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...

Foreclosure Papers Filed For Louisiana Property

When I last wrote about the Louisiana commercial property I'm invested in, the buyout of "Joe's" interest in the property had fallen through and he was once again late on his payments. We (the other mortgage investors and myself) had decided to start the foreclosure process as soon as possible.

I received word yesterday that the process has begun. On September 15, Joe was officially late for the September payment and late fees started accruing. A 10 day courtesy letter was sent to Joe in September via certified mail telling him he was late and had 10 days to become current.

Later in September, a 10 day demand letter was sent, letting him know we will foreclose unless he makes his payments. That ten day period just ran out and yesterday our attorney filed the foreclosure paperwork. We can now legally pay the building management company, whom Joe has also not paid, and include that in the amount Joe owes us. Same thing goes for the utility companies, who have also not been paid and are threatening to shut off the power.

Our mortgage specifies a 45 day foreclosure period, so if all goes smoothly, we will own the property in a month and a half. It will not go smoothly. Joe will try to fight this with more delaying tactics, possibly including filing for bankruptcy. Whatever he does, financial control of the property is no longer his, so we can take steps to get everyone paid up and happy again.

Real Estate Slowdown Hurts My Cashflow

For the past four years, I've had some investments in four LLCs that flip properties in the San Francisco area. As you might have guessed, 2004 and 2005 were pretty good years for these investments and every couple of months, I was receiving checks for hundreds of dollars - and sometimes over a thousand. Now, however, the resale market has slowed down dramatically. Instead of the checks for $1,000 or more I was getting, the last check I received was for just under $20. And yesterday, for the first time since I've been invested in them, one of the LLCs did not distributed any money at all this period. The LLCs have not been able to sell some of their properties and so they have instead rented them out, so at least they are generating some positive return. But the particular one I got info on yesterday sold a property for a loss, so even the small rental income was offset by the loss.

I'm glad I decided to stop my investment at four LLCs. At this point, I think I can get a better return purchasing property and renting it on my own. (And, in fact, I bought Rental #1 instead of investing in another of these LLCs.) Now I just have to wait until the term of the LLCs is up (between one month and one year) so I can get my principle back for use in other investments.

Got The Bug

I'm feeling the urge to buy another rental property and the blame lies squarely at the feet of Trisha for recently posting about two properties available in Tulsa. The problem is I am looking at a lot of upcoming expenses in the near future - we need a new bed, we're traveling for Thanksgiving, Christmas shopping time is quickly approaching, and next year, we're going on a cruise. The cruise is a birthday present for my 40th birthday, which will also be next year, but we will be paying for the shore excursions, and those add up quickly. Not to mention the costs of buying souvenirs at all the places we visit!

But I want another rental! Santa, are you reading this?