investment properties

House 11

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Our 11th purchase was a 4 bedroom and 2 bathroom house, which we were excited about. We only had one other 4 bedroom, and it only had 1.5 baths, so this was a new demographic we could meet. We again needed a mortgage, but we were tapped out (max of 10 mortgages allowed per Fannie Mae), so we went to our partner. I went through the process of establishing the partnership in the House 10 post.

The house had been listed for sale in July 2018, dropped the price in October 2018, and we went under contract on it on December 1, 2018. We went under contract at $129,000, which meant, according to the 1% Rule, we would look to rent it for at least $1290.

The house required a lot of cosmetic work (relative to our usual purchases) before we could rent it. The biggest hold up was the carpet replacement, but we had to do a lot of cleaning and painting also. We closed on February 4, 2019; got to work on the house on the 6th; and then had it rented on March 3, 2019. That’s a longer turnaround time than we’d like, but we thought the long-term benefits of a 4/2 house would be worth it. Plus, with our goal being $1290 based on the 1% Rule, we were happy that we rented it at $1300 and through March 31, 2020.

LOAN TERMS

We were given two options from the loan officer. Both options required 25% down. We could do a 15 year mortgage at 5.05% or a 30 year mortgage at 5.375%. The 15 year mortgage payment was $865, while the 30 year was $640. Since both options required 25% down and we aren’t concerned with our monthly cash flow (as in, we’re not living off of every dollar that comes out of these houses right now), we chose the 15 year. Escrow changes over the last few years have increased the mortgage to $941, unfortunately. However, we’ve been paying off this loan with pretty substantial chunks of money thrown at it. The loan started at $96,750, and the current balance is $21,350. We would have liked to have this paid off a few months ago, but we need to time our payments with our partner, who recently paid for a wedding, renovations to a new house, and a new tear-down property adjacent to his personal residence that he’s going to build a garage-type thing (city living = street parking for him).

We went under contract at $129,000, and the house appraised at $140,000, so that was a nice surprise. The current city assessment is at $148k, but it would likely sell for more than that.

PARTNERSHIP

Since the LLC was already under way when we purchased House 10, we needed to add this one to the LLC. We contacted our attorney. He processed all the paperwork, and we showed up just to sign everything in a quick meeting. At this time, we also requested an EIN be established for the LLC. To process adding this to an established LLC, it cost us $168 (which we paid half of since we’re split 50/50 with our partner).

PREPARING TO RENT

This house was probably the second most effort we had to put in to prepare it for renting. We had to replace quite a few blinds that were broken, do a deep clean of everything, install smoke alarms, paint, replace the carpet, and do some subfloor work.

We had to paint nearly every room (one room we even painted the ceiling the same color as the walls because the ceiling was in rough shape, and it wasn’t worth the time for precision of the edges).

The floor at the front door was rotted by termites. The guys had to cut out the floor and replace the wood before the new carpet could be ordered. We needed the house treated for termites at that point since there was an active infestation that we found. Depending on time and price, I’d rather replace carpeted areas with hard surface flooring for easier maintenance. Since we were already losing time with all the maintenance on this house to get it ready to rent and it was a small area, we just went the easy way out and put new carpet in. The carpet was only in the living room and hallway; all the bedrooms have hardwood flooring.

FIRST TENANTS

We were able to get a family in the house fairly quickly after we finished our work. We rented it at $1300. They signed it on March 3rd, and I had set the terms until March 31, 2020 (this comes into play later). The family had been renting with a roommate (and the husband’s boss!), and that guy had wanted to leave the house. In January 2020, the tenant said, “we signed the lease on March 3rd, so we want to be out at the end of February.” That’s not how leases work. The lease signed said until March 31, 2020. Some time between us telling him that he was in our lease until the end of March, not February, and the end of February actually coming, they decided they wanted to renew their lease. They signed a new lease with us on March 11 to cover 4/1/2020 through 3/31/2021.

In April 2020, the tenant received a job offer in Texas. He asked about a lease break, and we offered an option. All the communication was done via text message, so it was technically in writing, but there was never a “wrap up” text that identified all the agreed upon terms to allow for the lease break. I used this as a teaching opportunity for the 3 of us in the LLC that clearly documenting agreements in writing (preferably with signatures) is important.

The tenant offered to pay May rent without prompting, so we thought that was covered. The part that needed to be detailed was what was considered a “lease break” fee. We had agreed to 60 days worth of rent, and the security deposit couldn’t be used to pay that. Mr. ODA tried to contact the husband on multiple occasions to get rent paid at the beginning of May, but there was no response. I finally sent an email, detailing that they agreed to pay May’s rent, and that technically, they were on the hook for the entire year’s worth of the lease (quick aside: while that’s what the lease says, I think a caveat in the law actually means they’re not really liable for the whole amount because once the house is vacant for 7 days, it defaults back to our ownership, and then we have to show due diligence to re-rent it, leaving them liable for only the gap period). Well, as usual, the landlord gives us a guilt trip (their daughter was in the hospital in TX) instead of separating that from the concept of “pay your debts owed.” As a person, I feel for you on this; as a business owner, it’s not my responsibility to manage your finances and personal life.

The tenant called Mr. ODA and yelled at him. A few hours later, presumably with a more clear head, we received a fair response via text. He even apologized for yelling on the phone. He paid the last few hundreds that were owed, and we all moved on.

SECOND TENANTS

After our first tenants vacated the house, we had to get the house turned over. There was a good bit of work that needed to be done for just a year of someone living there. They had also left stuff behind that became our responsibility to get out of the house. We listed the house for rent. Our partner showed it to 3 younger people who would rent it together. They seemed great until we ran their background and credit check. They had evictions they didn’t disclose (claimed they didn’t know), so we shared the report with them and continued showing it.

We ended up showing it to a couple, and they liked it. After we accepted their application, we were able to get the lease signed on May 7, 2020. Since this was at the very beginning of the pandemic, we had to get creative. I signed this lease on a street corner (hadn’t realized that the place I had selected with outdoor seating was closed!), and they paid their first month’s rent, security deposit, and pet fee in cash that he handed to me in a sock (with a warning that told me this wasn’t the first time he handed someone cash like this haha). They’ve been great tenants, and they renewed their lease.

MAINTENANCE

The new carpeting when we first bought the house cost us $700. Between the termite treatments and other general pest control, we’ve spent $950.

Once the first tenant moved in, we learned of some other issues that weren’t apparent by us just working there and not living there. We had the plumber come out to fix several issues with the hot water that cost us $1450! Then we found out that the master bathroom shower wasn’t installed properly, and it was missing a p-trap; that cost us $325.

Our insurance carrier didn’t like that there wasn’t a handrail for the front steps of the property, so in March 2020, we had to have one installed at $190.

We had to replace the washing machine in April 2020 for about $500. As I’ve shared, we try to not include any ‘extra’ appliances because then maintenance and replacement are our responsibility. This was a fun one – we replaced it just to make the tenants happy and not deal with maintaining it, and then those tenants left right after that, and our new tenants brought their own appliances (so they just have two washers and two dryers in their kitchen).

We had an electrical issue with the master bathroom that cost us $150.

Luckily, I did the inspection over the summer, and nothing came of that initially. We did end up replacing a fan in the master bedroom because the light part of it stopped working with the switch. Since we don’t live near the house anymore, and our partner was in the middle of getting married, we went through Home Depot to have it installed, so all together (fan/light and install) it was about $175.

SUMMARY

This has been a good house. We didn’t realize that the house is located outside the city limits, so we needed to figure out trash pick up in the county (not included in the taxes). Other than a few maintenance hiccups, things have been smooth sailing. We’re happy with the tenants who are there, that they’re maintaining and cleaning the house, and we’re getting our desired rent amount (that they pay on time every month). The street is in a decently nice neighborhood with a lot of original owners, which helps it keep (and increase) its value.

Cash out refi

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There’s a company in Virginia that advertises no-closing-cost-refinances. If it’s your personal residence, then this holds true. For investment properties, there are some closing costs, but it’s cheaper than the usual refinance. We used them for two other loans – one at the beginning of the pandemic when we signed the paperwork in a tent in the parking lot, and another where we signed the paperwork at our kitchen table in Kentucky with a traveling notary (that’s a thing!).

There was a threshold requirement in order to qualify for this refinance, and that was the new loan had to be at least $100,000. Only 2 of our houses had a loan originated for over $100k originally, so that limited our abilities.

Mr. ODA came to me and said he wanted to do a cash-out-refinance. This company had changed their policy, and they’d allow a cash-out-refinance to get us to the 100k threshold. The first two Virginia houses we purchased (2016) had balances of about 70k and 60k. We had enough equity in these houses that we could take a substantial amount out in the refinance, but Mr. ODA chose $50k each.

Here’s a run through of the thought process on how to do this and why it’s a benefit. I personally like seeing the details behind other’s decisions, so hopefully this will help someone or help make the concept click and open up an opportunity. This process was only just initiated, so I’ll do an update after we execute the plan to see how it changed.

The original goal was to use that money to pay off another loan. We’ve made our decision on which loan to pay off based on the highest interest rate. Right now, our highest interest rate is a loan with our partner at 5.1%, but this is also the loan that we’re actively paying off (leaving a balance right now of 26k, which we’re responsible for half). Since we need to time our principal payments to be matched with our partner, we can’t just dump money into this loan without really complicating things. So our second-highest interest rate is 4.625%. This loan originally was $89k in 2017 and has a balance of $62k. If we paid this off, that would leave about $35k in cash (based on the other two loan refinances that we’d take $50k out of each) that we could use to pay towards another loan or earmark for another purchase. As this discussion happened, Mr. ODA pivoted.

This company is only available to refinance loans in Virginia. Instead of paying off that $62k loan for a Virginia property, what if we also refinanced that loan and paid off one of two loans remaining on our Kentucky houses? I’m a visual person and needed to see how this would actually play out.

The terms were that if we picked a 15 year loan, that brings the interest rate down to 2.5%. With a 30 year loan, it’s 3.125%. I compared the current amortization schedule to the proposed amortization schedule, and here they are. Note that the interest isn’t a one-to-one comparison because we’ve already paid 4-5 years of interest on these loans.

HOUSE 2

The original loan terms were a 20 year at 3.875%.

The new terms would create a new 15 year loan, reduce the rate to 2.5%, and increase the loan to about $123k (pay off old loan, fees for closing, and $50k cashed out). This decreases our monthly cash flow, on this property, by $294.38.

HOUSE 3

The original loan terms were a 15 year at 3.25%.

The new terms would create a new 15 year loan, reduce the rate to 2.5%, and increase the loan to about $113k (pay off old loan, fees for closing, and $50k cashed out). This decreases our monthly cash flow, on this property, by $155.89.

HOUSE 8

The original loan terms were a 30 year at 4.625%.

The new terms would create a new 30 year loan, reduce the rate to 3.125%, and increase the loan to about $ (pay off old loan, fees for closing, and $35k cashed out). This is slightly off because the new loan isn’t showing at exactly $100k, but for all these the final numbers will be slightly different. This decreases our monthly cash flow, on this property, by $84.87.

In these projections, we’ll receive $135,000 cash in hand. With that, we’ll pay off the higher loan in Kentucky, which has a balance of about $81k. That mortgage has a monthly payment of $615.34. These three loans have increased their monthly mortgage payments by $535.14 in total. Since we’ve eliminated a monthly mortgage with the cash from these new loans, our total monthly cash flow actually has a net increase of $80.20. In addition to this net positive cash flow, we also have over $53k in cash in our account.

Now, if you know us, cash in our account isn’t a preference by any means. In my last monthly update, you can see that we have almost 20k in cash and that’s abnormal. Add $53 to that, and that’s just too much money sitting in a checking account. At this point, the goal is to buy another house. With the way the market is, we’re probably not going to hit the 1% Rule we strive for (the expected monthly rent will be at least 1% of the purchase price – $1000 rent for $100,000 purchase), and we’re not going to see the margins that we’re used to. It’s going to take a lot of effort to get our psychology right for this next purchase. We’ll have to hold strong in knowing that our other houses have great margins, and at least it won’t be negative cash flow.

At this point, we’ve started the refinance process by signing our initial disclosures and providing all the many, many documents needed to originate a loan.

A ‘month’ in the life managing properties

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I started including this information in my monthly update post, but it got to be really long. I thought I’d separate it out as a way to share what has been happening and how I’ve been managing the properties over the last month.

RENT RELIEF PROGRAM

We’re still waiting for a check from the Rent Relief Program for one of our houses, and that’s to cover September, October, and November. So that’s fun. The program volunteered to pay for 2 extra months after the tenant only applied for September. We had already entered into a payment plan for September and October, and she was going to be able to pay November on her own. Instead, the program volunteered this, and all we’ve received for these 3 months of rent is $550. Technically, this now goes towards December rent, so maybe I should see it as we’re ahead for that one month and pretend I haven’t floated 3 mortgage payments on this house after this tenant was extremely irresponsible? I was especially frustrated that she received approval, and then 3 weeks later we were told that our payment hadn’t been made yet because there was an issue with one of the forms (how did approval happen if the forms weren’t complete???). A week ago, I learned that we should hopefully see the check in two weeks.

We actually found out on Wednesday that another tenant applied for the program. Luckily though, they applied for assistance with December’s rent. The program will probably approve two more months. Hopefully, we’ll get December, January, and February from the program before Christmas (I expect it to not be in time for December’s rent).

The tenant is using an organization that will help gather the information and apply to the Rent Relief Program on behalf of them. I’m sure their intentions are good and they’re all good people, but I was put off that they identified themselves as “with the RRP.” You’re not employed by the State. You’re not employed by the RRP. You’re an organization that helps tenants pay their rent. I refused to give them my W9 – both because I didn’t want my tenant to have my social security number and because I knew I could email the RRP directly so they wouldn’t have access to my social security number. They fought me on it, but I won and submitted my W9 directly to the program.

They didn’t identify their connection to the RRP until I mentioned they silence on the matter. I finally got “non-profit organization working in partnership with the Department of Housing and Community Development to help administer the Rent Relief Program.” But I still don’t agree that they’re directly related to the program, just that they work with tenants to get the money. And as with the other tenant and her girlfriend’s desire to guilt me with prayer for expecting rent to be paid, this person guilted me with “Hope all goes well to ensure [the tenant] receives the help she needs.” I was forthcoming with the documents that they asked for, giving them that same day. I was overly polite on the phone call where this person didn’t even know why she was getting in touch with me for several minutes. I even completed forms that she didn’t directly ask for, but that I knew would be asked for eventually, and I created other forms that I had made another tenant do on her own (If you’re nice to me, I’m super helpful. If you leave the country, get sick, and then never tell us when you’re back in the country, while still not paying rent, right after I had just given you an entire month to pay rent the month before, then I’m going to make you do the forms that you’re supposed to be doing).

I clearly am not looking to prohibit the tenant’s application or slow things down, but I am looking to protect my identify and personally identifiable information as much as possible. As far as I know, the tenant’s application was fully submitted yesterday, so hopefully we’ll here soon for an approval.

OTHER RENT COLLECTION

We also had a tenant, who usually pays late, pay on time! It sure helps when the 5th of the month happens on a Friday, so most people get paid that day and pay their rent. I don’t mind getting paid on the 5th because I usually get a few who pay before the 1st or on the 1st. I also don’t pay my mortgages until the 10th of the month, so I maintain that wiggle room.

We have a tenant who usually pays half of the rent before the 1st, and sometimes even all the rent before the 1st of the month due. She’s been in the house since we bought it in 2017 and has always paid. Sometimes she has to pay late, but she always communicates that to the property manager, and we’ve actually waived her late fees in these instances. Last month, she told the property manager that she was going to struggle to pay November’s rent on time, but she’d pay by the 12th. She ended up paying rent in full before the 1st. She’s just the sweetest.

HIGH UTILITIES

We had a tenant in Kentucky ask if we’d help them pay towards a high water bill. At first, I was given a copy of the last water bill and then a copy of May’s water bill, which was the lowest water bill she had in the last year – interesting, and I don’t appreciate that approach that appears to be trying to ‘pull a fast one.’ I asked for more water bills and more details on the issue being claimed.

The tenant reported that the toilet was running constantly on 9/16. The property management company went to fix it on 9/20. Then on 10/11, the tenant reported that the toilet was still running and shut off the water valve. The property management company went back out to “rebuild” the toilet on 10/15.

While it’s unfortunate that the toilet was running during that time and could have affected the water bill, this wasn’t adding up to being our responsibility. I was trying to wrap my head around why I was responsible for paying for two separate visits by the management company, materials that were probably useless for the first visit, pay the management company’s monthly fee, and then also pay towards the tenant’s water bill. I agreed that it would be a nice gesture to help the tenant out, since she’s been there for two years and doesn’t ask for much. I asked the property management company if they’d be willing to chip in on the concession granted to the tenant since it’s their work that wasn’t timely or complete after that first visit. They politely said that their technician made a good faith effort to fix the toilet on the first visit and then agreed that the second call on 10/11 wasn’t timely. “Our techs do well most of the time, but statistically, we will not have success 100% of the time.  The tenant should have reported earlier that the problem was not fixed.” He also said, “In the end, I don’t think anyone is really at fault.” Again, if no one is at fault, why am I the one having to carry all the financial burden?

I looked through the bills that were provided to us. I saw that recently, the tenant’s water usage probably was accurate because it fluctuated up and down (versus it continuously climbing from the lowest point in the year). Plus, water usage tends to increase in the summer, and a toilet running is unlikely to double your water bill on its own. The tenant’s bill was probably $50 more than expected, so I offered the tenant to take $25 off next month’s rent. I didn’t receive a response from the property manager, but I assume she’ll take me up on it. That should equate to $2.50 less taken by the management company, but if they don’t adjust their commission for that, I wouldn’t be surprised nor would I fight it.

PEST CONTROL

We have a new tenant in one of our houses. That tenant has been difficult. She complained of a mouse and roaches. I completely agree that there shouldn’t be an infestation of bugs and rodents. For some reason, we’ve had issues with this house and mice from day 1. I don’t know why. The neighborhood is nice, with mostly original owners in the houses. There are a lot of trees behind the property, and then there’s retail stores behind that. I don’t know if that somehow contributes, but every tenant has had a mouse or two scurry across the floor. I’ll note for anyone reading – mice show up everywhere. It’s not a matter of cleanliness.

The roaches on the other hand, I just don’t get it. This house has never been dirty with all our tenants. There aren’t dirty people or junk piled up in the neighboring houses. I will happily call pest control to manage any bugs like that. Since October 1, the pest control company has been out there seven times. Seven. I just can’t understand what is happening and how they can’t get this under control (and I’m questioning whether there’s really an issue). Luckily, I’ve only paid for the initial treatment and haven’t had to pay for each additional visit, but phew that’s a lot in basically one month, especially when this hasn’t been an issue with any previous tenant. I’ve digressed.

LEASE RENEWAL

In the meantime, we had a tenant reach out requesting to renew their lease. Their lease doesn’t expire until June 30, 2022 so this was not on our radar! They’re very bright people. They offered a lease renewal to 5/31/2023, which is the end of his schooling program. We agreed to extend the lease until then, but at $1300 instead of $1280. We had the property listed at $1300 originally, and he had negotiated to $1280 for a longer term lease. He agreed to the extension, and we had the lease addendum signed on 10/30.

He had asked for it to go month-to-month after that while they search for houses. We shared that we weren’t willing to take on that risk because we don’t want to be left with a December 1 lease that we never intended to have. Our property manager did share with him that we’ve been reasonable in the past with other tenants, and that when it came time, we’re going to work with them to get them released from the lease and into home ownership.

MORTGAGE CHANGES

I discovered that a couple of our mortgages changed due to escrows this month (which I mentioned in a post earlier this month actually). Even recently, I was pulling information for some refinances we have underway and discovered that the payment made by our partner on one of those houses was less than what I had verified just a few months ago. Since it’s not our mortgage, I don’t see the month-to-month transactions. I updated a future payment to account for the $5 he would owe us based on the mortgage change, and then I updated future payments out to reflect the new mortgage amount.

While that seems like a lot, it really hasn’t been much time in the month. I collected everyone else’s rent, paid the mortgages, and made sure my spreadsheets were up to date. This month I had to field more texts and phone calls than usual, but it wasn’t too much. I’ve even received a partial payment for December rent from a tenant already.

November Financial Update

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Last month, I mentioned that there would be a lot of rental property expenses and bills being paid this month. Well, they will hit in November, but they don’t hit until the end of the month. I scheduled all the payments to be made right after our current credit card cycle closes, which is around the 20th of the month for most of our credit cards.

I had to update our 401k numbers with more recent data (usually the data I’m using is a couple of weeks old since updating those accounts involves an unnecessary amount verifications). I also updated one of the balances on our mortgages (one with a partner that I don’t have access to the account to see regular updates).

I’ve been working the second half of October and a few days in November, which has kept our spending low. This month I have the last of my Christmas shopping to do (hopeful for deals on Black Friday for items already in my cart!) and several insurance payments that will cause our credit cards to increase more than usual, but we’ll stay on top of paying them off.

We have yet to receive September, October, and November rent from one of our tenants (more information in the next post in a few days). Otherwise, everyone is paid up on rent, and we even had a tenant pay part of December’s rent!

We had several reimbursements come through this month that increased our cash on hand. Mr. ODA purchased things for our HOA on his credit card, so that was reimbursed. We had issues with our escrows and insurance payments, so the overages were reimbursed to us. I also worked, serving beer, in October, which increased our cash balance more than usual.

There are a few line items that were changed significantly because I wasn’t working with clear data the past few months. We may have hit $3 million net worth before this update, but I know that it’s official now! At 35 and 34, that’s a fun accomplishment. It doesn’t feel like we have money to throw around, and we certainly don’t live lavishly. You can see that $2 million of this is tied up in the appraisal value of homes we own, and most of the other parts of this is tied up in accounts that we can’t access until retirement. We still make decisions for the longevity of our net worth because, well let’s face it, we’re only in our mid-30s and there’s a lot of life to live.

[Lack of] Rent Payments

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We have one house that seems to always have a story. Well, we have two that are consistently late, but the one just says, “it’ll be late,” while this other one has a crazy story. While trying to gather my information on how we’ve worked with her so much, I thought I’d share some of these stories. Perhaps if you’re a tenant, you can see the landlord’s perspective on how this just doesn’t add up and there’s eventually an end to the rope. So just for fun, it’s story time.

This person has a history of fraud. She also had domestic abuse and restraining orders against her that caused us to lose one of the tenants at the beginning of 2020. There are the typical excuses like car maintenance issues, and then there are interesting ones.

March 2020

We started the pandemic off with a “furlough” letter. Knowing the history we have with this tenant, I didn’t take it at face value. I struggled to find a contact for the company that the letter was from, and then I eventually found a way to get in touch with a local office (as in… where she works and not the one in Florida where this letter seemed to come from). I asked for an employment verification for the tenant’s name and whether she was furloughed. The woman on the other end did a laugh/sigh thing and said, “She’s not furloughed. We’ve been over this several times. Her hours were reduced, but she is still employed and expected to show up to work.” I let her know that I received a letter from the company stating a furlough, which she said she was unaware of.

January 2021

Virginia has a Rent Relief Program for tenants that were affected by the virus and lost income. The program is for unpaid, past due rent. I pretended to be a tenant and went through the application process; it very clearly only let me input unpaid rent that’s past due (i.e., I couldn’t claim that I wouldn’t be able to pay a future rent owed). I even went through the trainings available on the system. I was very thorough. The tenant paid January rent, and then I received notification that the tenant applied for assistance. I can’t remember how I knew it was for this tenant (because in the future, I’ll get emails from the system that I can’t tie to any tenant), but I knew. I called the hotline and asked what month was being claimed as unpaid and was told January. I sent the tenant an email letting her know that she was not eligible and that I had done my due diligence acknowledging the information. I had actually also called because I didn’t appreciate that the documentation on file required my social security number to be on paperwork that the tenant had access to. For some reason, this didn’t bother any other landlords, but it’s not something I want this person having! When I told her she was ineligible for the assistance, she said it was because she expected February’s rent to be late, which she then paid without the assistance.

August 2021

She paid August’s rent on August 31. Why? She was in a car accident. When? On April 24, 2021. How is this related to August rent? I don’t know.

This doesn’t exactly explain why she doesn’t have income or what happened to her job. She said in passing that she would start a new job on August 30th, but we don’t know what happened to her last job or how long she had been unemployed.


It’s now October 6, and she hasn’t paid September or October rent yet. Why? Because she went to Costa Rica on September 1 (or 3rd?) and tested positive for COVID, so she had to quarantine. She shared several pieces of correspondence related to the car accident, which told us that she received over $5,000 in the insurance settlement. Questions that I have, which have not been asked and/or gone unanswered:
1) If you don’t have any money to pay rent until a car accident settlement check arrives, how are you affording to go on a trip?
2) If you received the settlement check in time to pay August rent on 8/31, why didn’t you pay rent with the rest of that check on 9/1?
3) Why didn’t you pay rent before you left town?
4) If you were unemployed for a while, and were starting a job on August 30, how and why did you leave the country (during a pandemic)?
5) Through communication with her girlfriend, we learned that she went to Costa Rica on 9/1, but she tested positive on 9/3. How did you get into the country and not get tested for 2 days?
6) I received an email on 9/6 stating she couldn’t get the payment to go through. What were you doing between 9/1 and 9/5 that I’m receiving this email on 9/6?
7) I responded to that email and gave other electronic options for payment. I received no answer or acknowledgement. Why couldn’t you respond to this email or attempt to pay rent again?
8) Assuming internet issues, I let it go for two days before sending a follow up email. No response to that email. Why?
9) At this point, I got stern. I very rarely get stern with people.

10) I received a response from someone stating they were her girlfriend and monitoring her email. If you’re monitoring her email, did you not find it urgent to address the lack of rent payment emails you’ve been seeing?
11) This person says she’s working with the family to get rent paid timely. I receive no rent nor do I receive an update.
12) Even though I had said I’d give until the 13th for an update, I ended up being responsible for my household while my husband traveled and didn’t get to the follow up until the 15th. I sent an email asking for an update. No response.
13) I don’t handle the text communication, so I waited until Mr. ODA was unoccupied with his work tasks, and asked him to text her on Friday. She responds! She says she’s been back for several days. Really? Why didn’t you get in touch with us? Why didn’t you let us know your status?
14) She says she can’t pay rent until Wednesday (the 22nd) because she had to pay for the extra costs for staying in Costa Rica for longer than anticipated. What if you had paid rent before you left? How would you have been able to pay for that hotel stay and getting out of the country? Why is it on me to float this financially?
15) Mr. ODA texted and asked about payment on the 22nd, we got no response, and I sent a notice of default. She suddenly was able to share that the person she was going to get the money from didn’t have it, and she couldn’t pay rent. Then she responded to my email and said she wanted a payment plan (Virginia requires me to offer a payment plan once every 12 month cycle).
16) I put together a payment plan to start payment on 10/1. She responded that she wouldn’t be paid until 10/8 because of the start date after she returned to the country. So she can’t pay anything towards TWO MONTHS worth of rent until it’s late for both months.

PAYMENT PLAN

I front-loaded the payments in the plan. First, I need to pay my mortgage, which I’ve now paid twice without offset from a tenant living in my house. Second, I’m not offering a payment plan for the next six months worth of rent, so come November 1st, she needs to pay rent in full. She can’t have evenly spaced payments while also paying full rent in future months. I put the due dates as every other Friday, starting 10/8, as she claimed she had no money until then.

I stated several times that the money is due on the date that we have agreed upon, and there is no five-day grace period like there is in the lease. Too many people think rent is due on the 5th because there’s a grace period. It’s due on the 1st, but there’s a grace period to allow for payment without penalty. October 1st was a Friday, and I still received rent on the 4th and 5th. Since this is overdue rent, I wasn’t going to play the follow up game that I’ve already had to play far too much in the last two months, so it was due that day, and that’s it.

During this process, she applied for assistance from the State for COVID relief. I also included the following:
Any monies received from the State’s program will eliminate the last payments first. If and when I receive money from the State, I will let you know, and I will update the schedule accordingly. Do not assume any payments received; adhere to this schedule until told otherwise. If you can pay more than the amount throughout this timeframe, please do. Any and all payments received will work to eliminate the latest payments due first. 

Since I didn’t find any requirements on the how the payment plan was to be set up, I didn’t extend it very long. The final payment is scheduled for 12/17, so that’s just 6 payments. As I mentioned, I front-loaded the payments, so the first two are $550. Then they taper to $350. The payments to be made also include the two months worth of late fees.

If she doesn’t adhere to the payment plan that she had to agree to, then I can seek possession from the court for default on the lease. Hopefully we’ll have some money here by the end of the week!

There’s really no point to this except to share in our experiences. The excuses are creative and entertaining. We’re lucky that we have the ability to float one house under the payments of all the other houses, but it doesn’t make it any less frustrating to be two months behind on income.

September Financial Update

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Cooler weather is here! We have a full calendar these days with pre-school and sports. I’ve been managing that by setting a lot of alarms giving me a half hour warning that we need to leave the house for something. We also celebrated our son’s 3rd birthday with both sides of our family, which was so much fun. He knew all about a birthday and the traditions, did a great job at being grateful for his gifts, and hasn’t stopped playing with all those new toys. This month, his birthday party and a long weekend trip to Virginia were our big expenses, while the sports and activities kept us home and not eating at restaurants in between those things! On top of all this craziness, Mr. ODA went on a work trip, then I picked up a few shifts at the race track to help them out. And so, here we are, two-and-a-half weeks since my last post.

NET WORTH

About once a month, we have a meeting with our financial advisor. During last month’s meeting, his software system said that we hit $3 million net worth! Unfortunately, my numbers last month didn’t say that, and they still don’t, but we’re right there. I didn’t think it worth it to line up my information against how the software is reporting the number because a lot of our net worth is based on the current market value of our real estate, which isn’t necessarily an exact amount. I know Mr. ODA had a goal for the first million in net worth, but I wouldn’t say that we had a goal to hit this particular number. With the financial advisor, we’re working on our mentality. We’re basically trying to figure out what’s our true goal (instead of just this number), and if we had (and did) everything we wanted, what would that cost difference be? I’m working on two other posts about our mentality, and I’ll have to include this side of the thought process as well.

DETAILS

One of our credit cards has a balance of over $2,200 in this net worth update. That includes almost $1,000 of a hotel that Mr. ODA had for a work trip, the hotel for Richmond at $450, and an AirBnB charge for an upcoming trip of $424. It also includes Mr. ODA’s food purchases while on travel, which amount to about $180, and an Uber trip of $10. The work expenses will be reimbursed, but that’s not yet accounted for in the math since the payment hasn’t hit our checking account yet.

With the child tax credits coming in, our investments have gone up each month. We’re putting some of that into the kids’ investment accounts. We’ve also had other unexpected income, which led to another $500 transfer into Mr. ODA’s investment account. Usually, we see an automatic contribution of $1100 between our Roth accounts and the kids’ accounts. This month, we had $1,900.

All of our housing expenses were about the same. This coming month has a trip planned, a day to hang drywall in the basement, and me working at the race track nearly every weekend.

House 10: Creating a Partner

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This house was purchased in 2018, and it was actually purchased by our Realtor and friend, under the plan that we would formalize the partnership after closing. Mr. ODA had been searching for another investment property, but we had 10 mortgages already (9 investment properties and our personal home), which is a Fannie Mae cap (see the Selling Guide, section B2-2-03). One of our loans was a commercial loan, and we had hoped that it didn’t count against the 10 mortgage limit, but it did. Fannie says that the cap is the number of properties being financed, regardless of type, when looking to originate a new loan. Our Realtor had one rental property on his own and had mentioned how he wanted to purchase more properties to create an income stream through that option.

Mr. ODA and our partner went to see the house without me in March 2018. After the initial visit to see the house, they requested the information for the tenant that was living there. We received their applications, current lease, move in check list, and rent roll. They had started living there October 1, 2015, and while they had been late, they had always eventually paid rent with the late fee. During some of our initial searches, we had someone tell us that rent on the 6th was more profitable because they’re pay with a late fee. While we don’t encourage late payments (and we’re actually really lenient with late fees in general), this eased our tension when we saw late payments.

The house is a 4 bedroom, 2 bath, with a fully finished basement. The condition of the house was probably slightly lower than what I would have accepted based on the pictures, but I hadn’t seen the house in person. I actually had only seen one room of this house before our walkthroughs this past July. Our partner and Mr. ODA said that the pictures didn’t do the house justice, and it was worth purchasing.

After our partner purchased the house in April 2018, we established a Limited Liability Corporation (LLC). My last post goes through the details of why we established an LLC for joint ownership, but we don’t use LLCs for our personally owned properties at this point.

LOAN TERMS

We requested three different options for the mortgage numbers: A) 20 year fixed with 20% down was 5.125%; B) 20 year fixed with 25% down was 4.75%; or C) 30 year fixed with 25% down was 4.875%.

All of the options included ‘points’ without us being told upfront or requesting it. We questioned the reason for the quotes having these points and were given a half-hearted response that sounded sketchy. We ended up with a 30 year fixed, no points, and a rate of 4.875%. There wasn’t an incentive to go with a shorter loan (and therefore a higher payment each month) at a higher rate just to put 20% down. We went for the 30 year instead of the 20 year to increase our cash flow opportunity since we have a partner on the house and are only getting 50% of the income and taxable expenses.

PARTNERSHIP

Our partnership actually started with a loan for the down payment of this house. Mr. ODA and our partner agreed to allow us to pay him back over time for our 50% of the closing costs. We didn’t have the amount needed liquid, but we knew we could make up the amount owed over a short period of time instead of liquidating money from our investment accounts. We were able to pay most of what was needed for his closing, but we “took” a loan from him for $8,000. I used a loan agreement template that I found online and manipulated it for our purposes.

We established the loan terms to be the same as the mortgage he was entering into (4.875%). Most personal loans are for five years, so we chose that timeframe, even though we knew we’d pay it off much earlier than that. We could have just agreed to the terms and not documented it based on our relationship, but I’ve always felt better having things overly documented. I was basically an auditor in my career, and I’ve seen how “gentlemen’s agreements” over rental-related things haven’t worked out. I formalized the process through this contract and had all of us sign it. While the contract was mostly for our partner’s benefit (to make sure we paid him and he received interest), this was the only documentation we had that once he closed on the house, he then had to give us 50% share of the property ownership.

I established a simple amortization schedule through Excel’s templates. We established the loan terms as 5 years (60 months) at 4.875% (same as the mortgage being executed). When I made extra payments to him, I logged them in the spreadsheet. We only made two payments to him, but he made $44 for not having to do anything except accept our money. 🙂

We had to establish an LLC to be able to claim the tax benefits on this house for our 50% share. The attorney required us to have the tenants acknowledge the transfer of ownership to the LLC since we hadn’t executed a new lease in our names. The attorney then took care of the establishment of the LLC with the State and transferring the deed of this house to the LLC.

RENT COLLECTION

We’ve had the same tenants since we purchased the house. We inherited the tenants, who had moved in 2.5 years before we purchased it, and had rent established at $1300.

As a reminder, we purchased the house in April 2018. They paid that July’s rent late, and despite reminders about the late fee, they didn’t pay it. And so began this constant story with them. The main frustration was that they wouldn’t tell us to expect rent to be late, so we kept having to follow up with them. After two months in a row of it being late at the beginning of 2019, Mr. ODA actually explicitly said: In the future, it’s better to communicate issues with rent payment up front to see if there’s an opportunity for us to work with you. We had been lenient and informally requesting the status of rent, but this was their warning that we’d be sending notices of default going forward.

In January 2021, we hit a wall with rent payment. I sent the notice of default on the 6th of the month like usual. However, because of the pandemic, I had to adjust my verbiage to highlight all the rent relief options available and remove the late fee requirement. My understanding is that a late fee can still be collected in Virginia, but I can’t proceed with eviction just because they don’t pay the late fee portion (which isn’t something we’ve ever held any tenant to regardless). While the rent payment is typically due within 5 days from notice, Virginia now required me to give them 14 days to request a payment plan or pay rent owed. We then had to text and email them several times and never got a response. I finally sent an email with the following at the beginning:

We are very flexible landlords and willing to work with all our tenants. However, we are unable to work with anyone who does not preemptively share possible rent payment delays nor respond to requests for information. Please respond to this email by noon Sunday January 24, 2021 or pay the rent owed by that deadline to prevent proceedings for eviction filing with the court. 

Virginia was very lenient with rent payment throughout the pandemic, but they were also fair. The lack of response from a tenant or the tenant not working with the landlord didn’t protect them from eviction. I finally got a response that the rent would be paid that week.

Since then, we’ve been told that rent will be late. We’re simply sent an email that says “you’ll receive rent on 2/12. Sorry for the inconvenience.” It’s as if they feel they have the upper hand and control. We hadn’t received any late fees until I finally sent an email in response to their “you’ll receive rent when we get to it” email for August’s rent that there’s a late fee due.

In 3 years, they’ve been late 14 times. When I put it in that perspective, it doesn’t seem that bad. In the moment, it seems like it’s a constant battle with this house. That’s probably because a majority of our houses pay rent without making it a painful process!

RENT INCREASE

We hadn’t raised rent in the 3 years we owned the house, and they had been paying $1300 since they moved in on October 1, 2015. That’s a great deal for them! Depending on our ownership costs, we would typically look at raising rent every 2 years, and likely around $50. We’ve raised the rent on only 2 tenant-occupied houses we have (meaning, raised the rent on people who continued living there, versus raising it between tenants); both were rented under market value when we inherited the house, and both have received a $50 increase every two years. We typically raise the rent during vacancy times, which has worked out pretty well for most of our other properties.

For a 4 bedroom and 2 bath house, $1300 is low. We mulled over our options. The house is currently on an October 1st renewal, which is a poor time to be looking for new tenants. I wanted to get the house on a spring lease moving forward. My original proposal to our partner and Mr. ODA was to offer them a 6 month lease (ending 3/31/22) at $1400. Our partner said we should include our expectation that we’ll be raising the rent to $1500 for a year long renewal as of 4/1/22. I struggled for weeks on the verbiage for this double proposal. Eventually, Mr. ODA said we should just risk it. We should lay out an 18 month lease at $1450 to split the difference, and if they don’t want it, they can leave or attempt to negotiate.

We offered them just that, and they accepted. Of course, true to form, they were a week late in meeting the deadline to sign the selection that they want to continue living there at the increased amount. Now the rent will be $1450 as of October 1, 2021, and their lease will run through March 31, 2023.

MAINTENANCE

We started with a clogged drain right off the bat. We had our partner go over there and try to unclog it with store-bought items, but it didn’t work. We ended up hiring a plumber for $300 to work on it. We’ve had several plumbing issues in this house, including a clogged sink that backed up and flooded the kitchen and basement. We ended up needing to have the line jet blasted and a camera put through it for $550! This plumber’s quote for the ‘fix’ was $6k. Mr. ODA sent the video footage to another plumber, and that guy said he didn’t see that anything was needed, so we didn’t proceed with the ‘fix.’ The jet blasting appears to have worked, and we haven’t had any damage reported. The other plumbing issues included fixing leaks in the basement bathroom and replacing that toilet.

The inspection didn’t identify active leaking on the roof, but our insurance company was hounding us over the condition of it. We ended up sending our roofer out there to do the items that came up on the inspection report. This was $350.

We then had several more issues with the roof that cost us $125 before we just decided to replace it. The replacement was quoted at $5,500 and surprisingly that’s what we paid. We expected to have additional costs for plywood replacement due to all the damage we had seen.

Interestingly, while not communicating about rent nor paying rent, they felt the need to tell us the washing machine wasn’t working. We ended up replacing the washing machine for them. We try to not supply any non-required appliances because then it’s on us to fix them or replace them, but since the tenants already lived there when we bought the house, we inherited that the washer and dryer are our responsibility. More interestingly, as I was writing this post and going through my receipts, it dawned on me that the washing machine that was in the house when I did my walkthrough last month isn’t the one that we just sent them in February.

While collecting rent has been frustrating with this house, and we’ve had a lot of plumbing and roof expenses, the house is still profitable and worth our investment. The house is in an area of Richmond that’s being revitalized, yet at the same time it’s in its own pocket of the city that’s also protected from big changes and is mostly original owners. Appreciation has really taken off, so even though our maintenance issues have eaten big chunks out of our cash flow, this house will be well worth it when we eventually sell it and move on to a new investment.

Risk Mitigation – LLC or CLUP

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Not that I expect you to know these letters right away, but bear with me.

There’s a common question that comes up with rental properties: have you formed an LLC? An LLC is a limited liability company. This is a business mechanism in which you create an official business for your properties, thereby separating them from your personal finances.

That’s the positive to an LLC – an LLC separates the rental properties from your personal finances. This protects your personal finances in the event of a tenant suing you through one of your properties. However, for this protection to really work for you if you have multiple properties, each property would need to be within its own LLC. For example, if you put 12 properties in an LLC, then yes, they’re separated from your personal finances, but they’re not separated from each other. Meaning, if someone sues you, they can go after your entire portfolio.

Mr. ODA and I have discussed grouping a few houses in different LLCs, but we don’t see the benefit of the costs that go along with it. There are fees to form the LLC, put properties into the LLC, and then an annual fee ($50 in Virginia). We have an LLC for the two properties we have with a partner, but we went a different way for the properties that we own ourselves. We pay $250 annually for a Commercial Liability Umbrella Policy (CLUP).

CLUP

A Commercial Liability Umbrella Policy (CLUP) extends the limits of your primary liability insurance policies. Our CLUP is through State Farm, but our individual policies are not necessarily through State Farm. There are many nuances to how it works; for instance, you cannot have a CLUP on top of commercial liability insurance. We have individual personal insurance policies on all our houses, required to cover $500k, so we can have the CLUP extend those coverages. Each property is listed in the CLUP, even the ones we have with a partner because our ownership had to be at least 50% for it to be covered (which it is).

While the cost will vary based on each scenario and coverage, we pay $250 annually for a $2 million policy. Every 3 years, we’re expected to weigh in on our policy, which includes sending individual homeowners insurance policy documents, each policy’s 3 year loss report, and current pictures of the front and back of each house to our agent. We’ve only had one claim on a property, and that was a car accident that took out our air conditioner in House 1.

CREATING A PARTNERSHIP

We do have an LLC that has two houses in it, but that’s because we own them with a partner.

There’s a cap of 10 mortgages that an individual (or a couple, in our case) can have. When we reached that threshold, we asked our friend and Realtor about other houses we were interested in. Our Realtor purchased two houses as an individual, and then we put them in an LLC to give us ownership. After the first house purchase, we had our real estate attorney set up an LLC. Then after the second house closed, we just had to add that house to the same LLC.

When our partner went under contract on the first house, we created an agreement with him. We owed him half of the down payment and closing costs to be 50% partners on the property. At the time, we didn’t have the cash liquid, and he agreed to allow us to pay him monthly, with interest. So he paid the funds-to-close, and we structured an amortization schedule at the market rate to pay him back. It only took us two months to pay him the balance based on our cash flow, which equated to about $44 in interest for him.

I now manage most of the maintenance, collect all of the rent, pay all of the bills except the mortgage payments that our partner has on automatic billing, and pay him out his 50% share each month.

SETTING UP AN LLC

To establish the LLC, we paid our real estate attorney $393 (split 50/50 with our partner). We answered a few questions, and then we met in their office to sign the paperwork during a half hour meeting. The attorney handled filing all the paperwork with the state and were set up as the “Registered Agent.” A Registered Agent is an individual or business entity that accepts tax and legal documents on behalf of your business.

A year after the LLC was established, I received a bill from the attorney’s office. The bill was for $100 – comprised of $50 for the LLC fee from the state and $50 for the attorney processing the payment. If you’ve read more than one of the posts in this blog, you’ll know that wasn’t going to fly; we don’t pay extra for things that we can do ourselves. I started researching the purpose of a Registered Agent and who could serve as such a person, and I found out it’s not required to be an attorney.

I outlined my proposal to our business partner, and he agreed that we didn’t need to have the Registered Agent as the attorney. He would prefer his other LLCs be managed through them so nothing gets missed, but since I keep a pretty well organized business, I have mechanisms in place that will trigger a reminder of payment if I don’t receive the bill in the mail. We paid the $50 processing fee that year, and then I filed a change with the State Corporation Commission to eliminate the middle man.

LLC AFFECTS

One of the concerns with putting a new mortgage into an LLC was that the bank could “call” the mortgage through the “due on sale” clause. A due-on-sale clause is a provision in a loan that enables lenders to demand that the remaining balance of a mortgage be paid in full if the property is sold or transferred. Transferring a mortgage to the LLC risks triggering the “due on sale” clause, although there were historically very few times a lender would call the mortgage due to an LLC transfer.

Another weird nuance to owning a property in an LLC is that homeowners insurance companies charge more for the same house, with the same human clients, simply because its ownership is placed in an LLC compared to in personal names. For example, after we transferred one of our properties to LLC ownership, the same company increased our annual rate from $484 to $874. We have not been able to figure this one out. Presumably, the biggest source of risk to an insurer is the fact that the people living in the house are not the owners, although when we don’t have a house in an LLC, the insurance company still knows that it’s used as a rental. If there’s anyone out there that can help us understand this behind the scenes insurance nuance, please drop the info in the comments. We were able to find an insurance company with a reasonable price, but it’s still an odd nuance.

For our risk tolerance, we’ve decided that a CLUP is enough coverage in the event of a catastrophe ($500k in regular insurance plus $2M in umbrella). We haven’t established any other LLCs because the cost of establishing individual LLCs is more than we want to take on. However, we did use an LLC where we needed to establish a joint property ownership and be able to legitimately claim expenses for tax purposes. We have two houses, both of which are with the same partner, in one LLC.

August Financial Update

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This has been a crazy month. We went to St. Louis and New York, we tiled the basement bathroom that we’re building, I refinished a desk that I purchased 6 years ago, and we had several activities to occupy our time. Being that we’ve been so busy, we haven’t set any new goals and are still talking through what we think the next few years look like. We are still managing sleep disruptions with our nearly 3 year old, and that takes a lot of time from my day and night. Anyway, here’s how things shook out over the last month – very high credit card bills to cover many large expenses.

just for fun – my before and after of the refinished desk that I bought for $15
  • Utilities: $240. This includes internet, water, sewer, trash, electric, and investment property sewer charges that are billed to the owner and not the tenant. I find it interesting that it’s not routine to have irrigation in Central KY, and that’s led to surprisingly low water bills. Our water, sewer, and trash is all together each month, and it’s only $53 in the middle of the summer!
  • Groceries: $390. On top of that, I had a charge for a 4 month supply of the vitamins that I take, which I pay for up front because I don’t want to pay a surcharge to pay monthly (if I can afford to pay $300 now, I’d rather pay that then end up paying $340 for the same product at the end of 4 months).
  • Gas: $230
  • Restaurants: $215
  • Entertainment/Travel: I broke down the St. Louis trip costs in my previous post. We booked our flights to NY through the Chase portal using points. It was the equivalent of $833 for 3 round trip flights (our daughter as a lap child). We paid for parking at the airport ($36), and that was it. On top of those costs, we had several sports fees and activities that we paid for. I didn’t add up the details, but I estimate that those cost us about $300 this past month.
  • I paid $3,800 worth of medical bills (high deductible plan… we got there).
  • We spent about $175 on tile supplies for the bathroom, which includes returning about $40 worth of materials.
  • Rental work cost us a good bit this month.
    • Our plumber made his rounds to 3 of our houses on one day to address items that I found during the walk throughs in July; this cost us $730.
    • Somehow (very unlike us), we had an outstanding pest control bill from December. When I called to schedule another appointment, they requested payment (rightfully so!). We spent $290 on pest control then.
    • We purchased a hot water heater and a refrigerator for a rental property after our property manager did her walk through. We also purchased a fan and had that installed (we would have done it, but we don’t live there anymore), but we split that cost with our partner. These cost us $2,317.
    • As usual, two houses were late on rent. One paid on Friday and actually included the late fee (10% of rent). Another gave us a letter about a car accident she was in and said she wouldn’t have rent until she received the settlement money from that. It’s the 16th and we still don’t have rent. The positive here is that we have several other properties worth of income that cover the expenses on this house (mortgage), so we’re not floating the mortgage with our own money for this one house.

Here’s a tidbit of my spending. I don’t have Amazon Prime. Rarely do I need something in 2 days or less than $25 that I would need to pay for this service. I search Amazon for things that I eventually want, put it in my cart, and then when I need to hit the $25 free shipping threshold, I add the items to the cart to check out. This is how I handle Christmas shopping basically. I have thoughts on what to get for people, keep it in my “save for later” section, and then order it when I place an order. I actually have several Christmas gifts already purchased.

NET WORTH

Since I’m not able to find the time to coordinate updating all our accounts with Mr. ODA, this is just a rough update of our financials. Our net worth has increased about $58k. I’ve paid down the very high balance on our Citi card already this month, so this snapshot in time isn’t showing that I’ve already made $5k worth of payments towards that. About half of that increase is attributed to an increase in property values. The rest is attributed to the usual mortgage payments and investment balances increasing.

Property Walk-throughs

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Early on in our investing in real estate, we were told to make regular walk throughs of the properties. We were taught to use changing the HVAC filters as the guise to get into the property and look around once a quarter, even if changing the filters was put in the Lease Agreement as the tenant’s responsibility. Realistically, we have mostly great tenants that will tell us what goes wrong in the house and take good care of it. But this isn’t always the case. Plus, once we added two kids to our lives and I no longer worked (i.e., no longer have a set schedule for being out of the house), the rental properties moved to the back burner unless a tenant brought something up specifically.

After our experience with House 9 – both the hoarder and the guys who just turned off the gas to the stove instead of telling us about a gas leak (yea….), we decided it was important to get into these houses at least once a year. In many instances, either one of us or our handyman is in the house at least once a year for a repair, so it’s not a big deal. But there a couple of houses we hadn’t seen in a while. Add in the pandemic, and we really haven’t been in houses all that much.

We moved out of Virginia, where we have 9 properties, last Fall. That means getting into these properties is more of an effort that needs to be properly planned and orchestrated now. We already planned to be in Virginia for a wedding in September. However, the issues that stemmed from the flooring replacement in House 3 made it imperative that we get there as soon as possible.

I emailed all the tenants to let them know that I planned to walk through the property for a quick inspection. I asked if they had any definitive times of day or times of the week that they would prefer I not arrive (e.g., works night shift, child’s nap time). I let them know that they didn’t need to be present for the walk through, that I would send them a document outlining anything I noted, and that I would try to avoid their times of being unavailable, but didn’t guarantee it.

Of the 9 properties, 3 are with a property manager. We took two off the list after they responded positively about how they replace the filters, had several conflicts around the holiday weekend, and we have been in these houses for repairs in the last 6-9 months. One is a house that we had been in regularly and knew she was treating it like we’d treat our home, and the other had our handyman in it recently, who said, “they seem to be by-the-book people.”

While there, we took pictures of the front and back of each house to give to our insurance company. We have a commercial liability umbrella policy, and the underwriters like to update the file every 3 years (details in a future post!). So instead of posting pictures of all the “dirty laundry” (literally and figuratively) I encountered, here’s a picture for this post that’s of our nice, pretty house with great tenants. (Note – Mr. ODA tucked in that piece of vinyl on the back right just after I took this picture!)

HOW DID IT GO?

Well, I started in a house that I’ve only seen one room of since we bought it (this is owned with a partner – he and Mr. ODA have handled most issues to date). I was overwhelmed. There were 5 full/queen size beds in the house, where the lease holds a husband/wife and adult daughter. There was stuff everywhere. We just replaced the HVAC in the house, but they had all the windows open, fans on, and the HVAC running. I knew that there was water damage from a plumbing issue, but I didn’t realize that it had affected the kitchen and the basement (thought it was just a part of the basement). It was a hard way to start. I should have started with an easy one that I knew would be in great condition. 🙂

From there, it went pretty well though. Most people obviously cleaned and changed the filter because I was coming. This is a good thing and a bad thing. If I don’t show up for a year, is the house cluttered and a mess? Then there was a house that I went in, where he didn’t bother picking a single thing up for my arrival. Dirty socks, things strewn about. It wasn’t to the point of hoarding, and I didn’t find any food laying around to attract pests, but it wasn’t how I would manage a household.

I ended two days of seeing 7 houses with a lengthy to-do list. Plumber, HVAC technician, roofer, electrician, pest control, and then a random assortment of things that I don’t know who to call for (e.g., replacing bedroom doors, closing in literally 2 sections of chain link fence that are missing). I also made note of things that will require our attention during a turnover, but that don’t necessarily require attention right now (e.g., removing old caulk around the tub and re-caulking it).

TENANT FOLLOW UP

I sent an email to each tenant. I thanked them for their time, outlined the items that I noted needed attention (e.g., vacuum HVAC filter cover, vacuum dust build up on bathroom, unblock exits), documented anything we did while we were there (e.g., gutter clean out, caulking), and sent a list of reminders that are the lease items we see most frequently broken (e.g., only adults that have passed the background check and are on the lease may reside there; any fines incurred by lack of yard maintenance will be passed onto the tenant who is responsible for yard maintenance per the lease; change air filters no less than every 3 months; all surfaces are to be cleaned and remain clear of food particles as to not attract pests).

Contractors are scheduled a couple of weeks out, so nothing is moving very quickly, but at least we’ll get into these houses for some preventative maintenance.

Lesson learned that when life gets in the way and active management of rental properties becomes a little too passive, the to-do list grows pretty long. There was nothing critical that we weren’t aware of, and we could handle these things during turnover, but I’ll try to get ahead of some of it in the near term, especially where we have long term tenants.