing the well being of your property, and your interest in this property, in the hands of a stranger you are forced to trust if you are going to be a player in this game. Whatever the situation, any aspiring landlords need to do their homework and protect themselves from the unforeseen realities that beset them.
As the Zen philosopher Tyson once said, “Everybody’s got a plan until they get punched in the mouth.” In the context of this case study, truer words have never been spoken…..
-Buddy Kane
Incredible insight for most that maybe wanting to get in the game. Having reserves in place for such events, will be the key to surviving as a landlord. Great work Buddy Kane.
Posted by Jeff Rizer on Wednesday, September 28th, 2022 at 11:15amLeave A Comment