6 Mistakes To Avoid When Dealing With A Nightmare Tenant
The biggest nightmare for any landlord is getting that one tenant that makes your life a living hell.
You hear horror stories about it, and it becomes the single most limiting factor keeping you from wanting to rent out houses and deal with the hassle.
There was even this recent event that took place in a 5 million dollar AirBnB rental property just days ago that makes you want to never become a host.
But how does a nightmare scenario even begin, and what are you supposed to do about it?
Well, here’s one story about a landlord that had a problem tenant that turned into a nightmare, forcing the home into foreclosure and issues with their HOA.
And what they did about it.
It all started in 2016, when the decision was made get a tenant
The condo was outside of a college with a super popular football team in Louisiana.
Rather than rent it to students, the owner decided to go for a more stable type of tenant, preferrably middle-aged, while he would be moving to another state for work.
Having received a recommendation from another unit owner in the same complex, there was a renter that was looking to upsize into a larger unit because he was going to have custody of his daughter.
With seemingly all the right check marks and recommendation from the other owner, the new tenant moved into the unit quickly so that he could take over the mortgage and HOA payments for the owner as he relocated one state over.
But here’s where the first mistake was made:
Because they moved fast and the owner didn’t have any real experience as being a landlord, there was no written lease in place.
In fact, the owner and tenant discussed setting up a lease-to-own, so the owner found that the agreement might change shortly after and wasn’t worth putting into place quite yet.
This arrangement also saved him, what he thought, would be the hassle of a formal property manager.
In reality, it was just a ticking time bomb waiting to happen.
Mistake #1: Always have a written lease in place.
Several months go by, and the tenant began to start making late payments.
At this point, with any normal apartment complex that you or I might rent, there would be late fees tacked on, but since this was an oral agreement with no lease, there’s no way to enforce late fees.
Additionally, the owner, being a new landlord, was willing to be lenient about late payments, so long as the mortgage was ultimately covered in time.
This went on for about a year and half.
Then every homeowner’s worst fear becomes a reality
Think about this:
What’s the single most frequent yet costly thing that breaks down almost on a yearly basis?
Of course, this property being in the south, the air conditioning is arguably the most important appliance of a home.
Otherwise, it becomes completely uninhabitable during the summer.
The owner is on a business trip when he gets the call…
… The a/c has broken down, and the tenant already got someone to quote it.
The unit is so old that it can’t be repaired, it has to be replaced entirely, costing a total of $6,000 to replace the unit and re-do the electrical wiring that would be required to make it run.
At this point, the owner believes he can’t expect the tenant to pay full price for this, and it’s not something that he can have repaired immediately, due to his current finances and just the amount of time it would take to come up with the funds.
Mistake #2: Your numbers should anticipate maintenance/repairs, and you should get home warranty for big items like air conditioning.
So they make arrangements to have window units put in the windows to accommodate the lack of central air.
In the next month, they agree to have the rent reduced temporarily until the a/c is fixed, brining it down from $950/mo to $700/mo.
This goes on for three months, during the last quarter of 2017, when it begins to cool down.
At this point, the central air hasn’t been repaired, but it hasn’t really become a problem… yet.
That’s when the rent stops coming
The tenant misses January’s payment, but then pays February’s rent plus half of an extra month.
And that’s the last the owner ever sees of rent coming from the tenant.
This is when the tenant starts to tell stories about losing his job and not being able to make payments due to financial constraints.
Couple that with the fact that the owner feels it’s his responsibility to have the a/c repaired, he decides that he’s going to forgive payments so that the tenant can find another place to live.
Using emotion as a driving factor into his decision making process, he forgives March and April’s rent with the expectation that the tenant will move out as soon as possible.
Mistake #3: Don’t let emotion play a role in decisions for your properties. Real estate is a business, so it should operate as one.
But the tenant doesn’t move out.
The owner, feeling that he doesn’t have a way to force the tenant out, and doesn’t want to put him out on his ass because he feels sorry for him, gives him some more time to find new housing.
Eventually, he asks that the tenant be out by July 1st.
The tenant responds saying he won’t be out earlier than August.
This is when the owner realizes that the tenant is going to take as much advantage as possible, and finally decides to get legal assistance to understand what are the next steps to removing him, which is going to cost about $900 in legal retainment fees.
It’s at this point that the owner also finds out that the home is now moving to foreclosure, as there have been no mortgage payments for months.
Because the notice got sent to the unit and was addressed to the owner by name OR anyone that’s living in the unit as head of household, the tenant believed the bank has taken possession of the property and can squat there as long as possible.
Which is when things got even uglier.
The tenant refused to leave the home, and the property faces foreclosure
Fortunately, being in a state that is more landlord-friendly, the owner finds that he can serve a notice to vacate that gives 5 days before an eviction can be filed.
This relaxed time frame is due to the arrangement being made without a lease.
Under a normal lease, the notice would have had to give 30 days.
After serving the notice (posted on the door) with video recorded evidence, the owner receives a pretty nasty voicemail from the tenant.
The tenant stated that he wasn’t going to move out August 1st, and was going to stay until October, when he was told the property was scheduled to be sold at the Sheriff’s auction.
At that point, the owner decides to move forward with an eviction.
Having met with his attorney, they drafted up an affidavit, and he collected all evidence relating to the tenant, from text messages to bank statements showing payments (or lack thereof) from the tenant.
Mind you, by this point, in all of 2018, the tenant had only paid rent once, although it should never have gotten to that point.
A week later, the hearing was set and the tenant was served a notice to appear in court.
That’s when he decides to leave the owner another voicemail stating that he had recorded phone conversations stating that he had given the tenant permission to “stay in the property rent-free until the a/c was fixed”.
At this point, the owner realizes why the tenant had been requesting to have phone calls instead of text conversations, and he’d been recorded probably dozens of times without his knowledge.
When your tenant has been texting up until a point where you receive this:
Then there’s likely a reason why they’ve changed their communication behavior.
Mistake #4: Assume that every interaction is recorded, and if legal, record your conversations as well.
This is apparently legal in several states, where a person can record a conversation as long as one party is aware of it… and that includes the person secretly doing the recording, if they are actually participating in the conversation.
The owner mounted as much evidence as possible and proceeded to go to the court hearing, at the end of August.
The landlord and tenant met in court for the eviction hearing
Eviction cases often go without a defense, meaning the tenant never shows to argue their own side.
But there are those that do show, and two cases were similar to the one we’re talking about here.
One of which did involve an a/c that wasn’t repaired, and the eviction was denied.
The owner had to take liability for the repair and not receive any rent, and the tenant was allowed to stay.
This made our story’s owner a little nervous about how the proceedings were going to unfold.
Once it was their turn, the landlord and tenant went before the judge and laid out their cases.
The tenant gave his story, everything from the broken central air to the loss of his job and income, and even stated the the owner no longer owns the property since the bank had seized it for foreclosure.
Here’s what the judge came back with:
The foreclosure is the landlord’s business and does not concern the tenant when it comes to his stay and his rent.
The judge also doesn’t care about the circumstances revolving around the tenant’s life.
What she does care about is whether the tenant was staying in a home that was habitable, and if so, did he pay rent.
In this state (Louisiana), when something breaks and the landlord doesn’t fulfill their duty to repair, there are two options:
The tenant can repair it himself, and then deduct the cost of the repairs from the rent until fully paid.
The tenant can find a new place to live.
Because this tenant did not make the repairs himself, he then had no reason to not pay rent.
In fact, the landlord accommodated him by reducing his rent, but he really didn’t have to.
In addition, the landlord accommodated the lack of central air with window units, which meant that, although it was not ideal, it made the home habitable.
In the end, there was no reason to not pay the rent, and proper notice to vacate was given, so the judge approved the eviction.
The tenant was given 24 hours to vacate.
At which point, 24 hours later, the landlord would have the option to call the constable so that he would remove the tenant.
However, things led down to this point because of the landlord’s mistake of not knowing the laws sooner.
Mistake #5: Know the laws about when you can and can’t remove a tenant, and how that plays out under the circumstance where repairs are needed.
Handling eviction day
Once the 24 hours were up, the landlord visited the property.
A neighbor stated that the tenant had packed up things and left just a couple of hours before, and he thought they were gone for good.
As the landlord went to try to enter the unit, he found that there was a little surprise.
Once the tenant received a notice that the property was entering foreclosure, and he thought that the landlord was no longer the owner of the unit, he actually removed the door knoband replaced it with a deadbolt.
He then put shitty little cupboard handles on each side of the door so that he could open and close it.
The only way to get in at this point was to call a locksmith, which adds an additional $168 to the total expense.
An hour later, they get into the home and, after the immediate hit of dog stench, start seeing how much stuff is still there.
But as the locksmith is replacing the deadbolt with a new door knob, the evicted tenant shows up.
Fortunately, in this particular case, the tenant wasn’t malicious.
In most cases, this probably would have gone very south, very quickly.
Mistake #6: Be prepared in case the tenant shows up while you’re trying to get into the unit.
The tenant showed up to ask for some more time to remove things, and the landlord decided to give him an extra 2 hours the following day at a scheduled time, so that he can have others there with him in case there was some altercation.
This is generally unusual when it comes to evictions, but because there was so much stuff, a lot of it being personal (for his daughter, as well), and there didn’t seem to be any malicious intent, the owner agreed to it.
In the end, if you can have someone else do the work of removing as much as possible, why not?
The next day, the evicted tenant moves as much as he can, and the landlord locks it up for good.
Now, this is where the cleanup begins
When a tenant has moved out before the eviction time period is out, or if you have them forcibly removed with a constable, whatever remains is basically yours.
Most landlords just start tossing things out on the curb because it’s mostly trash that’s not worth a thing.
But in this particular case, there was a lot to sort through.
There was plenty of trash still, but there were some things that they found could be valuable enough to sell and recoup losses.
Going through some of the stuff, there was still a decent desk setup, some electronics (3 laptops, 4 printers, a tablet, an iPhone 6), other furniture like a coffee table, night stands, shelving, and a small leather couch, and some particular documents.
Apparently, the tenant decided it was a good time to buy a motorcycle earlier in the year.
In March, he’d financed a Harley, taken his courses to receive a motorcycle endorsement, and had a document confirming his insurance.
Remember that time frame when the tenant said he couldn’t afford rent because he lost his job?
Looks like that “loss of income” was actually due to a purchase of a new motorcycle.
That along with all the other stuff he hoarded, just goes to show that the tenant was taking advantage of a situation as well as the kindness from the owner to live rent-free.
But in reality, it’s the owner’s fault for allowing emotion to get mixed in and not treating his property as a business.
Had he stuck to the numbers, he’d have realized that not receiving rent for a maximum of two months (really, it should’ve been one month) was enough to get the tenant removed and have a new tenant put in to save a LOT of money.
Now the landlord has months of past due mortgage payments plus arrears (although he was able to get on a trial basis for a loan modification, $6,000 in HOA past due fees, and a unit with $6,000 in a/c repairs before he can get back to good standing.
Back to our story…
There were also about 13 industrial-sized bags of garbage that needed to be thrown out, containing all the tenant’s old hoarded stuff.
Fortunately, he’ll be able to sell a few things to recoup some losses, but it won’t be nearly enough to cover all the fees and past due balances.
Oh, and among the things that he found were holsters and a cleaning kit for a handgun.
Here’s the summary of lessons to learn from this particular case study
Lesson #1: Always have a written lease in place.
You can easily find a lease online or have an attorney draft one up for you.
This will not only give you all sorts of clauses to get out of the lose or remove a tenant, but you’ll be able to add things such as late fees, deposits, and first and last month’s rent, to cover for any mishaps with a tenant.
One caveat to this is that if a property is sold while there’s an existing lease, the lease must still be honored.
Whether you’re purchasing a home or selling it, it needs to be considered when planning the transaction.
If you were to buy a home that is 9 months into an existing lease, then you have to let those tenants finish their lease, even if they are $300 under market value.
On the flipside, if you’re trying to sell the home, it may become a factor in the new owner’s decision to buy.
Lesson #2: Your numbers should anticipate maintenance/repairs, and you should get home warranty for big items like air conditioning.
Your rental property is a business, so treat it like one.
It’s important to know your finances so that you can account for issues that might arise, and have insurances in place to handle the catastrophic scenarios.
How else would you be able to ensure profit?
Lesson #3: Don’t let emotion play a role in decisions for your properties. They’re a business, so it should operate as one.
Just like in a business decision, or even trading in the stock market, don’t let emotion play a role.
Although this is a situation where you’re dealing with another human’s living arrangements, every scenario we handle deals with, well, other humans.
People test boundaries, and when they find that boundaries are flexible, they’ll take advantage as much as they can because they are the center of their own universe.
Treating your rental property as a business will allow you to set boundaries that can raise flags early on, and you can handle those situations quickly.
Lesson #4: Assume that every interaction is recorded, and, if legal, record your conversations as well.
Verbal agreements are contracts, and recorded conversations can be used as evidence against you.
The same is true in the other direction.
Make sure that when you’re in a situation that can get out of hand and it’s your word vs theirs, you try to have as detailed of documentation as possible.
Just make sure to check the laws around recording conversations in your state, as some will not be as lenient as others.
Lesson #5: Know the laws about when you can and can’t remove a tenant, and how that plays out under the a circumstance where repairs are needed.
Understand what the laws are for your state as a landlord, and what is required in order to remove a tenant.
There are laws in place to protect tenants from being removed unlawfully.
This also includes throwing their stuff out and changing the locks on them without an eviction.
You must always go through the eviction process, or you’ll be subject to even more penalties and problems if you take matters into your own hands.
Lesson #6: Be prepared should the tenant show up while you’re trying to get into the unit.
An evicted tenant probably has other issues going on their lives, and you never know what kind of mental state they’ll be in.
If you’re going to visit the property, be sure to have others with you, or don’t visit until you have the appointment set with the constable.
Constables are generally only available on weekdays and they’ll schedule a time to come out to the property.
It’s best to have them around while you have the locks changed so that you’re not left alone with a tenant should they show up, potentially maliciously.
That’s all, folks!
Hopefully there’s a lot here to learn from and you can avoid making the same mistakes.
When owning rental properties, it’s natural to expect that the place will have normal wear-and-tear and you’ll have to renovate a little bit each time.
But most homeowners don’t expect to have to deal with eviction, and it is something that you should consider when becoming a landlord.
Have a plan in place in case things go south, knowing what to do and who to contact should you need to get rid of a tenant or deal with some other issues around the property.
Knowing your plan and preventing these six mistakes from above will help you mitigate damage and keep your rental property as profitable as possible.