Austin Eviction Aftermath and the Cost of Rental Property Turnover

Last Tuesday my tenants did not show up at Eviction Court, so I was awarded possession of the property. Afterwards, I immediately drove to the property to find it trashed, as expected. I own this particular property. The tenants had lived there since 2001 and had been good tenants until about a year ago when they started having payment problems. I worked with them as best I could. They would fall a month behind. Catch up. Fall behind again. Catch up. And it became a cycle that I normally won’t allow.

But after I discovered they had their deadbeat adult son living there, and he mouthed off and cussed at Sylvia when she knocked on the door last month to see if they were still living there (after we again received no rent and no communication), I decided to call it quits and I initiated the eviction process. I knew in doing so I would be incurring now a fairly expensive makeready and turnover expense.

This brings me to a point I always try to make with prospective investors thinking about buying their first rental property. If you can’t afford to take the occasional big financial hit that can happen to any landlord at any time, don’t buy rental property. As I walked through my home, strewn with abandoned belongings, including a wrecked motorcycle left in the garage, I concluded quickly by rough estimate that I was looking at a very costly turnover, probably up to $12,000 depending on what I ended up doing on the rehab. This house will need the full treatment.

How did I arrive at $12,000 of the top of my head? I’ll itemize it below:

$2300 = Lost rent prior to the eviction.
Almost two months lost rent because I was slower than I normally would be due to my long-term history with the elderly tenants and hoping they would come around. A managed property would have been dealt with much sooner, so I broke one of my own rules and it cost me almost an entire additional month of lost rent by being slow.

$1250 = additional lost month of rent for rehab and marketing time. Could be more if it takes 60 days to lease.
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$550 = Trashout and hauloff. Filled one 16ft trailer completely full.
$2,000 = Interior full paint. Needs walls, trim, doors. I figure about $1 per sqft plus 10%.
$4,000 = complete new flooring throughout, carpet, faux wood, hard tile in master.
Now is the time to go ahead and redo the master bath and shower with some really nice tile to replace the old sheet vinyl and plain white shower tiles, which both look terrible at 12 years old. This will make it easier to rent and is a justifiable upgrade for me personally.

If I wanted to, I could simply re-grout the shower, go back with all carpet and sheet vinyl and the cost would be about $1500 less.

$300 = Utilities. I always figure about $10 per day on vacancy. It’s just a rough estimating method I use.

$800 = New window treatments. Now is the time to upgrade the 12 year old miniblinds to newer ones, and also add some upgraded faux wood blinds to just the master bedroom and living area. Again, bringing the property up to a higher standard than before and making it more desirable to prospective renters.

$500 = Full day of Maintenance/Reapirs.
Going though all the mechanical components of the home and addressing any issues. Could be more if we run into something such as needing a new water heater, replacing a dishwasher, etc. It’s a 12 year old house so some of the components may be ready for replacement.

$100 = Rekey the locks
$1,000 = Miscellaneous Other stuff. Add 10% to the above total.

$11,500 = Total Estimated cost of this rental property turnover.

This doesn’t include the cost of my time, which is lost productivity, and I will write another blog article that recaps all the phone calls and trips to the property that a turnover like this requires.

Now, if I were a novice investor who bought this property zero down two years ago, and didn’t have the resources to take care of it, I’d be crapping my britches about now because the Property Manager just called and said I need to mail a check for $5,000 to get things started and will need another $5,000 to $7,000 in a couple of weeks. If you’re not ready for that phone call, as rare and unlikely as it may actually be, don’t become a rental property owner.

The above $12,000 turnover cost represents about 10 months rental income for this house. We tell investors that you MUST, at all times, have 6 month’s rental income set back in case you hit a rough patch with an eviction, costly turnover and/or extended vacancy.

The truth is, if this was a managed property, I would be able to keep the total cost at or about 6 month’s rent by skipping some of the discretionary upgrades and improvements. We also would have filed the eviction a lot sooner if it were someone else’s property.

But is $12,000 really the true cost?
There is also another factor to this equation, which is, I’ve spent very little on this property over the 7 years I’ve owned it. I replaced the air handler and I think the dishwasher if I remember correctly. Other than that, nothing but routine preventative maintenance.

This tenant was in the property when I bought it, so until now, I’ve not had any vacancy or turnover costs. So even though they are creating an expensive turnover for me now, they actually saved me a lot by staying in the property for so long.

In other words, had they moved out after the first 12 months, and if I would have had 2 or 3 additional turnovers in the following 6 years (which would be normal), the cumulative amount of those turnover costs might very well have exceeded what I’m going to spend now.

We prepare investors to expect every turnover to cost 3 to 6 month’s rent in vacancy loss, leasing expenses, maintenance and repairs, etc. Having avoided any turnover in 7 years, I’m ahead at least 1 to 3 turnovers, which would have been been $3600 minimum (one 3-month-expense turnover) up to $20,000 (three 6-month-expense turnovers) worst case scenario, spread out over those years.

So, in that context, as brutal as this $12,000 tunover expense may seem, in the long run it’s actually not bad, and I get to knock it out all at once.

But a rough eviction and turnover like this does not always follow 7 years of no turnover. An ugly one like this could theoretically happen two years in a row, and I’ve seen it happen.

Posted by Steve
8 years ago
Steve

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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Stephen L Reed - 8 years ago

Hi Steve. Your new site is great and I like your photos.

My wife and I own four rental duplex properties in Area 10, South Austin. I just went through a similar experience with a tenant in our first property. We inheritied the tenant when we purchased. Slow payers – numerous late fees and payment arrangements. They were chain smokers and slobs. We finally got fed up after four years and refused to renew the 2007 lease in December. The single mother requested a one-month extension to move out, leaving her drop-out son and his friends in the unit. Meanwhile I knew the property was trashed because they resisted my need to perform routine mainenance and inspection due to the home being ‘too messy’. As they were paying the one-month extension week by week, 4 days after the first missed payment I posted a Notice to Vacate. After 24 hours I entered the abandoned property fo find great piles of trash, ruined appliances, holes in all walls, etc.

My wife and I had planned a rennovation anyway because rents are strengthening in close-in South Austin and a clean unit justified at least a $50 dollar a month increase. My trash hauler moved out six pick-up loads of trash, including all the carpets and yard junk. Presently we have screened tenants paying on time and the property for the moment is at the normal level of property management effort.

My takeaway from your post is (1) to plan on rennovation after problem tenants, setting aside in advance the funds (2) post a Notice to Vacate early in the missed rent payment cycle to optimise the unit’s cash flow.

Cheers.
-Steve

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Steve - 8 years ago

Hi Stephen,

Thanks for you comments. You seem to have realistic expectations about owning rental property. That’s really important.

You wouldn’t believe over the years how many owners we’ve encountered who seem to believe that they should never incur expenses. Some are luckier than others in the short term, but over time, even the most fortunate landlords will have to spend serious money replacing a roof, replacing HV/AC, paint/carpet, etc.

Some actually seem devastated, as if the possibility of an expensive turnover never entered their mind.

I know of one investor (not our client) who bought multiple properties (more than 5) in Austin with low down ARM loans a few years ago. They were all lost to foreclosure as he couldn’t afford to own them once the turnovers started piling up.

This is why we are fairly blunt with our approach to advising anew investors. We want to make sure they know the extent to which owning a rental property can expose you financially.

Steve

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Scott - 8 years ago

Steve

First, I like your redesigned website.

Secondly, I don’t own rental property. With that said I always appreciate how you are always trying to assist homeowners and rental property owners. It’s nice to have such a great resource here in Austin. My realtor is equally as helpful and I make it a point to treat her with a high degree of respect.

Finally, I always appreciate your analysis of the real estate market and I hope the new MLS software bugs are being worked out.

If you ever need a fire protection engineer send me a e-mail.

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afraid of retaliation - 8 years ago

Why I appreciate your troubles with some renters, I would like to see you cover the importance of being a responsible and honest landlord as well. For example, Windridge Apartments, now known as the Ridge over Barton Creek, has an elevator that has been broken for 16 months. There were no concessions to the tenants, just a letter in the 2nd month warning that rent must still be paid and stating that “extreme efforts” were being made to repair the elevator. It turned out the management had not even contacted the elevator company. There was a lady in her 90’s up there who couldn’t leave for months while she waited for the repair. These apartments are “professionally managed” by Westdale Mgmt out of California.

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Robert G - 8 years ago

Hi Steve and Sllvia
Love reading your blog.
I have a management co. manage one of my properties and it took the management co. a full month to start eviction and I had to asks where is the rent before she did anything. It took 3months and lots of maintenance to get it back in shape. That was my first rental property and first tenant. All was well for nearly a year till the couple broke up. I’m an out of state owner, luckly I had my realtor to help me get it back in shape and rent it out again. We obviously got rid of the manage co. once the eviction was finalized

Do you recommend setting up an LLC for property owners?

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Toyn - 8 years ago

We have vacation properties which are a little different. We charge higher rates and expect much lower occupancy (about 30-40%). I budget 2%/year of the total cost of the house for routine maintenance. By my calculation, by saving all that maintenance until after 7 years you actually came out ahead.

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Kristin - 8 years ago

Wow. That’s really awful. I’ve never actually read anything from the perspective of a landlord who has gone through this — you always hear stories from the other side. Sorry you have to deal with this. : /

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Dave - 8 years ago

Steve, do you know if a standard homeowners policy for a landlord covers any of these expenses? If not is there additional insurance that can be purchased? -Dave

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Virginia - 8 years ago

I have a couple of rental properties and am going through the eviction process right now. Is there a way to report the unpaid rent and damages for other landlords/prop. managers to see? Has anyone ever collected rent due after a tenant has moved out?

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Steve - 8 years ago

Hi Dave: Insurance will cover things that are obvious criminal vandalism of the property. I’ve had only a few over the years that rose to that level. Insurance will not cover a tenant simply very rough on the property and leaving it trashed and banded up.

Virginia: If you join National Tenant Network, you can report your tenant through them. They will already have the eviction because they track and report those. Also, make sure to get the abstract of judgment on the tenant after the appeal period (5 days) ends. That will cause the debt to be picked up through credit bureaus.

Steve

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Jim - 8 years ago

I’m a first-time landlord and have begun my first eviction process a good 3 months into my first tenants! I live out of state. Am I able to have my folks (as property managers for me) speak on my behalf in court, or do I as the owner have to be there in person. Also, what are the odds that the judge would include my travel expenses when determining what the tenants owe?

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Steve - 8 years ago

Jim: Yes, your property manager can rerpesent you for eviction hearings. The judge will not award you travel expenses. Getting to court is your responsibility if you live out of state. The eviction hearing is to determine 1) who has rightful/legal possession of the property and 2) how much is owed in rents. To receive attorney’s fees, you actually have to hire an attorney. The court will award you court costs if requestsed at the time the eviction is filed.

Steve

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