How Being A Landlord Cost Me $20,000

It is not an easy business and it’s something that can break the bank. Check out my tips and avoid my failings. If you do so, you will benefit from rental property and maybe even make a profit. 

Purchase In A State That Is Landlord Friendly

The best states where laws favor landlords are Texas, Indiana, Colorado, Alabama, Arizona, Florida, Pennsylvania, and Ohio.

Landlords want to have control over their investment. While they’re free to buy property anywhere in the U.S., each state has its own set of landlord-tenant laws that can  drastically vary from one place or situation towards another–but not without some exceptions! Landlords might be at an advantage where there is weak tenant protection. However at the opposite end tenants might be at the advantage where there is weak Landlord protection.

When it comes to finding landlord-friendly states, the first thing you need is an understanding of eviction process. If your tenant doesn’t pay rent or damages property in some way, there are certain steps that must be taken before they can be evicted from their home – this may take time and cause hassle for both parties involved if not executed properly (eviction procedure varies per state).  The best example is the neighboring states of Illinois and Indiana.  In Illinois, if a tenant doesn’t pay his rent, he can remain in the home (without payment) for up to 2 years before being evicted. In Indiana, a non-payment of rent may get an tenant evicted within 30 days. I can’t afford to pay rent for a tenant for two years, but I may be alright for 30 days in Indiana. So, the State where you purchase rental property is something to reflect on.

See An Attorney Before You Start 

It’s important to have an attorney working for you before you purchase your first property and beyond. This is especially true if you are in an area that makes it difficult for Landlords to evict.  One major frustration I had was finding an attorney after I realized the tenant decided to stop paying rent. In my state, lawyers don’t help Landlords evict tenants because it’s too difficult (Tenant  favored law).  At the very least, this will result in at least 2-3 months of lost rent just to get into court. However, as stated above, actual eviction may be up to 2 years. Find your lawyer, before you get into the mess and believe me you will get into a mess. 

If you meet with an attorney, ask him what you need to be protected in your state.  Prepare an iron clade lease that you will make all tenants sign and discuss in detail the eviction process. Follow what your attorney says as strict rules to follow and follow them. 

Questions To Ask An Attorney Before Becoming A Landlord

I will not sugar coat it, if you have a tenant that is ruining your property, a call to the police will not evict them. If you don’t have a lawyer ready, it may, in some days, take you a day to find one who works with Landlords. Think about it, if you were a lawyer, would you be on a Landlord’s side or the Tenant? It’s possible they want to be on the tenants side, to get more of the Landlords money. Who do you think has more money? The property owner or the person renting the property. So, get your ducks in a row before you start. 

Look at lawyer reviews, those who are experienced in evictions, Landlord Tenant Law. Call and let them know you are looking for a lawyer for a long term relationship. Some question I would ask are as follows

1. Can you create a lease that will protect me and my property? 
2. In the event where I need to evict my tenant, can I count on you to handle this for me?
3. What is the legal process for evictions? 
4. What are the costs and who is responsible in paying your bill?
5. As my Attorney, can you tell me what I need to do in order to protect me, my investment?
6. What else can I do to make sure I make the process easier for you? 
7. Is there anything else you think I should know before we begin?

Don’t Be Nice And Don’t Fall For Tenants Being Nice

I am sorry to be so blunt, but being nice was my biggest downfall. People see you as the “Nice Guy” and know exactly what they are going to do you. That is, not pay rent. 

 My biggest nightmare was the sweetest single mother I ever came across.  One day, she had trouble paying her rent. She decided to do what she did with her past landlords, not pay. She cried, she begged, she asked me daily not to evict her. After the first month, I saw that she was still employed. I told her to pay or I was going to evict her. She responded that she would take another free month, while the eviction process would go underway. I evicted her within 30 days, I paid my lawyer $750, and lost 3 months rent. 

This is now my process. Rent is due on the 1st of every month. If I do not receive rent by the 3rd, they are given an eviction notice, at the 5th I add a $35 late fee and call my lawyer. On the 10th my lawyer begins the eviction process. On the 30th, they are evicted. The old Michael wouldn’t do that. The old Michael cared about feelings and wanted to work with his tenants.  Now, I follow this process as if it is a commandment. This reduces my loss of rent, keeps the tenant aware that you are not playing any games, and protects your investment.

Learn How To Repair Issues Yourself

It was my first week as a Landlord and I got the phone call. The toilet was leaking water. I immediately called the plumber. That price tag made me learn, rather bluntly. I knew that making repairs is something I had to do myself.  If you don’t know how to make repairs, don’t fret.  Calm down, get on YouTube, and do some research. I have saved over $10k in doing repairs myself. 

Unfortunately,  a new water heater maybe needed, the old windows may crack,  and the city may appear and demand work to be done. These types of jobs may require someone with a particular skill set and can still cost you a lot of money.  

Chasing Down Your Money

It is very rare to find a tenant who is going to pay rent every month. They have a  family member  in the hospital, they are very sick, the checks in the mail, or they gave it to their spouse to give to you. It’s just a pain in the butt chasing down your money every month. 

If it reaches the point of eviction and a judge  orders for you to be paid what is owed, that’s what he’ll do. Order it. Good luck trying to actually collect! The people who are getting evicted know the game. They hide their cash or they are actually broke. In other words, you’re just going to waste your time and money trying to collect. A lawyer will help, but he will charge you a fee just to tell you that your former tenant only has $55  in the bank. 

If Your Lazy, Do Something Else

I was really lazy in my early 20’s and  Tenants can pick that up from a mile away. If there is a repair that is needed and you take a few days to repair it or have an attitude like it’s not that big of a deal. They will see that you don’t care. Thus, they will not care. The worst thing is, they will loose respect to your property and some will even hate that you own property and don’t care. They would love to have what you have. So, they will begin to resent paying you rent. 

Here is my tip, take this responsibility seriously. Tenants will know that you have pride in your investment, they will follow suit. They like a landlord who is attentive, who repairs, and who takes rental agreement seriously. Tenants will follow your example. Do not be lazy! Be attentive!

My Lessons From Being A Landlord

People that know me often make it a point to say that I am genuinely a nice guy. I appreciate that and have a sense of pride about it. I want to treat people with respect and I want people to like me. However, if you are a Landlord or any other type of business owner, you can’t be nice. The stories tenants give are not your problems. I wanted to feel for them, love them, and show some type of mercy. However, why should I get stuck with the mortgage payment. The bank doesn’t care if I can’t come up with the payment. I fell for far too many stories in the past. So now, I express my sorrow, but I let them know that the agreement still stands.  I come to realize, they pay every time. 

It’s also important to save your profit. After paying the mortgage, taxes, and insurance you should have a profit. Don’t spend it.  Randomly, you will have some major expenses that will arise. I had to have a company break into the foundation and put in piping to capture all the groundwater and take it to the sewer. That was over 6k in cash. It was that or keep allowing the basement to flood. 

Avoid chasing after your money. Call up your lawyer who can protect Landlords and meet with them. Follow everything your lawyer says. When you do this, everything changes.  If tenants don’t pay you, find someone who will. Once I started calling their old landlords, increased the price, and have my lawyer do a credit check, I finally found a better class of tenant. 

There are a million more things I can warn about, but the information I mentioned above was my down fall. Please learn from it! 

The Way I Invest Now 

I am still building wealth via real estate, but not as a Landlord. I work with Groundfloor. Investments with as little $10 can be accepted. Groundfloor,  was built on the belief that there’s a smarter way to capitalize America by opening private capital markets to individual investors. We have the tools and talent to help everyone build wealth through real estate lending. I have invested in a few rehabs using Groundfloor and made money every time.