CalculatedCondo is filled with posts on potentially good condo investments. However, keep in mind that being an investor and landlord takes plenty of work on its own. There is usually no such thing as easy money, and even a prudent real estate investment will prove to be the same.
I am a landlord of condominium units in both LA and OC. Some properties were purchased on the cheap whereas others, not so much. It took me a few years to work out the finances to make sure my properties were generating positive cash flow. But even with positive cash flow there are pitfalls. The greatest pitfall is a bad tenant.
I've managed more than a dozen tenants during my ongoing stint as a landlord. But 2010 was the first where I grew complacent on having reliable tenants, so I did the unthinkable: I did not do a thorough background check on a prospective tenant.
This rental applicant was the head of a household. I had a soft side for families with young children so I gave them extra consideration. And frankly, the rental market was soft at the time so I did not have a good pool of applicants to choose from. The monthly rent I asked for was well below comps. He came with his wife and two young children. While he was pleasant and generally seemed like a decent person, I had that strange "gut feeling" that this wouldn't work out. But I gave them the benefit of the doubt. Here were the warning signs early on:
1. They wanted the place ASAP
2. They were initially reluctant to show a photo ID
3. They initially left the social security number on the rental application blank
4. Their reported income was too low for the monthly rent, but they assured me that they did freelance work on the side that would double their reported income
5. Their previous landlord did not return my calls
The problems started only three months after they moved in. I had to constantly remind them to pay their rent and they presented the following excuses that are not unique amongst insolvent tenants:
1. They moved jobs and have a brand new pay schedule
2. They had an unforeseen medical/car repair expense
3. They "lost their phone" and found it after a week
A landlord has to walk that fine line between maintaining a landlord/tenant relationship and becoming more "businesslike" and post the 3 day notice to perform or quit. After six months, I decided on the latter. When they received the 3 day notice, they promptly called me; not to pay the past due rent, but to complain about repairs. Here are signs that you REALLY have trouble in your hands.
1. The tenant goes on the offensive after the 3 day notice rather than giving payment
2. The tenant contacts local housing authorities for repairs that were not brought to your attention before
3. The tenant seems to know the housing codes that he can use against you, even if you were clearly acting in good faith and you were quick to answer maintenance requests
4. The tenant also seems to know the eviction procedures
The tenant said the heater was not working and said that therefore, according to local housing codes, the unit was not habitable. I got that. But I told the tenant that if they had notified me, it would've been taken care of in a reasonable time. I then received a call from the local authorities (fair housing, city code enforcement, etc) and I told them my side and stuck to it. I could tell by their tone that they sympathized with my situation.
Finally, after 5 weeks since the initial 3 day notice, I went to court to seek an eviction judgment. The tenant was there and told the judge that I was not willing to fix the heater and therefore she caught a cold and missed work, and her children got sick so she incurred additional medical expenses. Through my eviction attorney (professional legal help is highly recommended), we presented evidence via email correspondences that I was acting in good faith and the tenant was not giving me adequate access to the dwelling. After 5 minutes, the judge ruled in my favor. And two weeks after that, the tenant was locked out by the sheriff.
The entire ordeal costed me the following:
lost rent: $3,400
legal fees: $1,100
locksmith: $100
sheriff: $25
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Total: $4,625
I can't stress enough the importance of doing a thorough background check to protect your investment and your personal health. I was fortunate that the judge ruled in my favor. I was also fortunate that the tenant did not damage the dwelling prior to leaving.
After the eviction, I went on the county superior court website and found out that the tenant that I evicted had a string of eviction records from the previous 5 years. Check your local court websites and access their online case databases prior to signing any lease.
Good luck to all!
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