Managing Rental Properties
I wrote about the work involved in my most recent real estate investment acquisition which took five months to complete. If you read that article, you would see that there was a lot of work, time and money involved.
It turns out that since I have other rental properties already and I currently serve as my own property manager for them, there were many other things that went on in addition to what was happening with the latest purchase. Here are just some of the tales of managing rental properties in the last while.
Losing My Best Tenant
Nothing good lasts forever and this was certainly the case in rental properties. Perhaps my best set of tenants at one of my condo townhouses, who were always pleasant to deal with and never complained all that much, notified me that they were leaving. It wasn’t because of the rental property itself but they were just moving on in life by making their first home purchase in Canada and therefore leaving the world of renting.
So I had to advertise and do some rental open houses for new tenants. Fortunately, I was able to do these open houses while the current tenants were still there since the place wasn’t too much of a mess and they were very cooperative.
I found a new nice family, signed a lease with them after doing credit and reference checks and they will be moving in the day after my current tenants move out. There is little renovations needed so this time, I think I was quite fortunate. The new family even liked the current wall colours so no new painting required.
The only thing I really have to do is help them reseed the grass in the backyard area and since the wife is a gardener, she will be more than happy to help with the daily watering needed for 2 -3 weeks.
Breaking Rental Leases
Things were not so smooth at one of my other rental properties, a triplex in downtown Hamilton. The couple on the second floor, who have been there for four years already, suddenly informed me that they were breaking up and therefore asked for a way to break the current lease we signed. Neither of them could carry the current rent on their own.
The guy apparently changed locks on the girl so she actually could get back in to get her things for 2 weeks. This alone is a not allowed according to the lease agreement. In fact, the lease agreement is a legal binding one that is suppose to be honoured even if they break up.
However, such things happen in life so I came up with a way for them to get out of the lease without hurting me financially. I had to meet with both of them separately and I proposed an amendment to the current lease.
They both already vacated the apartment but officially, they had nine months left on the lease and both were on the hook since both names were on it. I decided to release them from the lease via this amendment if they still pay the equivalent of the next 60 days notice. They both agreed to this and signed the amendment which would help them be released from the lease seven months ahead of time.
In the meantime, I had to do some major renovations since the floors were in bad shape. So one of my renovators came in and we repainted the walls, some of the ceiling, all the kitchen cabinets, replaced the kitchen countertops, replaced window blinds and repaired some plumbing. We also put in new laminate flooring in the bedroom and had enough good planks from the current floors to replace bad planks in the living room and den.
Actually, I did most of the painting including the kitchen cabinets and it was rough work. I vow never, ever to paint kitchen cabinets again. It is hard work especially if one is messy like I am.
We were able to save on some of the renovations costs because Rona happened to have a special on the laminate floors. I went to pick up 19 cases and put them all in my Mustang. Before my renovator came, I carried each of the cases one by one up to the second floor apartment.
I also located somebody near me who was selling a kitchen countertop. There was no way I could fit it into my Mustang so my renovator came and we transported it on his car rooftop back to Hamilton. He later cut the piece into two parts to fit the current kitchen.
As soon as most of the renovations were done, I advertised and held two rental open houses. We had a lot of interest even though only a portion of those people who contacted me via email actually showed up at each open house. But lucky for me, I had two applications on the spot from interested couples.
While doing reference checks, I hit some snags with one couple as some of their references got ‘complicated’ and they pulled out of the running. The other couple passed the reference and credit checks with flying colours so I informed them that their application was approved, much to their delight.
So I’ll be meeting them to sign a new lease next week and they plan to move in on June 1. A bonus is that I’ll be renting this apartment out at market rent (the previous tenants were still well below market rent). Happy ending after some ups and downs with this apartment.
Remove Bad Tenants
Meanwhile, another set of current tenants have been giving me a hard time with constant complaints about little things here and there. Although many of their complaints are valid (such as minor repairs needed), some are just ridiculous.
Many of the complaints had nothing to do with their own apartment as they seemed to enjoy pointing out every single defect in the building, including the basement. They even mentioned taking some of these issues up with the Landlord & Tenant Board.
They told me that they were considering on breaking the lease. Personally, I don’t think they have enough grounds to do so but I can now sense that even as I repair things, I don’t think they will ever be satisfied and the working relationship between us has already been soured.
I already know that they were already looking at other rental properties and filling applications, even before the status of their current lease was determined. So I decided to take this one step ahead and inform them that I will be more than happy to release them from their lease.
I didn’t even require a 60 days notice because the sooner they leave, the sooner they will be out of my hair. I’ll do some of the renovations and repairs once they are gone when the apartment is vacated.
They haven’t announced a definite departing date yet but it will likely be sometime in mid May before June 1. Anytime will be fine by me and if they leave during the month of May, I’ll simply give them a partial refund for May’s rent.
Since Hamilton has a low vacancy rate and I’ve proven to myself to be pretty good at getting new tenants, I don’t see any problems getting new ones for this apartment. I’ll hopefully get better tenants who will be a much better fit for the property.
For the new property I’m closing on at the end of the month (which I described in my last article), I’ll be inheriting four sets of tenants who currently live there. All are planning to stay so I’ll have to meet with them to sign new leases with me. They are all currently paying under market rents and for this particular property, I have to pay for their utilities as well. I’ll be working in modest rent increases into their new leases to gradually move rents in the right direction.
I’ll also have to scramble to get a licenced electrician and plumber in to get safety certifications required by the insurance company. I’ll also have to ensure that a basement window is large enough to meet safety standards in case of fire for the basement apartment. I may have to get a larger window space made.
This will all cost money of course but I don’t think too many other renovations over these will be required until a tenant moves out. This will help me spread out the repairs costs over time and the rental income from the four apartments will most certainly help.
Managing My Own Rentals for Now
So there you have it – just some of the things I have to do as part of managing my rental properties on an on-going basis. Remember, each time I do an open house, meet with tenants, oversee repairs and other tasks, I have to physically drive to Hamilton from my home in Mississauga. This of course costs gas, money and time.
Of course, I could always hire a local property manager to do most of the day to day functions and field tenant calls. But so far, I can manage things with the eleven rental doors I have. It’s work but I’ll certainly be looking forward to each rental cheque deposit day!
Eventually as I expand my rental properties portfolio, I will start to delegate properties to property managers but even in these cases, I will still have to be the one to oversee major renovations and on-going costs involved.
I still have to manage the overall real estate investments even if at some point, I don’t manage the day to day tasks that a property manager will assume. I’m the one who must ensure that the dollars continue to make sense each month.
So overall, real estate investments are not completely hands free even if I didn’t manage my own rental properties. This is one very important factor if you are considering in real estate investing.
Do you have the time to do what I do? If not, especially if you are already busy with a full time job, consider a joint venture partnership where your partner is the managing partner of the investment. He or she will be worth the 50% share of profits as in most typical joint venture partnerships in real estate investments.
Keep in mind that the managing/expert JV partner will essentially be doing all of this work for free for many years until profits are actually made through a sale or refinance. This continued work including taking the property into a refinance or sale is definitely worth the 50% share.
Otherwise, be prepared to go at all this on your own.