landlords

May Financial Update

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*I’ve been working on this post for a week, so my numbers are a week old, but I don’t want to re-update them. I’m also posting on a Tuesday just to get this ‘out the door.’*

I’m starting to pull myself out of the overwhelmed hole I felt I was in. There’s still a lot going on, but I feel better equipped to stay on top of things. I had just been so exhausted, that I didn’t have the energy to do anything extra each day, and I was just getting by. Last weekend, I was able to work on pressure washing our patio and deck furniture (which was long overdue), and then I stained our deck. That’s been a pretty good springboard to me getting a fire lit under myself to get other things done, so that’s felt really good.

Our middle child graduated pre-k on Thursday. That was a big milestone, and my poor girl is so sad that she’s going to miss her teachers. She’s really struggled with my going to work and not being home all the time (although my time not home, while she would be home, averaged about 10 hours per week). I have things better organized at work, and I’m feeling good about my tasks and role in the office, so the hours I’m spending there are dwindling. I had agreed to about 20 hours per week, but I was closer to 26/28 each week. The biggest issue was waiting for someone to be available to help me, and then that everyone else is full time, so they don’t realize I’m trying to get out of here by 2 pm each day. This week our oldest graduates kindergarten and has many events around end of school.

RENTALS

One of the mortgages has been paid enough that the balance dropped from 6 digits to 5 digits. It’s still a lot of money owed there, but that felt like a nice accomplishment when I went in to capture the balance!

June is Richmond tax season for these houses. That means I’ll be paying out large chunks of money for the houses we have no escrow on.

We had a few maintenance needs come up. One house had the water heater flood the basement. Luckily, I think we’re OK on that front. We replaced the water heater. The gas wasn’t hooked up right, so the tenant called the plumber to get that squared away. This happened while I was in a different state, and I’m so grateful it happened in a house with a handy tenant.

We had some flashing fall off a roof line. This wasn’t a priority to address at the time, but the tenant started claiming allergies were flaring up because birds were getting in the attic. Sometimes you just need to accept that’s the story you’re hearing. We had a handyman go over there and verify there are no birds anywhere. The “hole” she thought she saw was just where the soffit was hanging a bit, but there were no gaps in the wood structure itself. He tacked up the soffit, and I contracted with another company to repair the one piece of flashing.

That handyman also went out and handled a wasp nest. At that house, the tenant says a window won’t stay open when she opens it, and we let her know it’s on our radar now, but it won’t be fixed just yet as our people are spread thin and that’s not an emergency. That house had a temporary tenant in it (housing with our current tenant). To cover the tenant and us, I asked for a $500 deposit. When they moved out, I had our tenant sign that there was no damage, and I returned the deposit.

We’re still working on the major termite damage that occurred at another house. There was quite the domino effect. Leaks from bathrooms and the laundry room created a very wet environment, which created a breeding ground for termites, which feasted on our wood all over that place. The crawl space got cleaned up, but we’ve been waiting over a month for the bathrooms to get replaced and fixed. I’m hopeful that it’ll start next week, but frustrated nonetheless.

I had a leak from a toilet bolt at another house. I was frustrated because we had just been called out for water on the floor at this house recently, but it turns out this was necessary. When the house is a certain age, things just wear away and need replaced.

We also had a limb fall from a tree at another rental. The tenant explained how much of a liability it was for me. I love when tenants instruct me on my level of liability (that’s sarcasm). We have a tree guy that’s been super useful for many things and he handled it the next day with no problem.

PERSONAL

We haven’t been spending much money. Most of our money these days goes to grocery shopping. On our current statement for our main credit card, we only have 11 transactions recorded for over 3 weeks.

We paid our last month of pre-school for our second. They are closing the school and they didn’t want to add on days for the snow days that occurred, so they gave us $50 off the last month of tuition to cover the 2 days we were owed for make-ups. Since the school is closing, everyone scattered, and we ended up not getting into another preschool next year for our youngest. So at this point, that’s an extra $375 per month in our pockets next year – unless a spot opens up for the littlest.

Mr. ODA took the buy out, which I think I mentioned last month. His last day of work was April 30th. He said he’s settling into the not working concept and starting to get over the desire to know what’s happening at work and with his programs he worked so hard on. He’s done a lot of work around the house here, including treating for termites in a very intense fashion, but that was cool to see.

NET WORTH

Two months ago, my job asked for my goals. It’s a specific document that I was to fill out. Someone else had mentioned their net worth goal, and our next big step would be $5 million net worth. Well, the market has been in shambles, and our net worth plummeted from where it was. I thought it prudent to not make such a goal when our net worth is completely reliant on the market actions right now (i.e., we’re not selling/purchasing or making any big moves that would drastically change our net worth outside of the market actions). We’re finally on the upswing and now at the highest net worth we’ve been, so that’s encouraging after those big dips recently.

Rental Options

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There are options that give the tenant flexibility, while protecting your financial interests in a rental property. I talk about this in some fashion about once per year, but I like to give the reminder.

In January, I ran all my usual numbers to determine if any properties needed a rent increase. The last few years have really hit our margins – insurance has drastically increased, taxes have increased significantly, and the regular trades costs have increased over time as well. During this process, I determined that 5 houses needed some sort of increase in their rent. One was the responsibility of my property manager, and the other four I wrote up the notifications, put them in the mail, and then emailed them also.

I’ve had two tenants respond back that they intend to move in the next year, and they wanted month to month. We don’t agree to month to month options. Well, I should point out that for significant financial compensation, we would consider month to month. However, the expectation is that having a long term tenant renew their lease is less work month over month. If they’re on month to month, I’m constantly watching and waiting for their 30 day notice. Additionally, there’s a concern that their 30 day notice comes in October or November, leaving me with a mid-winter lease that I’m trying to get filled.

Instead, I provide a few options that protect me. I’ve done the “buy out” or “penalty” option multiple times in the past, and that has served me well. I haven’t needed a short term lease option, but since there are certain circumstances with these houses, I put that offer out there.

In both cases, the tenant said she wants to be able to leave sometime in July/August. This is manageable to me because I can likely rent it under a fairly quick turnaround.

  1. Short-term lease
    While I would typically require an increase in rent to cover a short term lease, I was already in conversation about rent increases, so I let it be. I offered a July 31st or August 15th move out. In both cases, I know the house is going to require work. I’d like to have the last two weeks of August available to me for construction activities, instead of going into September and trying for an October 1 lease start date.
  2. “Buy out” options (e.g., penalty payments)
    In this case, I have the tenant sign a year lease. However, the lease comes with “lease break clauses.” The penalty for breaking the lease ranges based on the time of year. In all cases, I require 30 days notice and full payment of rent through the date given as notice. If the tenant wants to leave before 8/15, then there’s no penalty.

    If they want to leave between 8/15 and 9/30, then they have to pay the equivalent of one-month’s rent.

    If they want to leave between 10/1 and 1/31, there’s a two month penalty. This is because finding a renter during this period is difficult. There aren’t as many people looking during the winter because most leases are spring to spring, so the turnover is fairly cyclical, and because most people are distracted with starting school and all the holidays happening during that time rather than looking to rent (or even buy) a house.

    If they want to leave between 2/1 and 3/31, there’s a one-month penalty. Again, this is to cover the longer time it will take me to find someone to take over the lease period, and it provides me with a year-long lease (which most people are looking for) that ends at another inconvenient time for turnover in the next year.

    If they want to leave between 4/1 and 5/31 (which is the end of their lease term), then there’s again no penalty just as there wasn’t for the first few months of the lease term. I’ll be able to get work done on the house and list it for rent, expecting a decent pool of people interested in a rental.
  3. Lease transfer option
    As a final option, which was offered to us when we lived in an apartment building, a tenant can agree to a year-long lease with no extra terms. They then have the knowledge that if they want to “break” the lease agreement at any time in the next year, they are responsible for paying rent until a new tenant is found. They can move out, but they’re on the hook for paying rent until a new tenant has sign a lease.

    This is risk on their end. In some cases, I may be able to get someone in just a week or two. However, if it’s the winter, it could mean that they’re paying a month or two months worth of rent while they’re also living and paying rent somewhere else.

    The only time that I’ve used this option, the tenant provided notice on December 1st, which as I’ve pointed out is not a great time to be searching for a new tenant. Since he was already not living in the house (he had moved back in with his parents), he agreed to empty the house of his furniture so that we could still show it during that time. He paid rent on January 1st per our agreement, and luckily we found someone to take over the lease as of January 7th or 8th, so I refunded him the prorated amount of rent.

The “lease take over” concept was done by a management company in a fancy apartment building outside Washington D.C. It never hurts to ask for options if you’re the tenant. Just understand that managing the rental is work that the landlord has to do, and their “profit” is how they’re paying themselves for that. Especially in today’s environment, that margin is quite small. So when they tell you they don’t want to have a lease fall through in the Fall or Winter, understand how this is their investment and their income, so they need to protect themselves, even if it’s not necessarily what works for you or is your preference. And as for landlords, treat your tenants nicely and be as flexible as you can; it always pays off for me.

January Financial Update

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We’ve done a good job at enjoying time together this past month. We haven’t had a lot of expenses pop up, which was a nice reprieve. However, the market is much lower at this time this month than it was last month, so our net worth actually decreased. I keep focusing on the long term picture though, and our net worth is much higher than a year ago.

RENTALS

We have 13 rental properties. They were mostly purchased in 2016-2019, with one purchased in 2022. Most of them have sustained very little tenant turnover.

I had 4 houses not pay their full rent on time this month. As of this post, only 1 is still outstanding. They’ve had car troubles and have communicated regularly with me. While I’d prefer to see at least something paid towards rent by now, they’ve been with us for 8 years, and I know they’ll eventually be whole. They never take more than the month to get rent fully paid. Of the other 3 that were late, I only charged one a late fee. The others aren’t usual offenders and communicate up front, but this one has been more difficult to get rent paid from the time we purchased the house.

While looking back at last year’s January post, I must note that this past year has been fairly easy on the rental front. We’ve had a lot of frustrations and things to manage, but it hasn’t been as time consuming in the “people management” side of things. We had a few issues with a tenant that first moved in last winter, but they’ve been quiet since. We had 4 houses turnover tenants in 2024, with fairly little loss of rent.

PERSONAL

We have been battling snow for almost two weeks now, which is very unusual in Central KY. We’ve already taken the kids skiing twice this year. Even the baby got on skis! He’s 2, so I guess he isn’t such a baby anymore, but that’s the earliest we’ve put a kid on skis. He’ll slide down the mountain, but he doesn’t stand on the skis; he’s just squatting the whole way.

NET WORTH

Last year at this time, I was sharing that our goal was to reach $4 million. We were at $3.869 million.

Our net worth is about $66k less than last month. I don’t always update the value of our assets, so that’s a fairly static number. Everyone few months, I’ll check on the ‘zestimates’ though. Typically, we expect to see the total decrease in the winter months because there are less sales and less activity to raise the sale prices like you see in the Spring months. On top of that, all of our investment accounts (except one that increased by $22) decreased a bit.

We have a 0% interest credit card that has a balance over $12k on it. We also added a car payment, which we haven’t had since about 2015. Tesla was offering a 0% interest loan, so that monthly payment isn’t going away for nearly 5 years. Overall, our credit cards balances total more than $3k less than last month’s, which makes me happy to see.