Tuesday, December 1, 2009

This Show Misses One Important Point …

Do you ever watch HGTV? My wife and I enjoy most of their shows. She gets into Design on a Dime and My Parents’ House. I’m more inclined to watch House Hunters International and Bang for Your Buck. But there is one show that I think gives homeowners the absolute worst advice by omitting one all-important fact … The Income Property series shows how to turn a basement or other space attached to your home into a desirable cash cow. The show’s host, Scott McGillivray, does a heck of a job, too. He makes maximum use of the square footage, gets all the permits and produces a first-class product. The homeowners are always thrilled with how he turns a damp, dingy space into a beautiful rental unit. Yet no one talks about what happens afterward … Scott shows them the numbers: How much more the home should be worth, how much they should get in rent each month and how to word their ad. Next, the homeowners have to put on their landlord’s hat, which is what Income Property leaves out. I’ve owned and managed rental properties for over 20 years. And I’ve made my share of blunders. So I can give you firsthand experience of what these first-time landlords could realistically be in for. Imagine renting your freshly-finished basement apartment to a couple of college students … say two women … at the beginning of the school year. They work part-time and can easily come up with first and last months’ rent plus a security deposit. You run a background and credit check on each. No problem. You even call their parents. You lay down the rules: No smoking, no overnight guests, no pets, no loud music, etc. You have them sign a 9-month lease. September, October, November and December checks come in on the first of each month. “Wow, this is sweet,” you tell yourself. In January, however, there’s a bit of a problem. Christmas bills have caught up to the girls, and they can only afford to pay half. But they say that they’ll get caught up by the end of the month. It happens to everybody … the post-Christmas cash flow crunch. February rolls around and they’re still behind. Car problem this month. Plus there’s another little kink: One of the girls is moving back home ... misses her family. But not to worry, the remaining roommate has the perfect replacement. You meet the replacement. Seems nice enough, has a job and gives you cash to cover the past due rent. Things are looking good again. However, three weeks after she moves in, your driveway is packed full of cars when you leave for work in the morning. The neighbors across the street are complaining about the beer cans thrown in their yard. And you swear that you heard a dog’s barking coming from the basement while you were sitting in your living room watching TV. You speak nicely to both girls. They apologize. But the same thing happens the following weekend. You get a little firmer with them. Doesn’t work. Now you’re pissed. You remind them in writing that them must knock it off or move. Things calm down over the following week. But they’re a month behind on the rent. Then one day you get home early and decide to peak in the basement window while no one is there. The place is a pig sty! You never knew that two women could trash a place so badly. And there’s a big white mutt of a dog asleep on the brand new couch you bought. Now you want them gone. You confront them both and give them two weeks to get out. You feel better now. The two weeks pass. They haven’t left. You confront them again. They have no place to go, they say. Plus one has lost her job. So no rent money for you. This saga could go on and on until you go through the court system to evict these tenants, which could take a month or two. In the meantime, they’d be enjoying the beautiful apartment you built, rent free, just below where you live! How stressful would that be? I realize, of course, that property management is beyond the show’s concept. The producers want to show readers how to turn chicken s*** into chicken salad, which is certainly fine. And they do it quite well. The point I’m trying to make is that owning a rental property is a whole lot more than spending tens of thousands of dollars to convert your basement into a hip apartment and waiting for the check to come in each month. And having tenants, whom you very well may have to do battle with someday, living right under your nose is, in my option, just not worth it. Best wishes, George

No comments:

Post a Comment