It’s safe to say that the two biggest fears landlords and those considering becoming landlords have are will my tenant pay rent on time and will my tenant trash my house?
Both of these fears are understandable and both can quickly become realized if you don’t take some very specific steps to ensure they don’t happen. Being a good landlord and having tenants that pay rent on time and take care of your property isn’t about getting lucky. It’s about careful, consistent processes that ensure you place the highest quality tenants while adhering to Fair Housing and anti-discrimination laws.
But what if the worst does happen and you get a tenant who pays rent on time but “destroys” the property? While preventing this from happening is all but guaranteed with a good screening process, it can happen even to the best landlords.
Before you freak out if this has happened to you or you are worried that it might happen to you if you rent your house out, consider how bad it really is.
First, did they really destroy the house?
In the video above, we walk through a less than desirable move-out (of a tenant that we did not screen and place!). This is exactly how the tenant left the property and most landlords would probably look at this and say this tenant “destroyed” the property. While this certainly is not what you want to see after your tenant moves out, at the end of the day, it’s not that big of a deal when you take the emotions out of it and look at it strictly from a financial perspective.
If the average rent for this unit was $2,000 per month and this tenant stayed for 5 years and then left it like this, the landlord would have received $120,000 in rental income over those 5 years.
In a future blog post and video, we will break down exactly how much it cost this landlord to get the property back to a rentable condition, but it will probably be about 10-15% of the total rental income collected during the 5 year tenancy. And that’s before applying the security deposit to some of these damages!
The unit is structurally sound and doesn’t have a ton of damage. It looks really bad, but everything can easily be fixed by a contractor in a few days.
Was it worth it to have rented, just to have this happen?
If this landlord had been petrified at this possibility from the beginning and never rented the home out to begin with, they would have lost $120,000 in income. Let’s say instead of renting it out 5 years ago, they sold the property. In this area, property values have increased approximately 25% in the last 5 years. Not only would they have lost the rental income by selling instead of renting, they would have missed out on $85,000 in equity!
So not renting the property out of fear of this bad scenario would have resulted in a gross loss of $205,000 for this landlord. Of course there are expenses in there along the way, but even with the financing and insurance expenses, repairs and now this big rehab job at the end, this landlord still made a lot of money.
Keep this from happening to you
Good decision making could have prevented this from ever happening, which would have led to the landlord making even more money. Inspections during the tenancy would have caught some of these issues before they got worse and allowed the landlord to have the tenant fix them.
Have a solid screening process to prevent issues like this. We have found that a solid screening process eliminates 95% of problems like this from ever happening! Once you are able to place good tenants, keep them accountable with inspections and enforcement of your lease.
Being a landlord will come with expenses. You have to be prepared for that. Have a budget for your property and a reserve fund to help cover you if your tenant leaves your property like this. The longer your tenant is there, the more your reserve budget needs to increase. Even if this place wasn’t trashed, it would still be time for new carpet and paint at the landlord’s expense.
Be sure to check back when we walk through this property when the work is all done and break down exactly how much it cost to get it back to rentable condition!