Friday, November 2, 2018

The Wrong Tenant Could Cost You More Than a Headache—Much More

Beyond the headache, having a bad tenant in your rental property can
cost a lot more than you think.

We like to help people with their rental properties; in fact, we have actually opened up a property
management company of our own. During our work there, we found that some landlords and
homeowers simply want to take the first few tenants who apply. But choosing a bad tenant comes
with a cost, soit’s important to be patient. Here’s a scenario I went through this year:

A tenant had moved into my property sometime in 2017. They couldn’t make it to the end of their
lease, and they ended up moving this past summer after about eight months. Honestly, it could have
been a lot worse than it was. One of the things that helped me was having good conversations with
my tenants because if they’re in any trouble, I want to know about it first. Even though it could cost
you money, handling these situations with grace will go a long way.

Based on that experience, here’s what a bad tenant could cost you:

- Three months of lost rent, to the tune of $6,300.

- Stress. I can’t put a price on stress, but it’s definitely a cost.

- Holding costs. I still had to pay my $3,900 mortgage.

- Turnover costs of about $2,500. This included carpet, paint, blinds, lights, and other small
repairs/replacements. If they didn’t have the money to pay the mortgage, then they didn’t have the money to hire a professional mover, and they weren’t the type of people to be gentle with rental properties.

- New tenant and Realtor costs. I had to list the property initially, and then again once he left, adding
up to $900.

- Advertising costs, which added up to $200.

I like to rotate my tenants seasonally, having their leases end in the spring and summer, since that’s
when most people are looking for a rental. But because this tenant moved early, I had to put a new
tenant in last month, and I won’t know what that will cost me until a few years down the road.

In total, this tenant cost around $14,000. Ultimately, the lesson here is to wait for the right tenant, even
if it takes an extra month or two to find them. An extra month or two of mortgage payments is a lot less
than $14,000 to turn over a bad tenant, and in certain situations, those costs can be a lot higher.

If you have any questions about property management or about buying or selling homes, feel free to reach out to us. Remember: You have the dream—we have the address.
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