Monday, October 08, 2007

Rental #1 Tenants Have Given Notice

My management company told me today that the tenants in Rental #1 have chosen not to renew their lease, which expires on November 1. This stopped me from making a decision I wasn't really looking forward to making - should I continue to rent to them or not?

The reasons for not renting to them were fairly clear - they paid their rent late several times. Given that the management company keeps the late fees, there is really no benefit to me to accept late rents. I also just didn't get a good feeling from the tenants. First, when I bought the property, the people paying the rent were not on the lease. I corrected that. There were a couple of times when I needed to have people contact them, and the phone number I had sometimes worked and sometimes didn't. To me, that means they are having trouble paying their phone bill.

The reasons for continuing to rent to them were also clear. The holiday season is coming up and it may be hard to find a tenant. And, of course, the evil you know is better than the evil you don't. Who knows what kind of tenant the next person might be.

There was a middle course I could have taken. I could have offered to continue to rent to them on a month to month basis. This would get me through the holidays (assuming they agreed to this and continued to pay their rent) and still let me get rid of them easily if I needed to.

In the end, the tenants made the decision for me by opting not to renew. It's funny, but my first thought was to be offended. I felt like their decision was a reflection on me personally. That somehow, I didn't have a nice enough house for them to live in. Of course, this is not true at all. I remember from my days of living in rentals that the decision to move rarely has anything to do with the house, but more with financial and / or employment issues. And renting property is purely a business for me, so I need to keep all personal feelings out of it. Still, it's funny how that was my first thought.

So the bad news now is that I could be left trying to fill the property during the holiday season. The good news is I might be able to raise the rent for a new tenant. I've asked the management company to raise the rent if they feel the neighborhood and property warrant it. One thing in my favor, through a little quirk of scheduling, is that I might not even have to face a mortgage payment without rental income! Due to my refinancing, I gained a month without a mortgage payment. (Actually, I didn't. The payment was just made in escrow instead.) What this means is my rental income goes towards paying my next month's mortgage. In other words, the October rent I receive pays my November mortgage bill. So if the place rents quickly, I won't even see a blip in my cashflow. Of course, that's a big if...


Steve said...

Shaun, I think in the end, this was the best thing that could happen. I've often heard that house BUYERS tend to opt more for the summer months, while house RENTERS are year around. That, coupled with the other goings-on in the housing market, makes me think you won't have too hard of a time finding new tenants.

Doug o said...

While it differs from place to place, I personally couldn't care less when I have a vacancy, as I know there are plenty of tenants looking at all times of year...
If I have a vacancy Dec 1, it has as much of a chance of being re-rented as does a May 1 or June 1 vacancy... No big deal, just have to make sure the unit gets marketed properly..

Terry Sprouse ( said...

I like your perspective that you can just raise the rent when the tenants move out. Everytime I've had a tenant move out, I've raised the rent. Its a great time to have rental properties, at least in Tucson. Rents are really rising.

I had a tenant earlier this year who was paying late, but I didn't mind so much because he'd always paid a late fee. If he'd pay two weeks late, I'd get an extra $108 per month, at $7/day. As you might guess, the tenant disappeared without paying the last month's rent. But, considering all the late fees he paid, I feel I still came out ahead overall.

I like your blog.

Terry Sprouse

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