(one more for the annals of, “I know, you guys told me so…”)
A few months ago, I highlighted the college real estate deal I did with a partner whereby I borrowed from my 401(k) to finance a decent-sized deal on 5 houses on a college campus. At the time we bought, we had assurances (and signed leases) that the houses were all booked for the upcoming 2012-13 school year. This was a big selling point, in that we wouldn’t have to jump right in and try to fill the houses for the next year, that the work was largely done for us already.
Fast-forward to March 2012. For most of the houses, the same students that are in the house this year were signed on for next year as well. A few weeks back, a few tenants started highlighting various financial and scholastic issues to the property manager. We then got a formal notification from the house that they want “out”. They said they can’t fill the house next year and don’t intend on renting it next year. Regardless of their reasons and personal situation, we DIDN’T promote the house all year and this late in the year, it’s going to be tough to fill 5 kids in a house.
What the Lawyer Says….
Continue Reading Tenants Breaking a Lease
Not to be a prick, but have you calculated what you would have made by keeping the money in your 401k versus your real estate investment so far.
Not to be a prick either, but if something sounds too good to be true…. I have several friends who are landlords-it ain’t that easy, and they’ve been doing it a while. College students are notoriously flaky tenants-been there, was that. Smarter money might be renting to military families. At least they have job security, and Uncle Sam is pretty accomodating about attaching their paycheck, thereby rarely making it necessary.
haha – not pricky at all! So, 401K is probably up about 15% since fall. Incredible run! But hey, it’s all about diversification and this is a 10-year endevor. I think few would agree that we should expect double-digit market returns annually. Fortunately, we bought 5 units and this is just one giving us a hard time. So we will still be in the green on the year, take distributions, have some nice tax benefits, etc. – but not the 20% cash on cash returns in year 1 initially projected, that’s for sure!
Darwin
You could always use the Goodfellas method of generating a healthy ROI. A little gasoline and a match.
Just find another tenant, maybe write a very nasty letter… lawyer’s right here. You’ll get hammered at the end of the day.
Hmmm. College students. Rental….
Ever hear of co-signers?
I was a landlord once. Never again! Too much stress.
Seems to me you could sue them in small claims court. You act as your own lawyer and fees are low. Venue would be where the contract was signed I believe. Failure of the tenants to show could produce a summary judgement in your favor. Collecting could be tough and take time. Once the lease is broken, I believe you have an obligation to rent the property ASAP as suing for future rents could prove difficult. You will not be awarded anymore than is reasonable or specifically in writing. I’m not a lawyer but I did sleep at a Holiday Inn Express last night!
YMMV
I_S
“Collecting could be tough and take time. ”
– I_S
That’s the kicker.
Rent it out as soon as possible, Darwin. Eat the month or two lost.
I don’t mean to be a prick…
But I hope you realize why you should think twice about raising rent on good tenants now.
Agree with IS.
Small claims court – in the district where they live – may be your best bet.
We did it – but you have to prove damages – which are really tough.
We took a tenant to small claims – he lived in Yonkers. He’s an elderly man, showed up in court with a walker. Mr. Malone could see the writing on the wall – and jumped at the chance to negotiate a settlement directly with the tenant and his wife. Especially since the judge was blind and wore a yamaka. Not kidding.
They paid us about $4,000 over 4 months. No legal fees and just a day off from work. So Small Claims worked better than protracted legal action ever would have….
In our case – we wanted the money – but most of all we felt it was important to hold the tenant to his obligations. He walked away from his lease on a whim – no good reason.
That was the real reason we went after him. So you may want to try it – good luck!
I’m looking at this from the other point of view, because at the present time I am a tenant. I am renting a house with a 2 year lease that I signed in October 2012. I am looking at a new job back in the state I just moved from in October because my current job is not at all as it was advertised. I have not discussed this yet with the landlord. I figured worse case, I’ll end up paying rent until he gets another tenant in here, but what if he really doesn’t try too hard to get someone in the place, am I obligated to pay rent on a home I do not live in for the next 1 1/2 years? The house in question is one where the owner intends to move back into after the lease is up – he is out of state for work until then. I think the owner is a reasonable person, but who knows- he might really need my rent to pay his mortgage.
@TJF:
Life changes, but you made a commitment and your landlord is counting on your rent to cover the mortgage.
He’s only renting a house he plans to live in later – because he needs the money.
So, to be fair, once you know you have to move out of state and have a firm job offer in hand – call and speak to him. Be ready to offer some solutions.
He’s going to need time to get somebody else in – and you can’t afford to pay rent on a home you don’t live in.
So best to be honest and inform him of your plans as early as possible. That will minimize the damage and help you cut a deal.
You may want to offer to pay 4 months rent – amortized over 12 months – which will help him with expenses, but not lock you into a long-term commitment.
Good luck.
@Mary,
I will definitely be upfront with him as soon as I have something definite. I have some possible solutions I will offer him already and am not just trying to walk away from the lease scot-free. If I was that type of person I wouldn’t have recently depleted my savings account to payoff my underwater mortgage. I hope he can get another renter lined up and get the place rented quickly if I leave, but based on the area and rent, it may take some time. I am ok with paying him a fair amount – that is my intention.
Darwin, you need to talk to the attorney again. Most states have a stipulation that forces a landlord to attempt to mitigate their damages. As in re-renting the unit, or at the very least trying hard to do it.
In order to collect you would have to show that you made every effort to re-rent this place. As your tenants were not marketed, you will have to show the judge you really, really tried. A Craigslist listing probably won’t cut it.
I’m sorry you find yourself in this situation and other than mitigating your damages I only have one piece of advice, play hardball and you can expect to increase your outlays. Unhappy tenants tend to destroy your house, to a tune of much greater than deposits or even their ability to pay. Ever. What good does a judgement do you if these kids can’t find better than part-time/minimum wage jobs. A min wage job is under the garnishment level, you wouldn’t get anything anyway.
Call the college and see if they have a department that assists with off-campus/dorm housing. See what you need to do to get this listed with both returning students, faculty and the soon-to-be, newly enrolled.
Good luck, dealing with people is hard enough. Dealing with them when you are always looked upon as the bad guy is a bitch.
Cause ALL businessmen, especially landlords, are raking in the dough, running slums and screwing their tenants, customers and employees. Strange you didn’t know that, because the rest of the country, including the government, does.
@TJF Didn’t mean to suggest you were gonna bolt. Sometimes nuances get lost in online comments.
Good luck in your new job and congrats on turning a new page.
Hi TeresaE – I am certainly doing what I can to fill the place now – signs out front, flyers on the campus, campus newspaper, craigslist, website, etc. However, there are still a few other open houses on campus and we’re not getting any serious calls (like a random non-student which is useless – have a fill a 5BR house). So, I’m just looking at the difference between getting these kids to lease up with their 4 they can muster up, even offering them a discount… versus have an empty house all year and having to come up with damages a year later and chase them through the court system.
At the end of the day, they should never have signed a lease 9 months in advance and then notified of intent with 7 months after that leaving us in a lurch. Pretty messed up.
Evening Darwin, take pics of signs, keep receipts and copy of ads, every little bit helps.
People suck. Many (most?) young adults really suck. Then throw in that this generation has been parented by the parents that beat the shit out of coaches and show up at crime scenes yelling, “my kid wouldn’t do this!” and you get really lousy outcomes.
I wish you all the luck in the world, if I had a four leaf clover I’d send it your way!