Landlords Score Twice!

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It’s time to celebrate! We just received some INCREDIBLE news this week.

And not just one, but two major stories, coming out of two news organizations.

The first story was in Bloomberg, and the title screamed “American Dream Slipping as Homeownership at 18-Year Low”

I won’t bore you with a lot of the meaningless blah blah blah that bogged down most the piece, but I will tell you that the icing on the cake in the article was that first time buyers were the group hardest hit.

Yay! Score one for landlords!

Victims? Hardly. Because Tenant Screening is CRITICAL!

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So help me understand how this happens.

You have a house. You want to buy a bigger one. You do. But then you can’t sell your first house.

So you decide to rent out your first house.

Lots of people are doing it.

So far, so good, right?

And actually it is.

Right up to the point where you decide NOT to do a proper background check on the tenant prospects.

Are You Rejecting Tenants? Then STOP!

rejectThis is a post I received from on tenant screening. This is the best idea I have heard yet on how to handle the potentially touchy subject of tenant prospect rejections. If you’re not already on his mailing list you can do so by going to his site here:


The same successful landlord who last week encouraged us to AVOID THE DRAMA, also recently revealed his method for how he handles applicants that do not meet his criteria. It is a strategy that I also utilize. Thanks S i d (MO) for divulging this tip:

I reject no one. Ah, read on, Dear Friends.

Beware Of – The BOYFRIEND Disorder!

Since I’ve been renting houses now for several years I’ve seen this a bunch of times.

I call it – “The Boyfriend Disorder”.

When I first experienced it I shook my head and wondered what was happening. Now I can see it coming a mile away. I wish though that I could see it coming before I drive all the way over to show a house!

What is “The Boyfriend Disorder”?

It’s when a single mom and her kids have an appointment to see a rental, and The Boyfriend shows up with them.

It’s pretty funny because it plays out with the same pattern, every single time.

Just Say NO To Property Management!

Why? Because it sucks big time. Call me Captain Obvious, but I just recently came to this conclusion.

Let’s look at how it works.

You hire a company to “manage” your rental house. They’re supposed to collect rent, pay expenses like insurance and property taxes, and make sure that the necessary repairs and maintenance, including preventative maintenance gets done.

And for single family houses in my market, the going rate for this type of property management is 10% of gross collected rents. Most of the bastards will even keep the late fees all to themselves. Don’t get me started on the up front, the exit, and all the junk “fees” that they charge. It’s like working with a damn bank.

From my perspective, 10% is highway robbery.

Section 8 Sucks

Section 8 Sucks!Yeah I know. You’ve heard all about what a great program this is. I know that I hear newbie real estate investors hyperventilating all the time about how “the government is going to pay the rent!!!”.

Well there’s no such thing as a free lunch Sparky.

When I got started in this business six years ago I didn’t really have a clue as to what Section 8 was. All I could recall was hearing horror stories about nightmare tenants that trashed units and housing agencies that turned a blind eye to all of the problems.

As I think back, I don’t even recall when it was that I received my first Section 8 application. But I do recall that the tenant knew the process inside out, and she coached me on how to fill out the paperwork.

I also recall that we talked about my impressions of the program. She explained that some time back the rules had been changed and now Section 8 held their clients to a higher standard, and that if they screwed up even once by missing rent or doing damage they were out and would lose their Section 8 “voucher”. They were also not allowed to move to a new rental unit with their voucher if there was any sort of outstanding balance for utilities or damage.

Well a little research confirmed that all of that was indeed the case. Officially at least. So I decided to play ball. After all – the government was paying the rent!!!

Since that time I have had six Section 8 renters in my houses and six others in my apartment building.

The results have been anything but positive. And what I found is that the problem goes way beyond the poor quality tenants you tend to get – the Section 8 agencies are as bad or worse in most cases. The twelve vouchers that I have dealt with have been from eight different agencies. And every single one of the agencies ranks somewhere between grossly incompetent and despicable, with the Detroit Housing Agency, as you might expect, defining the lower boundary.

And none of the hyperventilating newbies have any clue about this because, well, they’re hyperventilating newbies.

Here’s just a taste of what it’s like to deal with Section 8 agencies and tenants:

  • Section 8 tenant cracks a very large plate glass window. She wants to move, but I won’t sign off because of the damage. Even though this would have been identified as broken in the front-end Section 8 inspection if it was broken prior to her tenancy, the agency rejected my claim and let her move with her voucher. The reason? They said I couldn’t prove that she broke the window. I ate the repair cost.
  • Tenant needs to move to a less expensive rental, so she gives me notice. I pull the water bill and it’s $900. She hasn’t made a payment in a few months. I tell Section 8 that I’m not going to release her because of the balance. Their response? It’s not their problem, they’re not getting involved, and by the way they already approved her for her new rental and that I could sue here if I liked in order to recover the water bill.
  • Three other cases of tenants leaving damage and utility bills that exceeded their security deposits. Each of the agencies responded the same way – it wasn’t their problem.
  • Two cases where the tenant moved still owing rent – the clearest violation of the Section 8 rules. What did the agencies do? Nothing. The tenants were allowed to take their vouchers to new rental units immediately.
  • And finally, the worst of the worst was a Section 8 tenant that I inherited in my apartment building. I was forced to evict him for non-payment of rent and several other reasons, and on the way out he did almost $2,000 damage. The Section 8 agency looked the other way, and even after the eviction, he was allowed to keep his voucher and literally get evicted from my unit and move right into another apartment. With Section 8 paying the rent.

I have three Section 8 tenants left across the 31 units that I manage myself. Once they’re gone I’m done with the program.

What the newbies fail to understand is that while Section 8 tenants are easy to get, and it’s a blast getting the rent checks direct deposited every month, the pain happens at the end. And by pain I mean turnover costs that exceed the net cash flow that you made during the entire term of the Section 8 tenancy.

For those of you keeping score at home that’s ZERO ROI. If you’re lucky it’s zero. It can easily be negative.

Don’t get sucked in by Siren’s Song of free rent. Free is never worth the price you pay for it. So run away from Section 8 and don’t look back.

Because there’s no such thing as a free lunch Sparky.