It happens. Mom and Pops spend their hard-earned money on investment properties, figuring out their rates of return and what they can financially handle, only to have recalcitrant tenants spoil their plans. Sometimes tenants stop paying, then they need to be evicted in a costly and time-consuming process while sticking the landlords with the carrying costs: mortgage, property tax, and insurance. It can be ruinous. I’ve always wondered about situations like this, because aren’t the next landlords the tenants rent from going to research references from where they last lived? I supposed if you are a tenant with no way to pay you are only concerned with the here and now, and not the future.
Other times tenants refuse to leave and need to be bought out. That’s right, they get paid to leave. Sometimes it’s a lot of money too. I’ve got a friend who lives in the City and his partner is partly planning a retirement on being bought out by the landlord when it’s time to go. The partner is already protected by rent control, and the rent is currently a fraction of today’s market rate. Sometimes it’s good to be a tenant, especially if you are looking to put the squeeze on your landlord.
I’ve personally had a few situations with tenants from hell in the past two years. I sold one house where the tenants refused to leave. The property management company was useless in that situation, even though the lease was up and the tenants had broken their lease by starting a business in the house without permission. Most of us do business out of our houses these days and you don’t need permission for that. But when you’ve got a 6-12 people coming into the house every weekday for hours on end, you do need permission. That’s a lot of wear and tear on the property, and a property owner should be able to evict someone in those circumstances. Alas, it’s not that easy. Fortunately, in that situation the tenant had a friend who bought the house to keep the tenants in place at a decent price, so we had a relatively happy ending. However, if we put the house on the market, who knows how much more we might have gotten?
I also had an abhorrent situation where the tenant was paying slightly less than half the market rental rate. The landlord had generously allowed them to sublet half the house, which brought their monthly rental price to what I’m estimating as about $500 - $1,000 per month. You can’t rent a dog house in Marin for that price! They had that sweet deal going for years, and the rent was never raised. Finally, when the landlord was experiencing health problems and needed to sell the house to pay for medical care the tenants refused to go. They said they couldn’t find anywhere else in Marin that came close to what they were paying, so they couldn’t afford to leave. The landlord and tenants both got lawyers involved and a deal was made. The landlord would give the tenants money to leave, and the sooner they left the more money they would get. There was a drop-dead date several months down the line, and the tenants stayed all the way until the end, which led us to missing the prime selling season.
Property ownership has long been an avenue to wealth creation. I’ve seen plenty of instances where landlords attracted great long-term tenants, making money on a monthly basis with net positive cash flow and eventually cashing out substantial appreciation. That’s the way it’s supposed to work, but it doesn’t always. Personally, after dealing with these tenants from hell, I don’t see myself ever wanting to be a landlord.