Guy on FIRE

Financial Independence; Retire Early

Blog Posts

No more student loans

by 15 Comments

November 2018 will always be remembered as the first month of my freedom from student loans. I am very grateful to no longer have student loans. Back in September, I shared some exciting news on Twitter. At the beginning of the month, I requested the payoff letter to make my final student loan payment. You can see the tweet here:

Later in September, I shared a screenshot of my final payment scheduled for October 1st. Submitting the final payment provided a euphoric high that I can’t quite describe. It almost felt like being a kid again on Christmas morning or that post-game high after winning the big game.

Now, I am finally free from the financial burden of student loans. It feels great to no longer have my student loans hanging over my head. I have one less check I have to write every month. I have one less bill that I am required to pay every month.

This debt took more than five years to knock out; I’m thrilled it’s gone. I have no plans to accumulate more student debt in the future. Paying off my student loans was once is enough; I don’t want to go through the pain again.

No more student loans

On the bright side, I now have a few hundred extra dollars a month in free cash flow. This will be very helpful moving forward. In general, this lowers my expenses by $300-600/month. I can use the extra cash flow to pay down my car loan, have a bit more fun, or save and invest more.

Things I did to pay off my student loans faster

There were some things I did that allowed me to repay my student loans helped early. I always made more than the minimum payment. Early on, when I was only a few months into my career, I could only spare an extra $10, $20, or $50.

Over time, I increased the amount I paid every month. This was after my emergency fund was fully funded, my income was higher, and I was pulling in income from my side hustles. I began paying an extra $100 a month. Eventually, I started making double payments. This really sped things up.

Why I didn’t pay my student loans off earlier

I will be the first to acknowledge that I am very fortunate and blessed. I have a moderate to high income depending on who you ask. I have also built a rental property portfolio that provides great income most months. Many would argue that I could’ve paid my loans off a few years ago. They are probably right.

However, I decided to take my time with repaying my loans. First, I wanted to focus on building my real estate business and investing in rental properties. Paying down my student loans more aggressively would have meant less cash to buy real estate.

Second, my student loans had a low and fixed interest rate of 4.0%. I wanted to offensively build wealth and knew I could compound (grow) my money faster than my student loans. 4.0% is a low-interest rate. The stock market averages an 8.0% return every year. The math suggests I should focus on investing.

Third, I was comfortable with my pace. I didn’t lose sleep thinking about my student loans. Sure, my student loans sucked to look at, but I wasn’t stressing over them. I knew they would be gone eventually. I did not want to live a life of deprivation just to pay my loans off a few months earlier. I wanted the flexibility to enjoy my latte or avocado toast.

Student loan repayment stories

I had below average student loans (total $20k) with an above average income (relative to the national average and median; average and below average income for DC for most of my journey). You may not be able to relate to my personal student loan story. And that’s ok. Below you will find a list of stories from individuals with various backgrounds. Some with tons of debt. Others with lower income.

Please message me if you’d like your story added to the list.

All She Saves – is on a mission to pay off over $50k in student loans while traveling one country at a time.

Apathy Ends – paid off over $85k in student loans. He did not earn a six-figure salary but was able to crush his debt in 7 years

Diana on a Dime – paid off $105,405 of her student loans in three years AND she did this on a teachers salary. She has about another $100k to go. Check out how a teacher is able to crush her student loans

Erin from Reaching for FI – crushed her student loans earlier this year. Erin lives in an expensive city (DC) and works for a non-profit (lower income job). This did not stop her from kicking her student loans to the curb.

Even Steven – paid off $46,500 in 2 years and 3 months. He provides some great tips for tackling student loan debt.

Frugal Millennial – Jen and her husband have a combined $117k in student loans. They’re aggressively tackling their student loans and are close to the finish line.

J from Millennial Boss & the Fire Drill Podcast – paid off $89,000 in 18 months. She graduated with a liberal arts degree and three non-profit internship experiences. Safe to say she was not poised to be a high-income earner.

Money Saved is Money Earned – had below average debt ($13.5k) and a below average income. This debt disappeared in 2.5 years AND she went on to pay for grad school without taking on more debt. Anything is possible.

Stephanie from Six-Figures Under – shares a great story about how their family paid off $144k of law school debt in about three years. This was while raising a family of five and earning $39k/year.

 

 

The Landlord Report – October of 2018

by 11 Comments

So October may not be my month as a landlord. I managed a modest profit last month in spite of an eventful month. Last year, October was a crazy month as well. You can read about last years fiasco with raccoons, plumbing problems, and furnaces dying here. This year, October had a completely different set of problems. In fact, I also have a couple of ‘first’ time encounters to share. Grab the popcorn; this is going to be a fund report.

Landlord

The Landlord Report – October of 2018

Hello there – welcome to another “Landlord Report”. This monthly report shares my experiences as a landlord. The report will show EVERYTHING related to my rental properties and life as a landlord.

I will discuss the rents that I collected, mortgage payments, and other ‘landlord items’. I may include repairs, how I avoid vacancies, how I screen new tenants or any other items that pop up. This report will share how I made or lost. I will also share what kind of time commitment was required for being a landlord. I want to show the world being a landlord is a wonderful thing.

Throughout this process, I will be as transparent as possible. Being a landlord and owning rental property is a wonderful way to earn (mostly) passive income and allow you to buy back your time faster.

I hope you follow along with this monthly series. The Landlord Report can serve as a guide to owning rental property. Please feel free to contact me with any questions – happy to provide insight.

landlord

The table below outlines all my income and expenses for the past month:

Landlord Report
Summary of my rental property portfolio for October 2018

As you can see, October was a profitable month. Rental property #1 had a perfect month. Meanwhile, there was a minor repair at rental property #2. If you follow my monthly reports, you may wonder why the revenue is so low at rental property #4 (more on that to follow). You will also notice some higher expenses. The chart above only summarizes the monetary activities. I also experienced a tenant fleeing the country which isn’t captured in the numbers (more on this later as well). Being a landlord is not all sunshine and cash flow. But! I still love being a landlord.

Below you will find a detailed account of what happened at each property this month.

Rental Property #1

The Starter Home

Things were absolutely boring and easy with rental property #1. I never heard a peep out of the tenants and there were no repair or maintenance items this month.

The tenants paid their rent in full and on time. I collected the $2,325 on my way home from work. This costs me about 15 minutes of my time.

Rental Property #1 Summary

In summary, rental property #1 – earned $356.76* earned and I spent about 15 minutes managing the property. 

My mortgage debt dropped by $723.96 from my monthly mortgage payments. When considering the principal reduction, I came out ahead by $1,080.72.

*Remember – this is an accidental rental that I plan to live in during FIRE.

Rental Property #2

The Fixer-Upper

Rental property #2 had a minor repair and a MAJOR tenant problem in October. Starting with the less exciting repair – the furry visitor from last month chewed a hole in the p-trap below the kitchen sink. This was a bit annoying but an easy fix. Swapping out the old part for a new part only took 15-minutes. But, I bought the wrong part and had to make two trips to the hardware store. In total, this process took about an hour of time. The correct part cost only $7.72; I will return the excess materials on my next trip to the hardware store.

Minor plumbing repair:

Total cost: $75.33

Total time: 1 hour

So, now the more entertaining news. One of the tenants (roommates) was from China. She was attending a graduate studies program while living in the States on a student visa. One day out of the blue she decided to tell me she would be leaving the country by the end of the month.

You see, this in itself is not a problem. The lease is legally her responsibility until the lease matures or she finds someone to take over her lease. Though, candidly, enforcing my rights as a landlord would be near impossible as she would be fleeing to a communist country. Things started to get more sketchy as the month progressed.

First, she gave little effort to find someone to take over her lease. Then, her rent check for the month bounce. I called her out immediately and made her resolved her rent delinquency immediately. She did.

We knew this roommate/tenant was moving out and were not surprised to see her boxing stuff up to ship back home. She became more withdrawn and reserved as the month progressed. Then, one morning she seemed really off. I didn’t think much of it since it was maybe 6:00 am or 6:30 am.

Later that evening I arrived home to see the trashcans filled with her stuff. I knocked on her bedroom door but received no answer.

So, I decided to poke my head into her room. The room was empty except for all of her furniture.

I gave her cell phone a call only to find that the number had been disconnected. She fled the country a few weeks earlier than anticipated with no explanation.

Essentially, she tried to stiff me on her last month’s rent but was unsuccessful. Thankfully, DC is a very transient city and I was able to find a replacement for her room with little effort. I spent maybe an hour finding a new roommate/tenant and avoided a vacancy.

Also, the entire house believes our long lost roommate might have been a spy.

So, in summary – I’ve had my first international tenant flee the country. She did not satisfy her lease obligations, nor did she leave her room in an acceptable state as she left all of her furniture. As such, she also sacrificed her security deposit.

Besides a possible spy of a roommate fleeing the country, it was a good month. The tenants paid their rent of $4,050 in full and on time. Rent collection required me walking downstairs to get my morning cup of coffee. Does life get any easier than that?

Rental Property #2 Summary

In summary, rental property #2 – earned $1,339.56**. I spent about 2 hours 15 minutes managing rental property #2 this month.

My mortgage debt decreased $748.06. When factoring paying down my debt, rental property #2 made me $2,0877.62. Not bad for about a couple of hours of work. Oh, and I got a free place to live.

**I also live in the house and get paid to live here. Pretty sweet right? House Hacking is awesome.

Rental Property #3

My Duplex

Things at rental property #3 were relatively quiet this month. I received the bill for last month’s repair (water damage from a leaky window). My contractor also replaced the laminate countertops for the upstairs unit kitchen. The labor and materials consumed most of rental property #3’s cash flow for this month. Otherwise, it was a quiet month all around.

Window leak & counter replacement:

Total cost: $1,404.88

Total time: Time captured last month

Utilities for the property:

Lawn care: $110.00 (grass cut & removal of poison ivy)

Gas Bill: $41.09

Water Bill: $260.34

Electric for unit 2: $133.36

In summary, rental property #3 – lost $133.75 and I spent about 15 minutes of my time managing this property.

Rental Property #3’s mortgage debt also decreased $420.24. When factoring in paying down my debt I made $286.49.

Rental Property #4

Rental Property #4… This property has been like a redheaded stepchild since I’ve owned the place. I finally have all three units occupied as my third tenant moved in at the end of October. The new tenant’s rent will be reflected in next month’s report. However, I am also now dealing with my first eviction.

The tenant in unit 3 has willingly decided to stop paying his rent and for no reason other than he doesn’t want to. This is why my rental income is $610 less than the previous month – frustrating but I will manage for now. The blow is softened a bit since the VA pays almost half of his rent.

We had our first court date at the end of October. The case was continued to allow the tenant more time to find legal counsel. However, he does not have any case to make or stand on. As a part of the continuance, the judge granted me a protective order. This means that the tenant must pay his rent to the court until the case is resolved. Failure to do so will result in him giving up his rights and expedite my ability to evict him. The case will resume in the middle of November; I cannot wait to share this story as it evolves.

Otherwise, there is nothing to report except for this month’s utilities.

Water Bill: $107.94

Electric for units while vacant and common area: $79.46 (I will only pay for the common area once all the units are leased)

In summary, rental property #4 – lost $158.19 and I spent about 4 hours of my time managing this property. The property will be more profitable once it’s fully leased.

Rental Property #4’s mortgage debt also decreased $441.66. When factoring in paying down my debt I made $283.47.

Portfolio Summary

In summary, I spent about 6 hours and 45 minutes of my time maintaining my rental property portfolio.

In October, my rental properties made $1,404.38. I made $208.06/hour being a landlord. Being a landlord is rewarding even during a bad month This month’s time commitment was above average. I expect things to improve over time but am curious to see how the eviction saga unfolds.

My mortgage debt decreased $2,333.92 in August. Gotta love having tenants pay off over $2k of my debt every month.

Factoring in repayment of debt and cash flow, my rental properties made $3,738.30. So, I made$553.82/hour. Being a landlord and owning a rental property portfolio is a great way to build wealth. What is your excuse for not owning a rental property?

Should I own my property in LLC?

by 13 Comments

Should I own my property in an LLC? I’ve received countless emails asking this question. While attending local meetups, many have also asked me if I own my properties in an LLC. In fact, I was also asked this question during a panel discussion at FinCon earlier this year.

own property in llc

So, should I own my rental property in an LLC?

The answer:

It depends

Owning rental property in an LLC

There are pros and cons to owning a property or properties in an LLC. We will start by discussing the pros. Then we will walk through the cons. Lastly, I will share my view and approach.

Benefits of owning a rental property in an LLC

Privacy

Property records are public information. This means anyone can look up the owner of a property. So, when you buy real estate in your name the whole world may know.

Owning a property in an LLC provides an extra layer of privacy. Let’s say you bought property 123 Main Street in your name. The deed of record would show Jane or John Doe as the owner.

Now, if you bought the property in an LLC the deed would state the LLC entity as the owner. A quick search of the public property records may show that “XYZ, LLC, “Generic Name, LLC” or “Get your hands off my assets, LLC” owns the property.

It’s easy to find Jane or John Doe. Finding the owner of an LLC is more time-consuming.

Asset protection

A Limited Liability Company, or an LLC for short, is one of the least complicated business structures available. The structure provided by an LLC protects the owner’s personal assets. This business entity limits the owner’s risk to only assets owned by the LLC.

The LLC structure is appealing to some real estate investors because it limits their downside. Hence the name ‘limited liability’.

Essentially, a well-structured LLC will protect the owner’s personal assets. In the worst case scenario, the owner’s personal assets (primary residence, savings, stocks, bonds, retirement accounts) would not be at risk. At most, the owner would risk losing the property held by the LLC.

Tax advantages

LLCs provide a ‘pass-through entity’. The recent changes to the tax laws favor this structure. I will not pretend to be a tax expert, nor am I a CPA. However, Marketwatch put together a good analysis that you can check out here.

Disadvantages of owning a rental property in an LLC

Insurance

If you own real estate with debt, your lender will require you to have insurance. You should have insurance even if your property is debt free.

Increased insurance costs is one of the downsides of owning a property in an LLC. It’s more expensive to purchase insurance for a business than an individual. So, insurance for a property in an LLC is more expensive than if you owned the property in your name.

Due-on-sale clause

Owning or transferring a property may trigger the Due-on-Sale Clause in your loan agreement. This clause in your deed or loan agreement may require you to pay your loan back in full in cash or refinance the property if you transfer ownership. Seek written approval from your lender prior to transferring ownership of your property. Failing to do so may lead to the bank foreclosing on your property. This is a costly mistake that can easily be avoided.

Financing

Buying or refinancing a residential property (single family, duplex, triplex or quad) owned by an LLC may be more challenging. Since the property is owned by the LLC and not an individual, banks will often look to the business’ income and cash flows to support the loan. Often, the LLC will not qualify for the mortgage.

Commercial real estate properties are different than residential properties (4 units or less). It’s commonplace for commercial buildings (5 units or more) to be owned by an LLC.  In fact, most commercial lenders expect (though not require) a commercial property to be held by an LLC. Commercial mortgages have different underwriting metrics than residential mortgages. A commercial lender cares most about the property’s cash flows and income. Second, a commercial lender considers the financial strength of the individual buying the property. Next, the lender looks to the borrower’s experience and capability to manage the property successfully.

Increased costs

In general, using an LLC increases costs. First, there is the actual cost of forming the LLC. You will have attornies fees and filing fees with the state. Additionally, there will be ongoing fees associated with keeping the LLC registered.

Second, insurance costs will increase when operating as a limited liability company. Accounting costs also increase if you operate as an LLC. LLCs are required to file their own tax return. This will lead to higher recurring costs during tax season.

In general, LLCs will increase costs. Some individuals are ok with increased cost because of benefits associated. Personally, I am not a fan of owning my properties in an LLC. The additional expenses and the associated returns are not justified to me. I’ve found a different approach for asset protection, limiting liability, and protecting myself.

Alternative to owning a rental property in an LLC

As I mentioned earlier, you should have insurance on all of your properties. Each insurance policy will have a liability coverage for that property. My individual policies provide between $250,000 and $500,000 in liability coverage. This means in the event of a lawsuit or judgment, my policies will provide between $250,000 and $500,000 in protection. I could be sued for $500,000 and not pay a cent out of my own pocket.

But what if something catastrophic happens? Or I am exposed to a larger lawsuit or judgment?

I also have an umbrella policy in addition to all of my individual policies. An umbrella policy provides additional protection above and beyond the limits of individual policies. My umbrella policy provides $2 million in additional liability coverage and also covers me for auto accidents.

So, why do I like the umbrella policy approach?

Simple, it’s very affordable and offers great protection. As a landlord, I may be exposed to liabilities or potential lawsuits by tenants. Depending on where the incident occurred my individual policy would cover the first $250,000 or $500,000. That is a lot of protection. Then, add in $2 million from my umbrella policy – I am now covered for $2,250,000 to $2,500,000. I sleep well at night knowing I have up to $2.5 million in coverage before I would need to come out of pocket.

So, how much does an umbrella policy cost? That is a great question.

I called my insurance broker earlier this week for quotes. For my situation (4 properties and 1 car) a $1 million umbrella policy would cost $260/year or $ $21.67/month. A $2 million policy would cost $323/year or $26.91/month.

Both of these options cost way less than having individual LLCs for each property. The umbrella policy also offers a great level of liability coverage. If desired, you can also obtain a larger umbrella policy for a few extra bucks a month.

When LLCs make sense

  • a commercial property
  • when you have a ton of assets to protect
  • when you have a partnership or are investing with multiple people (other than a spouse)
  • If you have extreme anxiety and worry about the risk

When LLCs don’t make sense

  • on a residential property
  • when you own only a few properties
  • when you own the property on your own without partners or investors
  • when you do not have a ton of assets

My approach

So, I own 7 doors through four properties. I have two single family homes, a duplex, and a triplex. I own each property in my name. Each property also has an insurance policy. Each property’s insurance policy provide $250,000 to $500,000 in protection. This protects me from any lawsuit or claim filed against me up to that dollar amount.

Additionally, I have an umbrella policy for $2 million. This means that my insurance provider will cover any claim against me for up to $2.5m in a year before I have to pay a penny. Given that my net worth and assets are well below this level, and that it’s very unlikely any type of suit would exceed $2.5million, I am well protected. The cost of this policy is significantly cheaper than the LLCs. Am I exposed to more risk by not owning my properties in an LLC? Yes, I am – but that is a risk I am willing to take.

What is your approach to asset protection? Do you own your properties in an LLC or your own name? What is your reasoning for doing so? Have you considered an umbrella policy for additional protection?  Or, do you use a method that was not discussed in this article?

The Landlord Report – September of 2018

by 15 Comments

September was an above average month for my rental property portfolio. There were a couple of small items that I had to address but no major time commitments. I considered it a quiet month.

rental property

The Landlord Report – September of 2018

Hello there – welcome to another “Landlord Report”. This monthly report shares my experiences as a landlord. The report will show EVERYTHING related to my rental properties and life as a landlord.

I will discuss the rents that I collected, mortgage payments, and other ‘landlord items’. I may include repairs, how I avoid vacancies, how I screen new tenants or any other items that pop up. This report will share how I made or lost. I will also share what kind of time commitment was required for being a landlord. I want to show the world being a landlord is a wonderful thing.

Throughout this process, I will be as transparent as possible. Being a landlord and owning rental property is a wonderful way to earn (mostly) passive income and allow you to buy back your time faster.

I hope you follow along with this monthly series. The Landlord Report can serve as a guide to owning rental property. Please feel free to contact me with any questions – happy to provide insight.

landlord

The table below outlines all my income and expenses for the past month:

Rental property
Summary of my rental property portfolio for September 2018

As you can see, September was a good and profitable month. Rental property #1 had a perfect month. There were a couple of minor items at the other rental properties that I will dive into greater detail. No crazy fire drills or budget-busting repairs. Being a landlord is not all sunshine and cash flow. But! I still love being a landlord.

Below you will find a detailed account of what happened at each property this month.

Rental Property #1

The Starter Home

Things were absolutely boring and easy with rental property #1. I never heard a peep out of the tenants and there were no repair or maintenance items this month.

The tenants paid their rent in full and on time. I collected the $2,325 over Labor Day weekend while running errands This costs me about 15 minutes of my time.

Rental Property #1 Summary

In summary, rental property #1 – earned $356.76* earned and I spent about 15 minutes managing the property. 

My mortgage debt dropped by $721.19 from my monthly mortgage payments. When considering the principal reduction, I came out ahead by $1,077.95.

*Remember – this is an accidental rental that I plan to live in during FIRE.

Rental Property #2

The Fixer-Upper

Rental property #2 had a minor pest problem in September. One of the tenants (roommates) sent me a text one night saying she saw a rat. Sadly, DC has a HUGE rat population. The problem is so bad that the Washington Post has even written about the rat population several times. The rat population is out of control. It’s so bad that rats can now be seen during the day (they are nocturnal creatures).

Anyway, I lobbed a call into my pest guy and he jumped right on the problem. The great news is that there were no points of entry surrounding the house. My pest guy thinks the critter ran into the house when someone left the door open. Still, kind of gross. Anyway, a 15-minute phone call and a check later resolved the problem. He was able to

Pest control maintenance:

Total cost: $275.00

Total time: 15 minutes

The tenants paid their rent of $4,050 in full and on time. Rent collection required me walking downstairs to get my morning cup of coffee. Does life get any easier than that?

Rental Property #2 Summary

In summary, rental property #2 – earned $1,139.89**. I spent about 30 minutes managing rental property #2 this month.

My mortgage debt decreased $745.58. When factoring paying down my debt, rental property #2 made me $1,885.47. Not bad for about a couple of minutes of work. Oh, and I got a free place to live.

**I also live in the house and get paid to live here. Pretty sweet right? House Hacking is awesome.

Rental Property #3

My Duplex

Things at rental property #3 were relatively quiet this month. However, there was a minor item I needed to address. DC has experienced record rainfall this year. In fact, we broker the annual rainfall record back in August. But! Mother Nature continues to be relentless in September.

The crazy rainfall has taken a toll on DC real estate in general. Many homeowners and renters have experienced issues with their roofs and windows leaking this year. Well, mother nature finally caught up with rental property #3. The upstairs tenant had modest water damage surrounding the bedroom window.

I called my go-to repairman/contractor to address this issue. He was able to seal the leak the following day. However, we have not patched the walls yet as we want to stress test the repair first. The sealing has held up well with additional storms and my contractor will patch the wall and bill me in October.

Window leak:

Total cost: $TBD

Total time: 30 minutes

Otherwise, it was a quiet month at rental property #3. Utilities for the property:

Gas Bill: $42.72

Water Bill: $212.80

Electric for unit 2: $134.78

In summary, rental property #3 – earned $1,425.62 and I spent about 30 minutes of my time managing this property.

Rental Property #3’s mortgage debt also decreased $431.88. When factoring in paying down my debt I made $1,844.38.

Rental Property #4

Rental Property #4… Well, I can say this property is still not stabilized. I had a tenant lined up to move in on September 1st. Unfortunately for me, she backed out a mere three days before she was supposed to move in… Not cool. Thankfully, I should have someone lined up for Late October or November first. I cannot wait to have all three units rented.

Otherwise, there is nothing to report except for this month’s utilities.

Water Bill: $148.73

Electric for units while vacant and common area: $58.60 (I will only pay for the common area once all the units are leased)

In summary, rental property #4 – made $431.88 and I spent about 2 hours of my time managing this property. The property will be more profitable once it’s fully leased.

Rental Property #4’s mortgage debt also decreased $440.14. When factoring in paying down my debt I made $872.02.

Portfolio Summary

In summary, I spent about 3 hours and 15 minutes of my time maintaining my rental property portfolio.

In September, my rental properties made $3,354.15. I made $1,032.05/hour being a landlord. This month’s time commitment was very average. I also expect the expenses at rental property #4 will drop once everything is settled and rent to go up.

My mortgage debt decreased $2,325.67 in August. Gotta love having tenants pay off over $2k of my debt every month.

Factoring in repayment of debt and cash flow, my rental properties made $5,679.82. So, I made$1,774.63/hour. Being a landlord and owning a rental property portfolio is a great way to build wealth. What is your excuse for not owning a rental property?

Managing tenants: How to interact with your tenants

by 7 Comments

Being a landlord or owning rental properties means you are in the real estate business, right? Well, that is actually wrong. Owning a rental property or being a landlord puts you in the people business. Sure, real estate is involved, but that is the product.

Finding, dealing with, and managing tenants are where the magic happens. Your relationship with tenants is paramount to your success. You can have a great building, but without people, you don’t have anything.

You’ve probably heard plenty of bad tenants stories. You know, the kind where tenants demand repairs in the middle of the nights. Or the rumors about ‘nightmare tenants’ completely destroying a property. Perhaps you’ve even heard a story or two about tenants skimping on their rent or eviction problems.

Well, in addition to properly screening tenants, most of these problems can be avoided by knowing how to manage and treat your tenants.

Managing Tenants

The Golden Rule

I am about to take things back to kindergarten for a moment. The golden rule for managing tenants is simple. Treat your tenants as you would want to be treated. This may seem basic, but it goes a long way. Sometimes the lessons we learn as kids provide great value as adults. This is one of them. Heck, as humans we should probably revisit the basics for a lot of things.

Not all landlords are kind, caring or respectful. Heck, from what I gather most of them are rude, neglectful and absent. My old business partner and mentor would always tell our tenants, “I got into this business to be the landlord that he never had but thought he deserved.”

I agree with his statement. I’ve been house hacking for almost 5 years but remember my previous landlords. We will call my old landlord Bob (not his real name). Bob had the habit of stopping by unannounced and without permission. One evening, I just finished taking a shower and was only wearing a towel. As I opened the bathroom door to the hallway, I found Bob standing there. Not cool.

On another instance, as I arrived home from class one afternoon, I found Bob sleeping on our living room couch.

Bob was a nice guy but he did not respect our privacy and he never gave notice before visiting the house. This is unacceptable and why I believe in giving 24-hour notice to tenants prior to stopping by. Obviously, this rule does not apply if there is an emergency like a fire or flood. Bob was also neglectful and hard to get ahold of. Often, repair requests went ignored or were taken care of in a slow manner.

So going back to the golden rule:

You wouldn’t want someone screaming at you, right? So don’t scream at your tenants.

You wouldn’t want someone to ignore you, right? So don’t ignore your tenants

You wouldn’t want someone to neglect repair requests for the property, right? So don’t ignore repair requests from your tenants.

Treat your tenants as you’d want to be treated. Keep this, shit kindergarten.

Document everything

Personally, I document everything. Email serves as the main form of communication with my tenants. Phone calls are only allowed for emergencies. Otherwise, all requests and communication are conducted via email. This creates a mild buffer with your tenants and provides some privacy. An email at 11:00 pm does not annoy me since I can respond in the morning. A phone call or multiple phone calls at 11:00 pm might make my blood boil.

A few years ago, while I was managing dozens of properties, I remember being asleep one night. My phone rang a couple of times which woke me up from my slumber. The call was from a younger guy – let’s call him John (not his real name) – who recently moved into a three bedroom apartment with a couple of his buddies. The apartment was in a great location but also located on the ground level. This meant the occasional bug or pest problem may occur.

Well, sure enough, John saw a bug, freaked out, and decided to call me. He started shouting at me and saying what kind of disgusting place is this? He questioned the cleanliness of the place I lived in and if I thought it was acceptable to have a bug in his apartment. I told him it was inappropriate to call me in a hysterical state in the middle of the night. It was the middle of the night and he saw an insect. I was livid and hung up.

The next morning, I sent a well-crafted email to the three tenants of the apartment. I informed the other two that John called me late the previous night after seeing a bug. I also stressed that they should only call for an emergency which this clearly was not. Then I was kind enough to schedule pest control to treat the place for them.

As fate would have it, the other two roommates made fun of John the next time I stopped by the apartment. They acknowledged John was a wuss and shouldn’t have spazzed over a bug. Then, the other two roommates offered me a beer. Life was great.

Digressing back to documenting everything, there are many reasons I prefer to have all communication in writing. First off, DC is a very tenant friendly state (or district). Landlords are heavily disadvantaged. If a tenant were to ever complain or take action against me, I would have documentation to support that I was responsive and attentive. Second, as I mentioned earlier, email communication provides a buffer from your tenants and doesn’t make you available 24/7.

Be responsive and communicative

As I said before, this is a people business. You need to be responsive and communicative. Tenants want to know that they’ve been heard.

For example, you may receive an email from your tenant for a repair request. Be sure to follow up with the tenant. Keep them updated on the process. Your staff or you may be diligently working to finding a solution, however, the tenant cannot see what happens behind the scenes. If they don’t hear from you for three days they may think you don’t care or forgot.

If you actively communicate with your tenants they will feel better about the process. I am a big fan of over communicating. For example, your tenant notifies you of a small pest problem at the property. Let’s also say you call your pest service but they are not available for three days. Let your tenants know the first available service call is in three days. Provide interim updates and give your tenants a reminder the day before the service will be provided. The tenants will know your team is working on a solution and actively thinking about their problem.

Always be polite & take the high road

Be polite and always take the high road. This is a people business and you want to be courteous and professional. Blowing up at your tenant may not be wise, especially if they are locked into their lease.

However, being courteous does not mean you need to grant them every request. I believe in ‘tough love’ and ‘firm but fair’. If you give a tenant an inch they may take a mile. You can be polite while keeping your backbone and not letting your tenants walk all over you.

Tenants that get under your skin

You are bound to come across a tenant that ‘gets under your skin’ if you own rental properties long enough. I vividly remember a couple of ‘high maintenance’ or ‘diva’ tenants from my career as a property manager. Even though they were annoying tenants, we still did our best to treat them professionally and with respect.

Some tenants will test your patience. Never respond to a tenant if you are annoyed, angry or aggravated. Take a moment or two to calm down and collect yourself. Don’t let them get under your skin and remember the golden rule.

Not everyone meant to be a landlord.

Being a landlord may not be for everyone, and that’s OK. Some people may not want to manage tenants. Others may find the business too stressful or time-consuming. However, just because you can’t or don’t want to manage tenants doesn’t mean you should avoid real estate.

Hiring a property manager is a great alternative if you do not want to a landlord or manage your own properties. A good property manager will take care of all the busy work. By hiring a property manager, you will not have to worry about scheduling repairs or interacting with tenants. A property manager makes owning real estate a very passive activity.