Have you been interested in rental property investment as a source of income, but held back by tales of tenant horror stories? You’ve heard them. Tenants who stop paying their rent and won’t leave the property. Tenants who leave, but take all the copper piping with them. Tenants who start their own business growing weed in the basement, running grow lights 24/7 with the electricity you thoughtfully included as a perk in their lease. Tenants who play paintball…inside the house.
So, are these horror stories representative of most real estate investors experiences? Just how often do landlords suffer negative outcomes with tenants? Unfortunately, statistics on “negative outcomes” are not published anywhere and what might be “negative” to one property owner might not even faze another. So, let’s look instead at the typical upshot of a negative tenant experience: an eviction. Just how many tenants are evicted from their rental housing each year in the United States?
According to real estate company Redfin, an estimated 2.7 million renters were evicted in the US in the year 2015 (most recent data). Redfin acknowledges that it is difficult to estimate the numbers because there is no national database on evictions (supposedly beginning this year (2017), the US Census Bureau plans to start tracking evictions). But if 2.7 million is accurate, that sure sounds like a lot of tenants! Kind of scary for a landlord, right?
Well, according to the Rental Protection Agency, there are currently over 111 million renters in the US (111,722,031 to be exact). So, 2.7 million evictions is not so bad after all. It would mean that only about 2.4% of renters are evicted annually.
Now I don’t know about you, but for me, a 2.4% failure rate sounds pretty darn good! I suffer a higher failure rate when I’m attempting to cook a tasty dinner. Or jump a log on my mountain bike. Or even catch the train on time. So if life is full of small failures, why not take a chance on becoming a landlord and establishing a successful tenant relationship?
After all, it’s highly likely that your tenant will be the one who begins steadily paying down your mortgage debt and increases your cashflow so you can find financial freedom.
In my own investing journey, I have evicted exactly one tenant. The tenant failed to pay rent on time, notified me of his imminent departure and moved out within two weeks…but he left some possessions behind. And by “possessions” I mean a 900-pound slate pool table that required special equipment and several hundred dollars to move. So, in order to remove the pool table and re-rent the home, I initiated the legal eviction process. I did it myself, with the helpful assistance of the friendly neighborhood court clerk. And although I’m a recovering (retired) lawyer, I truly believe that any non-lawyer landlord could do it. It’s just paperwork and patience.
One eviction out of dozens of leases and countless tenants over the years seems do-able. Admittedly, there have been a few other things, not involving evictions, that I would describe as “negative” (yes, indoor paintball DID happen in a student rental). But my point is that there have been a large number of positive relationships and happy tenants over the years. In fact, I would say that my land-lording experience has tempered my cynicism about human nature, because I see that most people are trying to do the right thing most of the time. And I try to do the right thing by my tenants too; because if I am reasonable, understanding and nice(“ish”), I tend to believe I am less likely to deal with an eviction or negative outcome.
Of course your conduct is not a foolproof way to avoid problems, but it does remind me of an important lesson I learned in my first year of law school. I was in a class about the field called “Torts,” which includes medical malpractice claims. Our professor asked “So, which doctors do you think get sued the most?” We speculated about obstetricians, orthopedists or anesthesiologists. But no he said, it’s not related to the specialty. It’s the doctors with the bad bedside manner. The pleasant doctors who take time to talk to their patients, make a warm connection, and seem genuinely caring could get away with murder (literally!). The gruff doctors who are cold, distant and curt in their approach have little margin for error. Patients sue them more frequently because they are jerks!
Of course this pearl of wisdom about malpractice suits applies to most professions. Treat people well and fairly and you might be rewarded when the s**t hits the fan. But then again, you might not be… and you might rage at why you did everything correctly but still ended up with a tenant horror story of your own. Just remember, though, that the horror stories are relatively few and far between; and if you push through your fear of the worst case scenario, you will likely be rewarded with a cash-flowing asset that will provide you the financial independence to Retire Like a Fat Cat.