Back in May, I was a guest on Maggie Germano’s Podcast, “The Money Circle.” I shared some of our background and how we started investing in real estate. We brushed on topics like establishing an LLC, tax advantages, and how you don’t need to start big to just get started. It was a brand new experience for me, but I’m passionate about our real estate experiences, and I loved being able to share. I hope you’ll check it out!
I had this post teed up to share at the beginning of the month. I thought the story line was going to be that I went on vacation while all new flooring was installed in a home 500 miles away with little effort by me. It’s no longer a positive story. This post is to share that there’s struggles, but they’re only a few weeks of the year. It’s not a cumbersome year-long process to have rental properties.
This house has the same tenants in it from the time we purchased it in 2016. They’re a family of 5 with a dog, so it’s not surprising that the carpet reached its useful life. I don’t know when the carpet was installed, but I assume it was right before these tenants moved in, which was a few months before we purchased the house. The carpet was matted down in the high traffic areas, and it was starting to separate at the seams. The vinyl between the kitchen and laundry room was also peeling back. While I wouldn’t typically look to do such a large project while tenants are still living there, we made the exception to keep them happy and wanting to stay even longer. We decided to replace all the flooring in the house, except for the bathrooms.
My first lesson learned: keep these major projects to vacant houses. While there are exceptions, such as these long term tenants, the tenant just doesn’t understand the work that’s going to go into it. We had a bad experience that dragged this out for multiple weeks, but even with that, the tenant had a lot of complaints about having to move their closet things and move their furniture. I kept reiterating that it’s short-term ‘pain’ for long-term gain, but he kept wanting to tell me how much work it was. It was hard to not retort that he asked for this and we could have said no.
PURCHASE PROCESS
The experience to purchase the carpet was less than satisfactory. We’ve had several positive experiences, so I wasn’t going to name the company over this one incident, but it just keeps getting worse, so here it is: Home Depot. Eight phone calls before installation, and that doesn’t count the mess I’ve managed for the last two weeks. Typically, I would just go into the store to make the purchase. However, our closest store is now a half hour away, and they have an 800 number, so I thought it would be fine. I should have just driven down to the store after the measurement was done.
I was trying to compare replacing all the flooring with vinyl plank against putting sheet vinyl and carpet back in. In a previous house, we spent slightly more by tearing up the old carpet and refinishing the floors under it. We saw it as a long-term investment. Instead of replacing carpet every 5 years, we just needed to mop the floors, and they’d last longer. For this house, since I knew vinyl installation was expensive (relative to carpet), I thought maybe it would be better for us to spend more to get hard surface flooring installed throughout the house instead of replacing in-kind. The house was built in 2007, so I didn’t have the prospect of beautiful hardwood flooring already being under the carpet.
Home Depot’s process to compare the two was painful at best, so I gave up on the comparison between carpet/vinyl and hardwood/vinyl plank.
They run a promotion that carpet is free installation if you spend $600. Apparently, that’s only for non-in-stock carpets. So I asked, “which aren’t in stock?” Their response? “I don’t know; we just need to try SKUs to find out.” Quite an inefficient process. Our carpet and installation came to $1.24/sf, so I quickly priced out of the SKUs that were less than that without installation in our trial and error process of finding carpeting.
The sheet vinyl always comes with a high installation price tag, so I was ready for that. I wasn’t ready to be told that several of the first ones I tried weren’t eligible for installation. I was left with one option, but luckily it’s a pretty gray-wood-look.
I finally approved the carpet and sheet vinyl options after 3 phone calls and the measurement appointment.
The receipt I received after I paid said that there were some items to pick up. Well, if I’m paying double the cost of the material for it to be installed, I don’t intend to go pick up product. That took 4 phone calls to get squared away. And honestly, it wasn’t even any of the calls I made that solved it; someone from the store called me to ask if I wanted to move forward with my quote (that I had already accepted and paid for in full), and she got it all figured out so that it was right. Or so I thought.
INSTALLATION DAY
The installer showed up to the house without the material. He missed the note that he had to stop and pick up the items because, for some reason, that’s not the norm. I truly am confused that I pay for the installation of a product, and it’s my responsibility to gather all the materials (lifting, carrying, organizing, storing) until the installation day. I hadn’t encountered this before. In the last house that we put vinyl in, we purposely saved $75 by borrowing a friend’s truck and bringing the vinyl there. That was an active decision to change their norm of delivery, so this was surprising.
The installer removed the vinyl in the kitchen, and then went to the local Home Depot and gathered the materials. He was gone from the house for 2.5 hours to do this, with the store 10 minutes away. When he returned to the house, he got the carpet completed (which honestly was impressive) in the rest of the house, and then around 7 pm told the tenant he couldn’t do the vinyl because of damaged subfloor in the laundry room. I’m frustrated because 1) he could have done the kitchen part and returned for the laundry room part, since there once was a seam, and I don’t think they would have tried to cut and mold around a doorframe to keep it all one piece; and 2) he could have told me this when he removed the vinyl before noon, so I didn’t lose a business day trying to get the subfloor taken care of.
I didn’t even know the whole story. I had to call the installation company (i.e., not Home Depot) to ask why I hadn’t been told the next steps. The customer service representative didn’t know what I was talking about. She had to call the installer to find out the story. The installer claimed that there was a “huge” “pool” of water on the floor and water was just continuing to pour into the house at the door jamb. I found this hard to believe. These tenants call us over every single weather crack in the drywall; there’s no way they had water coming into the house and didn’t tell us about it. Regardless of my frustration, the result was the same: I had to find someone to fix the damaged subfloor.
Our handymen options that we’ve used were unavailable for weeks, so we asked a friend of ours if he wanted to make some money and take care of it. He did a great job! He cut out the rotted wood and laid new plywood and luan. We would have preferred the installers handle this. It’s surprising because for a roof replacement, we sign off that they will repair any damaged plywood during their installation and bill us for each piece laid. Why can’t the flooring be the same set up? It became especially frustrating when we heard that the next installer was cutting wood on site.
INSTALLATION DAY: ROUND 2
Now we needed to reschedule the installation. I called as soon as our friend finished the job, and they said they had an installer who could be there the next day (a Friday)! I should have known it wasn’t a good thing that they could fit me in last minute. The arrival window, for this man coming from Maryland to Richmond, VA, was 10-1. At 12:30, he told me he was almost at Home Depot to get the materials. Well, the materials were at the house, which I told him. So then somehow, he took his sweet time, and at 1:30, he called to ask me where the address was. I told him the address and that no one else had an issue finding this house. He told me he had arrived at about 1:45.
At 4:00, my tenant called me to tell me that he helped the installer move all the appliances into the living room and that he hadn’t been in the house yet because he was outside cutting wood in the rain. Wait. I just had to repair my subfloor because of water damage, but you’re out there cutting wood in the rain to put into my house while it’s wet? I was also irritated that all the appliances were moved before the job was ready to be started. I called the installation company, and I was livid. I was already frustrated with the communication and process to date, and this was just icing on the cake.
As I was complaining to them about the situation, I received a text from my tenant saying that the installer said he was quitting for the day because of the rain and MAY be back tomorrow. He left, leaving the appliances in their living room, with no certainty that the job would be completed the next day. So my tenants were left without an operable kitchen (violation on me at that point) and with a cluttered living room, with no certainty it would be put back together the next day. Plus, this was originally a two day job. One day was already taken with ripping up the vinyl and replacing the carpet, meaning only a few hours should be needed to lay the vinyl. To be told this is going to be a two day job just for this installation is wrong.
The installation company tried to tell me to be patient because the installer is coming from Maryland. It’s not on me to account for this man’s 2-3 hour commute. I can’t work in DC, but live outside of DC (like many do), and say to my employer, “I live 3 hours away, so I can’t start before 11.” No. That man should leave his house at 6 to account for that difference, or you shouldn’t assign this man a job that’s too far away. Don’t inconvenience your customer, making a 3 hour job into a two day job, because your installer lives outside the region.
The company made the installer go back to the house to fix it that night. Instead, he just picked up the wet wood and tools, and left the appliances for my tenant to return to the kitchen.
INSTALLATION DAY: ROUND 3
I was adamant that installer #2 was to not return to the house. The next available date was a week later, and I said I’d rather it done right than fast. The new installer came and finished the job in under 3 hours.
RESOLUTION
The flooring is in. The communication and process was horrific. While managing the installation company, I also had to manage the tenant’s expectations and hear out his complaints. It took more effort than I anticipated, but it’s now over, and I shouldn’t have to deal with flooring in this house for another 5+ years.
This was self-inflicted. I chose to replace the flooring while a tenant was still in there because the flooring was degrading and they’ve been good tenants for over 5 years. In the future, I’d prefer to hold off until there’s tenant turnover, or I will more clearly communicate how the process works and how much effort it will take to manage while living there.
BONUS: TAXES
Quick teaching moment. The entire cost of full flooring replacement cannot be captured in this year’s taxes. The IRS expects the cost of flooring to be depreciated over its useful life, which is 5 years.
We’ll say the entire cost of the purchase was $4,000. I divide $4,000 by 60 months, which is 66.67 per month over the 5 years of depreciation.
Since I made this purchase in May 2021, I will only capture May through December for this year’s cost. The monthly cost of $66.67 is multiplied by 8 months (inclusive of May), which is a repair/maintenance cost of $533.33 for 2021 taxes.
For the years 2022, 2023, 2024, and 2025, I will capture 12 months worth of the depreciation monthly cost, or (66.67*12) $800.04. For 2026, I have 4 months left of the total cost that haven’t been claimed on my taxes, or the balance of the total cost that I incurred in May 2021, $266.68. However, if I claim this total, it will over-claim the total cost by $0.17, so this final amount should be adjusted to 266.51.
When filing your own taxes, the software typically calculates the depreciated amount for you. We enter the total cost, that we’re do a 5-year straight-line depreciation, and the amount already claimed on previous year taxes. The system will auto-calculate the amount to be claimed for the year. It’s important to keep track of these expenses year after year, to ensure you’re not claiming more than you spent.
A tenant moves out. Days without a tenant in the house equate to less income. On top of that, you probably have to touch up paint or repaint. You have to clean the carpet. You have to clean all the appliances and bathrooms. You may have to replace an appliance. Then there’s the extreme, that you may have to hire a junk removal company to get rid of the debris left behind and then hire a cleaner that charges a hazmat fee on top of the cleaning fee (does it sound like I’m speaking from personal experience?).
Turnover is when one tenant moves out and another moves in. The goal is to make that period of time as short as possible, or even non-existent. There aren’t always scenarios that you, as the landlord, have control over, but making a tenant feel appreciated and heard can keep them living under your roof for more than the initial lease term.
When a tenant leaves, in the best case scenario, you’re losing 1 or 2 days of income ($80). However, it’s also taken us up to 2 months to get a unit rented. That means you’re making 2 mortgage payments without income to offset them. When calculating your cash-on-cash return, the assumption is typically 5% vacancy rate, or about 18 days per year without rental income.
Then there’s the work you need to do to get the unit ‘rent ready’ again. Again, the best case scenario is cleaning the house and paint touch up. We now pay someone to come in and clean the house between tenants; it became worth the $100 to have someone come in, with the right tools, and be done a lot faster and better than I could do. The preference is to not have any carpet in a house, but we do have a few that have carpet that will need cleaned between tenants ($125). We do our own paint touch ups, so it’s typically no cost except my time because we have a standard paint color, and therefore left over paint. Quick tip: if you’re not painting the whole wall, use a paint brush to touch up the areas that need it, and then go over it with a roller to help blend it together, then you won’t see those touched up spots.
However, there may be more work to do than those quick, simple tasks that you can have lined up for 1 or 2 days. Even if the tenant treats the house great, appliances and carpeting have a useful life and may need to be replaced, which involves ordering and scheduling installation.
The end goal: keep tenants happy and not wanting to move means more money in your pocket. Find compromise and don’t always focus on your bottom line – and your bottom line will likely end up thanking you.
In 5 of our properties, we haven’t had any turnover (owned anywhere from 1.5-4.5 years). In 3 cases of turnover, the tenant left due to a job relocation. We’ve had 2 evictions. Our turnover rate for the average years we’ve owned the properties is 1.75, so the majority of the time the tenants renew their lease.
How do we do it? We create a relationship that says we’ll be responsive and listen to issues, we’re reasonable and fairly lenient with paying rent on time with sufficient notice and justification, and we provide houses that are in good condition.
We had a tenant vacate a house due to a job relocation. She had such a good experience with us, that she set us up with a new tenant for their house. Then a year later, she moved back into town and reached out to me. She said they had such a terrible experience with a landlord that if they were to rent again, it would only be from us. We just happened to have a tenant moving out because that tenant was buying her own house, and our newly vacated house fit all the parameters she wanted. That meant we had 2 days of turnover and didn’t have to list the property.
That house really needed a new paint job. We hadn’t painted it when we purchased it, and now it’s 3 tenants in. We didn’t know that until the tenant moved out and didn’t have time to paint the whole house before the new tenants were moving in. To show that we knew the house wasn’t perfect, we offered the new tenant $50 per room and $25 per paint can if she wanted to paint on her own. She was thrilled because she planned to paint some rooms to begin with, but now there was a financial incentive for her.
As for rent payments, if the tenant usually pays rent without issue and they preemptively reach out to tell us that they’ll need more time to pay rent, we’ll usually waive the late fee. Our calculations for the year don’t anticipate collecting late fees, so it’s not a loss of ours to waive the fee, but it makes them feel like we care about them as people. If you’re a tenant: communicate regularly with your landlord. Your landlord doesn’t want to evict you, doesn’t want to tarnish your record, and doesn’t want to put you in a position of financial hardship, but we can’t work with you if you don’t communicate with us.
We had a tenant ask us to put in a backsplash in the kitchen. He explained that he cooks regularly, and food is splattering on the wall, which was painted in a flat paint and didn’t wipe well (painted before we owned it). This is unconventional because it’s more than a request to fix a leaking sink or an inoperable appliance. However, we saw the benefit to install a backsplash in the longevity of the kitchen’s life and the tenant feeling like they got a ‘win.’ We agreed to do a peel’n’stick backsplash, which met the goal of a wipeable surface without being labor intensive. We even gave them options to choose from that matched the house’s color scheme. It cost us $68 and about 90 minutes of our time to install it. This tenant still lives in the home, which we’ve owned for nearly 5 years now.
We allow pets in the properties. Back when we were trying to rent an apartment for ourselves to live, few allowed pets; if they allowed pets, there was an astronomic fee associated with it. We decided to not eliminate the average 50% of pet owners by mandating a pet-free property, and we wouldn’t charge monthly pet fees or high initial fees (though we still charge some) associated with having a pet. Honestly, I have kids and a dog; my dog has never done anything wrong in our home, but my kids sure do make a mess and spill things. We have had issues with pets in our properties, but the owners have done other things wrong, so it was a poor tenant issue, not necessarily a pet issue.
I also feel that if we provide a house that looks clean and well-kept, then the tenant is more likely to keep it in that condition. We’re setting the expectation that this is the type of house that we’re renting, and we expect it to be in similar condition when we get it back. We understand paint scuffs happen, pictures get hung, and there may be a couple new stains on carpet, but the house is to be returned to us clean and put together, which is even stated in the lease. If we handed over a house that was dirty or had dingy paint and carpet, the tenant is likely to not put as much effort into keeping it in pristine condition. This isn’t foolproof. But we charge the security deposit for anything outside of normal wear and tear, and they understand this will happen from the lease signing, as well as the unspoken expectation made by the condition we hand the house over in. People are more likely to take care of properties when its condition is good enough to feel pride in, and will typically not respect it if it’s apparent the landlord isn’t taking care of it either.
One Dollar Allowance 