We’ve written about this before, but many people don’t believe it will happen to them. Well, we’ve put together some photographic evidence of what can happen to a new home, after tenants have had their way with it.
Example 1: These floors are only 6 months old:
The tenants in this home not only destroyed the hardwood, but they also ruined the carpet, the kitchen cabinets, the lino, broke the screen door and wrecked the paint job. All in 6 months! Estimated damge – $8,000-$10,000!
Example 2: Last September, this home sold on the MLS, it was in picture perfect condition. Now it looks like this:
It’s hard to see, but there are actually three shopping carts in the front yard with garbage in them. Note the strange colouring on the garage door – I don’t know what it is or how it got there but it looks a bit like rust. The grass is not just weed-ridden, it’s dead. There are sheets stapled up in the windows. I can only imagine what it looks like inside.
Don’t get me wrong….there are properties that are meant for tenants, and there are also good tenants out there who won’t destroy your property. But 99% of tenants won’t take nearly as good care of your home as they would their own. The point I’m trying to make, to all those people in Edmonton who own brand new homes that they intended to flip and now stand to lose money, don’t rent out a brand new home! You will end up losing more money since you’re going to have to replace and repair half the things you just paid to have brand new!
Looks like a great learning experience for someone that thought they could be landlords without properly screening or bothering to check up on their property.
As a long-time landlord I can tell you that you can get burned, background checks or no. A question of when, not if. It’s all part of the fun.
If you have a house that would sell under $350000 it could be a rental. If over that forget about renting. The choice about renting comes down to if you wish to be a landlord for 5+ years. Set the rent slightly lower than the comparables and do a credit check it is amazing how prospective tenants lie. http://www.rentcheckcorp.com is what I use. If you can not afford the damage that may occur don’t get in to the rental game. All my houses are really nice and stay that way because I choose tenants that could qualify for a mortgage but lack good down payment or believe the market will come down. If you rent to a sob story you will be the next one. It really depends if you believe the Edmonton market is a buyers market or a finished market. If you were to buy a house for a rental it would make sense to buy a older place as if there was major damage when you renovate you will add more value instead of bringing back to original. Being a landlord can be a lot of fun. If you loose $500 a month not so much fun. Tenants are just like employees try to pick the good ones. A Lot of very wealthy landlords did not get into the business by choice. Think about how smart you will look in 10 years. But in 1 year you will look like a fool.
We don’t do that
***Comment removed. Offensive and false. See code of conduct.***
So you have to refinsh the floors, do some cosmetic repairs, the damage deposit covers a bit. So it costs you a couple thousand maybe. What does it really cost you if you “dump” the property in a buyers market at a low low price, could cost a hell of a lot more. Think long term people. Not giving a quick jolt to a realtors pocket book. Look at the big picture. Rent it out for a couple of years. Don’t follow the herd and sell when everyone is selling. You got into this mess following the herd, the herd isn’t going to get you out of it.
Realtors have lost their connection and trust here, calm the panic, Realtors can be very very good and we need good ones to keep people level headed in rough, or too good of times. The lack of good Realtors here, shows…
I have several rental properties. None are new, though new would not put me off – fewer maintenance issues etc.
However I got good advice from a mentor when I first started. Don’t ever put down wood/laminate floors – lino and carpet are far easier and cheaper to replace when each tenant leaves.
I have several rental properties. None are new, though new would not put me off – fewer maintenance issues etc.
However I got good advice from a mentor when I first started. Don’t ever put down wood/laminate floors – lino and carpet are far easier and cheaper to replace when each tenant leaves.
cripes,
You say “No panic in Ft. Mac or Kelowna, where Realtors keep a strong foothold on things and do their job.”
I beg to differ on Kelowna
http://www.greaterfool.ca/2008/10/09/crashing-in-kelowna/
How about Ft Mac Brent? Are they panicked?
I think some of the people who have commented on this post obviously have not been reading this blog for very long. Sheldon and Sara are constantly putting as much information out there for the sole purpose of educating people so that they can make good decisions. I purchased a property with Sheldon over a year ago and am renting it out, he was aware of that when we were purchasing and advised us of our options, and in his PROFESSIONAL opinion the best choice. He has repeatedly offered to assist us in any way – and yes you are correct when you say that he would not profit in any way from this – he did not say that it could not be done successfully but that renting a new, completely redone house is not a good investment. And I think this is evident if you look at the experts, rental comapnies do not put high end finishes in their apartments, and usualy there is someone on site to notice when the tenant is doing more harm than good which is not the case with houses. If you don’t agree with this advice, I can accept that, but attacking someone who is trying to educate the public, regardless of whether he profits, deserves a little more respect and courtesy. Thanks for all the hard work Sheldon.
The bottom line is this:
The 20000+ suckers who bought homes since the peak are gonna do what now?
The realtors told them “now’s the time to buy” pitch.
What are they supposed to do now Sheldon?
Have their homes sitting empty while they pay $4500 per month on that $0 down, 40 to life sentence?
Or…if you’re so confident about the Edmonton market, just buy them and sell them. After all, it’s fair to say that you’re the professional and since that Marc Perras says that there’s a surge in home sales, go ahead. It’s a balanced market after all!!!
So?
***We didn’t “tell” any of our clients to speculate on a new home. In fact, we had many clients who wanted to speculate during the “boom” and we advised them NOT to. Some listened, some didn’t – we don’t have control over how people spend their money, just like we don’t have control over the market. Thanks for thinking we’re so all-powerful though. Sara.***
This is a gross overgeneralization. I know renters who care for their property FAR better than “owners” (if you want to call someone who won’t actually own the home for 40 years an owner that is…) For every renter wrecking a rental property there are three homeowners with unkept lawns, curling shingles, pets destroying yard and carpets and flooring… ths list goes on. Renters are more often than not decent people who really prefer to get their DD back. Some even do minor repairs to keep the place up and say nothing about it. There are also new landlords who have tried to charge people for scuffs in flooring or painted surfaces that are not damage at all but basic wear and tear – these people want the “brand new house” they rented years back, but are too inept to understand why they are charging $2000/mo for rent. They want to put $0 back into the place after the renters leave and this is just as unreasonable as renters who do needless damage. There is something called fair use and reasonable wear and tear. If you want perfect, my dear new landlords, then eat the carrying costs of your flips and don’t rent them out. But no, you want the best of both worlds it seems.
Now let’s do some math on Sara’s advice here…
Throwing away three shopping carts of garbage and fixing some hardwood is probably worth 1 months rent – plus you get to keep the DD in this case for blatant damage. (Were they wearing SKATES in the living room?) But the idea that it is either better to sell in a buyers market or just hang on and bear those carrying costs at ALL costs to avoid some (minor) damage is probably the single WORST advice I’ve heard in the last three years on any blog anywhere.
Just my $.02
Cheers,
E-town.
***E-town. My advise is specific to NEW homes. When you buy a new home, you pay a PREMIUM because everything is new and in perfect condition. You are throwing away that money when you put renters in because of the wear and tear on the NEW features of the home. In the case above, with the hardwood floors, the owner is looking at $7000-$9000 in damage after only 6 months. She would have been FAR better off selling the home when she took possession than putting renters in it. Not all renters are this bad, but in general you’re much better off having an older home for a rental than a brand new one. Sara.***
Squiddly77,
You are wrong and (offensive) to say 20000+ sucker….who bought….
When you buy anything, you pay the price of the day.
It was impossible to tell a year ago that prices will go up or down.
Try to understand that many people want to buy a house for home for their families and not investment and they happily take residence in them.
Motor vehicles, Boats, TV sets, furnitures
etc. immediately lose values -as much as 40 % – up on selling and people still buy them.
E-town is an unhappy renter in E-town.
under 2 hours for the “bitter renter” comment to come out, not bad.
I can’t help myself but…
As a landlord (25 years) who is asked for advice from want-to-be landlords frequently, your post is absolutely right on! There will be a lot of tears shed by owners discovering the damage and financial loss resulting from renting out homes intended for sale.
Posted by: Gus | June 09, 2008 at 02:20 PM
…I told you so!
Karl:
How do YOU know whether I rent or “own” or what my financial position in life is? For all YOU know I make more on my smoke break than you make all day. Hint – my chargeout rate is $130/hr and I work in engineering and I’m not tied to oil or tar like some other poor saps. I’ve been steadily employed in THIS town for over 20 years.
Anyways…
I am just saying for every inept renter there is an inept homeowner. I’ve seen homes put on the market that were not only disgusting to LOOK at but were still visibly DIRTY. Old carpets “growing” in damp basements. Backyards used as dog pens. Paint colors that look like they were selected by a blind man. Cracked heaving sidewalks. Botched DIY tiling, paneling, siding or eavestrough work.
Yeah. Some of these so-called “homeowners” (read: dude with a 40 year mortgage) should really rent because they can’t keep a place up even with the Rona DIY task force helping them. And of course, they are as House-proud as the next person – they think their run-down dive should grace the pages of “Canadian Living”.
At least with rental properties there is accountability because the landlord is eventually forced to do repairs. But with homeowners, there is simply NO LIMIT to the amount of neglect one can encounter!!
The fact is that rental properties need to be priced to put money back into the property for maintenance and upkeep. The New Landlords just want the place to be “unused”. Now, I’m not saying Sara’s example is acceptable. Those clowns should get their DD revoked and sued for the difference! But people paying $1500 for rent don’t want to live like dogs either – that’s a lot of money. Why not keep the place up and *live well*? Isn’t living well what ones accomodations are all about? Or is it about having 100 more square feet than your neighbour and getting nicer toys for the driveway with your HELOC?
Ah, we all know the answer to THAT one…
As for who’s going to be bitter? I think those who bought before the peak but heloc’d their equity away or those that bought AT the peak are soon going to be far more bitter than ANY renter anywhere!
)
Cheers,
E-town
Sara:
Point taken and agreed. Sorry – it’s not bad advice then, it’s just a stark reality. If you’re talking about new homes being rented I agree. They’re too nice to rent out to anyone but those who know how to care for a place and take PRIDE in their place of residence – rented OR owned.
The trouble is how do you know how people live before you rent to them? Back when I rented I took pride in getting a 100% perfect out report every time. But I am strange for a guy, I can’t tolerate dust, scratches, coffee rings, pet hair, or ANY odor whatsoever let alone stuff that is completely trashed.
Then again, not everyone is an anal as I am! :p
Cheers,
E-town
I am surprised Sheldon and Sara get so much criticism for this post.
Why not take it as valuable guidance for future purchases?
As a landlord, I agree that it does not seem to make sense to rent out a brand new home, for many reasons already mentioned on this blog.
If you really WANT to be a landlord, you may be better off renting out an older home in a well-established, central area.
“LOCATION LOCATION, LOCATION” does not seem to apply to many of the new homes going up around the outskirts of the city, and that will be a factor when you try to sell in 10 years.
If you have to buy your property at a high price (which started at the end of 2005 and has not sufficiently changed yet), then your rent expectations may be too high to cover mortgage, taxes, and ongoing maintenance.
Your tenants may start out with the best intentions of keeping your property in good shape, but when steep rents start squeezing their disposable income, things may go south.
You could end up with tenants subletting to others to make ends meet. Hard to find out or prevent, especially when you don’t meet with your tenants on a regular basis and keep an eye on the property.
So far, we have been “lucky” with our rental properties and our tenants. We credit our real estate agent who was our mentor, when we started out.
A lot of that luck comes from having simple but decent houses in good locations; charging rents that are below going rates (and the tenants know and appreciate that); establishing a cooperative relationship with the tenants; fixing problems or addressing issues as soon as they are brought to our attention.
You can’t expect to put the house up for rent, cash in a cheque each month, and forget about the whole thing. If you are not cut out for problem solving, negotiation, and you are not able to fix minor repairs yourself, you may be better off investing your money in something else.
My in-laws were stressed out as landlords, and gave up quickly, years ago. They can’t understand that I actually enjoy the whole experience.
You need to really know yourself before you take on rentals. This can’t be your “fallback plan” in case flipping does not work out.
Well, we are a professional couple that can easily afford even a 600k+ property. However I am absolutely sure that the market will go down next year and buying now is just a waste of money.
So if there is an owner who believes that the market will go up, we can rent that nice new (up to 10 years) house in W or SW Edmonton for less than $1500. And probably even buy it out next year when we are comfortable with the market. Obviously the credit history is excellent and the house will be maintained as our own. Interested? Drop me a note at ohural at yahoo com
Response to MDM’s post:
“Your tenants may start out with the best intentions of keeping your property in good shape, but when steep rents start squeezing their disposable income, things may go south.”
Sad but true. But market value is market value. You don’t vandalize if you think your rent is too high – you downsize or move to a different city. But not all folks were raised the same!
“So far, we have been “lucky” with our rental properties and our tenants. We credit our real estate agent who was our mentor, when we started out.”
When I rented, I gave good landlords an easy time, took care of the place and even fixed up minor problems and always reported issues before they got out of hand. Landlords that played God? You bet I played bitter peasant! Attitude is everything when one is a landlord. Power trip on your renters or just “pick up the check” and never fix anything but expect nothing to ever break… well… you reap what you sew.
“A lot of that luck comes from
having simple but decent houses in good locations; charging rents that are below going rates (and the tenants know and appreciate that); establishing a cooperative relationship with the tenants; fixing problems or addressing issues as soon as they are brought to our attention.”
That’s not luck. That is good business.
“You can’t expect to put the house up for rent, cash in a cheque each month, and forget about the whole thing. If you are not cut out for problem solving, negotiation, and you are not able to fix minor repairs yourself, you may be better off investing your money in something else.”
Some of the “New Landlords” do expect this. I represented a friend who’s landlord (flipper) was trying to charge them all kinds of INSANE fees for wear and tear items. After I was done reading our “new landlord” the riot act, he shrank about four sizes and they got 90% of their DD back. There was really *no* damage, but only minor wear and tear. He *truly* expected to get the place back in the same shape the builder left it in, sans dust. Do car rental places expect to have a NEW vehicle after 2-3 years of renting it? NO! But some of the New Landlords think this way. They’re out to lunch greedy “Johnny Come Lately” flippers that have a loooooooot to learn about the game!
Nice post though mdm. See Karl? MDM has nice renters because he treats them like people.
Cheers,
E-town
Oh and one more thing:
Those “extreme bears” who think it’s never a good time to buy for any reason should be GLAD there are some people renting homes.
Just thought I would throw that in.
And yeah, if a 2 bedroom can get $1200/mo and a townhown can get $1500/mo + utils then a nice home is correctly priced at $1800-$2200/mo + utils depending on size and location.
I guess we could open up “Tent City II” for those caught in that perma-catch-22 where you can’t buy and you don’t want to rent from a flipper or Boardwalk.
I can see the attraction to the tent myself… And you get such colorful neighbours too!
Cheers,
E-town
Nice comments E-town and mdm,
But, I’m still pretty much in the dark.
The question is:
Should I or should not I rent my new house I just bought in the peak for over $ 450,000 ???
The other day I had 5 or 6 teenagers approached my house for rent, each had a case of 12 pack beer in their hands.
Today, I had a couple in their 70s
parked their Cadillac 4×4 in front of my house asking about the rental.
What should I do??
Can I hand pick my tenants?
Or should I just sell??
http://www.greaterfool.ca/2008/10/21/ice-anyone/
Don’t forget that Garth Turner is a communist and hates Canada and the whole free world. Other than that he seems nice?
What a strange reply car27.
Well, Karl. Since this is a temporary hickup until oil hits $250/barrel and the average SFH in E-town is a cool million bucks, you should NOT rent the house and just take out a HELOC and use it to pay the mortgage.
Sort of like an “Alberta Advantage” Ponzi scheme!
Since RE is an investment that always goes up, the house should pay for itself in about 12.4 years!
Get going! Scotia bank is about to close!
You’re richer than you think (TM)!!
Cheers,
E-town
To funny E !!
LOL
Karl,
hypothetically, with 5% down, 6% interest, and 35 years amortization, you would be looking at monthly mortgage payments of $2,550.
Add property tax and factor in maintenance costs etc, and your best bet WOULD be to turn this into a frat house shared by tons of students….
Down the road, you may then deduct your capital loss from any capital gains you may have realized elsewhere
What were you thinking (hypothetically)?