Dealing With Rental Disasters & Disappointment

Sometimes your world falls apart and you get caught in a landlords nightmare. Or so it seems. Right now I am on week two of significant problem after significant problem of both the disaster type ( fire at a rental property) and disappointment type (tenant who I attempted to help out who burnt me hard, this time with garbage rather than fire).

I started out writing this as an email to all the subscribers, then after I had been writing the email for roughly 20 minutes and I wasn’t a quarter of the way through the story, I realized I needed to turn this into an article so I could cover more of it.

This post has actually taken me a month and a half to work through, to write and to finally get near the end of. It’s also the first post in almost nine months on this site. I’ve become a bit burnt out and tarnished, but I am making a comeback!

The intent of this isn’t to make you feel sorry for me and my problems, it’s to make you aware of potential problems that can occur and hopefully some additional lessons about dealing with what seems like overwhelm and how dehabilitating it can be.

We all face problems and as landlords these problems affect not just yourself, but your tenants who you are also somewhat responsible for and that can make these issues even more important.

I’ll start the story with disappointment and then we’ll move onto disaster. This will be a long one, so grab some coffee or some tea and get settled in.

Explaining The Parameters

I think I need to preface these stories with a little background of our local economy. Often time what’s happening locally with unemployment, job creation and the economy all contribute to the experience you have as a landlord and in this case it’s very apparent.

The first parameter of note, the local economy where I live and own properties is driven by the energy industry which has been taking a beating lately with low oil prices. This is translating to unemployment rising, wages dropping, uncertainty in the local housing and job markets, higher vacancy rates, lower rents, and a significant amount of doom and gloom in the air among people.

Now if you’re in Real Estate for the long term, swings in the economy happen. If you’ve bought based on cash flow and long term value, these types of scenarios are reasonably easy to ride through. It may involve reducing rents, taking a hit on cash flow and making time your friend as you wait out the inevitable ebb and flow of economic cycles.

The second parameter is I like to help people. Often times more than I should. And often to my detriment as people in general appreciate help, but it’s becoming more and more common for it to be expected rather than truly appreciated.

This most often occurs when I try to help tenants out when they get laid off due to the slower economy or situations that are often out of their control.  In return for me giving them more time to pay and to get on track, I do expect a few things and maybe my expectations are too high.

They’re tiny little things like, if you’re “looking for work”, don’t spend the little money you have left getting drunk in the middle of the day. Little things like if you can spend $10 a day on booze and $10-30 a day on take out pizza, don’t complain you don’t have any rent money.

I know lofty expectations. Apparently far too lofty and for these expectations perhaps I should be punished.

Disappointment

So, near the middle of October, just before 7:00pm, I get a text from one of my working tenants complaining that the last three or four nights straight three guys who aren’t currently working (and coincidentally owe me money) have been partying it up until late in the night in one of my rooming properties.

He’s getting up (or trying to) at 6 in the morning after trying to sleep through these bozos who are displaying zero respect for the other tenants and zero respect for my house rules which involve quiet times from 11pm until 6am. Queue the disappointment.

​I immediately head out and park half a block away so I don’t alert them and walk up the alley so I can come in the back way unseen.

This particular property is two sides of a duplex, so I go to the south side first where two of the culprits live and walk in surprising them.

I find one guy in the kitchen, the other guy sitting on the couch smoking in my non-smoking property and a plethora of empty beer and liquor bottles lying around. Ramp up the disappointment to sheer anger.

One thing that sets me off is tenants smoking in my properties. From burns to odours to picking up cigarette butts after they’re gone, the entire issue of smoking in my properties just pisses me off. I find it shows a complete lack of respect for me, for my properties and for my rules. And to top it off,this is the second time I caught him!!!

I immediately tell him, he’s done and to be out in the morning (true, this isn’t even close to legal as far as evicting someone goes, but he wasn’t arguing with me at that point most likely due to the colour of my face (red with anger) and my tone of voice. I also inform the other guy, he has until Saturday to vacate.

After that brief explosion, I head over to the north side of the property to deal with buddy number three.

On this side I find more empties, evidence of smoking, but no actual smoking going on and buddy who I read the riot act to. At this point I made another mistake (perhaps two). This guy, let’s call him Richard (cause it’s his name), owed me a lot of money.

Richard owed me multiple weeks of rent, but had been diligently been paying me back. He was a brick mason, so he got paid quite well when working, but much of his work had been drying up with the slower economy. He’d fallen behind in the past and I’d helped him out and he had caught up previously.

My first mistake was letting Richard get this far behind, the second mistake was not kicking him out that night as well. I erroneously though the other two guys were the instigators and he was dragged along due to peer pressure. That may partially be true, but this guy was bad news as well.

In the end I told him he could stay, if he caught up quickly and he informed me he was working full time again and would have no problems catching up. Lies…

I’m going to omit a bunch more depressing details to fast forward to the weekend which is when I collect rent. Both of the first two guys are gone by this time and buddy Richard is supposed to have a bunch of money for me and things are supposed to be turning around. Except he’s not there…

And one of the other guys tells me he hasn’t been working full time, but rather has been working at a temp agency sporadically and is supposedly where he left for that morning. Or so he told the other guy.

To top it off, I also find a ton of empty beer bottles, more smoking evidence and a huge mess in the kitchen and common area which I know are all Richard’s doing. I know it’s him as the only other upstairs tenant is away for the long weekend and had left two days ago (this becomes important as we go forward). No wonder he didn’t want to see me that morning.

As my anger rises, I write up a note telling him to vacate by the next morning and I would be by Monday and wedge it into his door frame so he can’t miss it when he gets home.

A Landlords Nightmare – Disappointment Turns To Disgust

So far it’s been a heck of a week. And I still haven’t talked about the image at the beginning of this article which happened the week before. To recap my seven days I evicted three tenants, had a fire at a property and with everything going on, it felt like my world was collapsing.

So obviously it got worse..

On the holiday Monday I received a call from the tenant who had been away for the long weekend. He’d just got back and someone had broken into his room, stole his flat screen TV, his new Xbox, his tablet, jewellery, money and other miscellaneous items. Gee, I wonder who that could have been?

So I drop what I’m doing and head on over to the dark side.

Suspecting it may have been Richard and one of the other tenants I evicted before I leave I stop to photocopy their pertinent information that I gather when I fill out my rental application. This includes full name,  birth date and usually some form of government ID complete with number.

While I’m doing this I text the fellow at the house to call the police to report this, to start inventorying what is missing and to find his insurance companies number. In situations like this the tenant needs to be covered by his own insurance as my insurance does not cover tenants belongings.

Roughly 40 minutes later I finally pull up to the property to find perhaps a dozen empties scattered across the front lawn and on the front deck, one of the chairs from the deck laying out on the lawn and a sense of even more trouble inside.

Little did I know what awaited me inside.

I’ve Seen It All, Or So I Thought

With almost 1,500 tenants under my belt and after having been in the landlord and specifically the rooming house business for over a decade you see a lot of things! And every time I think I’ve seen it all, I get surprised.

To get right to it, I’ll shorten the intro to this as it could be a novella otherwise (and probably already is to some of you). It appears Richard kicked the other tenants door in, stole everything to pay his crack dealer, and then bailed. It was when I opened Richards room to see if he was around I got to add a new something to my ‘seen it all’.

Garbage was piled up all along the bed (and under I found out) almost even with the dresser and top of the bed. I could see pizza boxes, empties, plates, bowls clothing, chip bags and more at first glance.

Disappointment was the first thing I felt.

I created these properties as a safe, affordable place for people and this is what I get for it. Of course disappointment evolved into anger, but the reality of it is, it had to be dealt with.

So over the next two days I started cleaning up.

16 black garbage bags, two large city garbage bins and two large city recycle bins later the main garbage was done.

During our clean up we found hundreds of cigarette butts thrown in the garbage,pizza boxes with maggots, beetles and all types of bugs in them.

We had pizza boxes stuck into the carpet and we discovered that our tenant had a peculiar habit of urinating into two litre pop bottles, beer cans and pop cans.

We threw out over 15 sealed large pop containers and I had to empty around 20 cans of urine out into the toilet. Definitely one of the most disgusting clean ups I had ever done.

When we had the garbage out and we had a chance to look at the furniture it was decided none of the furniture was worth saving. The mattress had cigarette burns, stains and who knows what else on it, the frame and furniture had spills and stickiness of an unknown nature and would have taken days to look clean, so we threw it all away including the carpet we had to remove.

By the end of the week, once it was all done and all cleaned up, I realized I was getting burnt out.

Within a couple days from there, we talked to our Realtor and had it up and listed and actually just closed the sale on it December 1st. The new owner is going to carry on as a rooming house and he’s excited about the cash flow, the possibilities and as part of the sale I’m providing him with my systems, contacts and more to ensure he does achieve success, even after hearing of my setback.

Retrospective – What Went Wrong?

As I look back, the fault for how this tenant ended up does partially belong to me. Granted he has to take responsibility for his life and how he lives it, but I tried to help him (as I do many of my tenants) and I let him slide far too far. If I would have followed my normal procedures and hammered the guys for getting out of control, none of this would have happened, or at least on a much smaller scale.

I was burnt out and I was tired of the business. I’d been helping people for so long and getting so little back (or more realistically letting the bad over-shadow the good) that I let things slide, I didn’t show up at the properties as often as I should have and I realized I over stayed my commitment.

Typically I try to see inside a tenants room once a month just so I know the condition, in this case it had been several months and I had previously warned him to clean it up, but didn’t follow up. All bad mistakes in retrospect!

I’m excited about the opportunity to help this new owner make this a success, but I’ve already cautioned him to have a five year plan to move forward and so that he doesn’t get caught up in it for too long and also become burnt out.

This has also turned into a positive as its made me realize all the systems and processes I put in place to help make this a success and I can see me creating some programs to help other rooming house owners succeed and avoid many of the problems that can occur.

This particular property was a huge benefit to me over the years and not only generated a nice profit when we sold it, but grossed in excess of $500,000 worth of  cash flow while we owned it. Even with the headaches and the disappointment on the way out, it was still a winner!

Now Onto Disaster

So we’ve talked about my disappointment, now it’s time for disaster.

This fall was extremely taxing for me and really wore me down. Disasters and disappointment have that affect as they can be emotionally draining and I can vouch for that from first hand experience.

October 3rd, just after 5am the first call came in. It was a Saturday morning and it’s not unusual to get a call early in the morning from one of the guys, it’s just unusual to get it this early. Normally it’s just to let me know they are off to work and left money hidden for me to grab when I collect.

I leave my phone plugged in by my desk at night, I’ve learned that if someone is calling in the middle of the night either the police or the fire are better suited to deal with it, I can deal with it when I get up. So I ignored it.

The second call came in about ten minutes later and I ignored it as well, but started to get a sense of problems. It rang again one more time a few minutes later and I continued to lie in bed until around six which is when I normally get up on weekends (yep, I’m one of those early risers and sleep in until 6 on weekends).

First message was from a tenant just saying call me as soon as you get this, second message was from the neighbour telling me my house was on fire…. Now was a good time to semi-panic, I just didn’t have time for that.

I got dressed and headed out the door and tried calling the tenant along the way but couldn’t get an answer.

When I show up 20 minutes later there are police and fire vehicles all over the place, with the road blocked off so I park a block away and walk to the house.

By this time the fire is out and it doesn’t look like anyone is around except for a tv crew. Not being excited about talking to them without knowing anything I walked back looking for any firemen or police and noticed a city bus parked an idling down the street.

I head over there and find all of my tenants safe and warm and finally find a police officer and start getting the story from everyone.

Apparently an arsonist had been running around early in the morning and had lit three or four separate fires so the police and firemen were scattered all over making sure everything was under control.

At my property the fire was started in the detached garage and it destroyed three quarters of the garage and ran across to the back wooden steps blowing out the back house windows into the kitchen, burning the deck entirely, spewing smoke into the house and damaging the roof and back section of the house.

The good news again was all the tenants were out and the house wasn’t destroyed, it just wasn’t habitable. Fortunately I had some vacancies in other rooming properties and was able to shuffle everyone around so they had a place to sleep and stay until I knew what was going to happen here. 

The Repercussions of Disasters

Dealing with a situation like this can be draining. Much like my previous story of disappointment there is a lot of emotional weight involved with disaster. In my case I took on the burden of the upheaval of my tenants, several of whom had been there for a considerable time.

I had to deal with the mother of one of the tenants to confirm he was ok, I had to deal with police and fire reports and dealing with insurance and fallout of everything after.

The biggest blow being the insurance company deciding they didn’t want to insure any of my properties after this claim. Trying to obtain insurance on rooming properties is bad enough, but trying to acquire it when the original insurer cancels it becomes expensive and time consuming as dozens of new forms and tenant info sheets needed to be filled out.

In the end I saw my insurance increase by over 3.5 times. I went from just under $4,000 per year to around $14,000 per year in just a few weeks. Talk about a hit to the cash flow!

As for the repair work, here we are just shy of two months later and we are almost done. the garage was finally demoed and removed the other day and I’ve decided to take a payout for it rather than rebuild (more on that shortly). The only thing left is the repainting of the outside stucco which they left until it was too cold to paint outside…. and now has to wait until spring, unless I get paid out on that too!

But it doesn’t end there.

I decided to forgo replacing the garage and instead get paid out by the insurance company. The best demo and repair estimate they came up with was just over $27,000 for a single car garage, but I found out when they pay you out, you don’t get any profit or taxes which that number included.

Additionally as it was a rental, first payee is the lender as per the mortgage agreement, although they do make exceptions. The positive about this is it does go on the principle, although I could have used the extra cash to cover payments while it’s vacant (I did have loss of rent coverage, but it was inadequate and only covered about 60% which is nice, but never enough as complete!).

This property was also due for renewal on December 1st, so when I called them to inform them about the payout from the fire it caused more problems (I really noticed a trend during this, when you do the right thing it causes more problems). Since the garage was not being replaced they informed me the property would need to be re-appraised, at my expense, to see if they would even renew it or if I had to potentially put more money in to decrease the loan to value (LTV).

Having dealt with buying foreclosures in the past, having dealt with previous lenders who wouldn’t renew, and with my previous history as a mortgage broker, I explained how anything but renewing was going to cost them extra money as I would force a foreclosure and sell the property before it got anywhere leaving them on the hook for a large internal costs. Lo and behold they came back a couple days later with an open mortgage that fit me perfectly with no appraisal required.

Another lesson from this, if you have knowledge about the process and how it works, you can avoid being pressured or leveraged into situations that others might fall into. I am positive if I didn’t know and completely understand my options, they would have stuck me with the appraisal fee, they would have required me to top up the mortgage and they wouldn’t have provided me a mortgage that fit my needs.

Knowledge is power!

Light at the End of the Tunnel

So, here we are into the first week of December and the dusts from my previous several months of my landlords nightmares has settled. My horrible tenant property is sold and I have cash and time on my hands again (hence finally finishing this).

My disaster property is all repaired and officially listed and although it’s a horrible time of year to sell as most people are focusing on Christmas right now, I know the buyers who are coming in are pretty serious.

I’m excited as going through the process of selling this rooming property is opening my eyes to how much I know about rentals of this nature and the new owner is finding the information I’m providing to be, and I quote, “Awesome” and helping him get off to a huge headstart without all the headaches.

Life may not be quite great, but it is under control and pretty darn good and I like that. Your lesson from all of this is simply that there are lessons from bad things. That if you focus on dealing with the situation whether it’s good or bad, you can get through it and maybe end up in a better spot like we feel we have.

It may not have been where you wanted to be, or it may have taken a circuitous route, but you can get there, just don’t put your head in the sand as I’ve seen other investors do and hope, it simply doesn’t work out!