Last night, I received a call from one of our REIA members (in fact someone that I consider my mentor). She had rented a house to some people that ended up having a son that was a drug addict (not to mention just plain crazy). After several months, the tenants stopped paying rent and she evicted them. Someone (probably the crazy son) broke into the house and the house next door (also owned by her) and did tremendous damage. They put holes in every wall, broke windows, and stuffed rags in all drains and then turned the water on - resulting in major water damage. She estimates that the damage will be well over $10,000.
How many years of renting these properties with a $100 per month per property cash flow will it take to make up that $10,000?
Is it any wonder that operating expenses are 45% to 50% of gross rents?
That really sucks. The thing is even if they find out it was this guy (which may be next to impossible), they’ll still endure a lot of time trying to recoupe money from them (if at all).
if “someone” broke into a property like this, this is straight-up vandalism and would seem to be claimable against your insurance (???).
sounds like this just got converted from a rental into a rehab.
while big (capitial) cost can really hit, the Landlording game is really about the “short game” IMHO (i.e. $50 here, $75 there) and can really pile up if you are not control cost either by doing work yourself and/or setting the right expectations with your prop. mgmt people. Obviously, avoiding destructive, dead-beat tenants is key, but that’s more a function of some luck and experience; rather than an exact science.
however, figure on the 45-50% will definately get you ni the right cost neighborhood and provided a good benchmark upon which one can work to imrpove (and thus gain greater profitability).
So could someone possibly turn this - into a +. For instance if the homes were broken into then absolutely get insurance out of it and then possibly get a rehab refi with a little cash out as well?
She does have insurance. However, almost everytime that you use your insurance, your premiums will go up. So, I don’t know whether she’ll turn this in or not. Personally, I carry a $5,000 deductable on my properties and will only use the insurance for a catastrophic loss. If it were me, I would do all the work myself and try to minimize the cost.
Quote by Campbellgroup:
Sounds like someone has more on their plate than they can manage.
Campbellgroup,
Please tell he how better management could possibly prevent someone from breaking into a house. What would you suggest - live at every vacant house until it is re-rented? She is a serious investor with about 50 rentals.
You’re correct, no expense figure on a single rental house can absorb a $10,000 loss in a single year. In fact, this investor will essentially lose all her profit from her 50 rentals for 2 months to recoup this loss.
I’ve often said that the person with only 2 or 3 rentals is carrying the highest risk. If this loss occurred to someone with 2 rentals, they would be out every penny of profit for the next 4 years or would be paying higher insurance premiums forever. Also, note that insurance may not pay for much of this damage because insurance companies will often not cause water damage (ask the Katrina victims).
I happened to be at one of my rentals across the street from this investor’s property yesterday. She showed me the damage. The tenant actually put a hose down one of the registers, ensuring that the furnace would be flooded!
This extent of damage is a little unusual, but certainly not rare. I have had damage in the $2,000 to $3,000 range a couple of times and I know one investor that had an angry tenant set fires in 3 of her properties.
After this psycho is locked up he will have to pay restitution to cover the damages. So she will atleast be reimbursed over the long term, except for the loss of potential rent and extreme inconveinance.
That sounds great, but in the real world she has no way to prove who did it. The tenant will never be caught or arrested and will not pay anything. Justice is only something that happens on TV.
From the way I understood this post of yours…the tenant vacated the premise…and there was a period of time, (days or weeks), when the property was vacant.
Here’s my question:
Let’s say you evict someone…and immediately upon their being escorted off the property you enter the premises and find major distruction…is there still a problem with proving they did it…and holding them liable…what course of action can you take legally.
I’m not talking about scraping their security deposit…what other legal action can you take against them
Let's say you evict someone...and immediately upon their being escorted off the property you enter the premises and find major distruction...is there still a problem with proving they did it...and holding them liable...what course of action can you take legally.
If by “holding them liable” you mean that you want to have them arrested - yes, there is a big problem. The police will normally say that this is a civil matter and will refuse to take any criminal action. When I file an eviction, I always file a second cause of action to recover money damages. You can get a judgement against these people, but collecting is another matter. To actually collect, they must have a job or some property and you must be able to find them. EASIER SAID THAN DONE!
The insurance companies have a credit bureau type monitoring system called CLUE. When you file an insurance claim, they know it, and they tell all other insurance companies about it. Don't think of collecting an insurance claim as compensation for a catastrophe, think of it as a loan that they will make sure that you repay by increasing your premiums and deductibles. I believe that it would be better to eat this one and keep it a secret from the insurance companies.
The only way to use property management to prevent this kind of thing is to screen and hopefully the crazy drug addicts show up on your radar. Usually guys like this end up pissing the wrong person off and the godess of karma steps in and avenges all wrongdoing.
$10,000 worth of damage is well worth claiming on your insurance. Despite increased premiums, the ‘recapture time’ will be in the years for the loss. Not claiming losses of this magnitude for the ‘fear’ of increased premiums is rediculous.
Even if her premiums went up $1000 per year on the properties that’s still 10 years to recapture the loss (not even counting the loss revenue from investing the funds you paid out on the $10,000 repair).
Anyone that advocates paying for the damages out of pocket needs to breakdown the numbers because I can see no way that the recapture time would be anywhere near reasonable enough to advocate not claiming the loss.
cash out as well?