Austin Landlord Tales – The Risks of Real Estate Investing

I belong to a couple of email lists for professional property managers. One is local to Austin. The other is National and includes over 140 owners of Property Management companies from across the U.S.

These forums provide a resource where Property Managers can ask questions, share advice, trade business ideas, etc. The egroups raise the level of professionalism and knowledge of all participants. No matter how long any of us have been managing rental homes, we all eventually encounter a situation for the first time, and we may need to seek advice or help from collegues.

Below I’m sharing a recent posting from the email list, then I will comment on it.

I have a tenant who is in the hospital after being beaten by her significant other. Her significant other is in jail, and their dog is still in the property. The keyless deadbolt locks are locked, and I just now was able to get inside the property to assess damage. We fed the dog (possible starving for almost a week) and met with animal control today. However, they cannot get a court order to remove the pet, because we do not have legal possession of the property. Pets are considered property, like furniture and personal belongings.

There is extensive feces damage on the floors, and this is a three month old property. Tenant has not paid rent, and the eviction was filed today. Utilities are still turned on, and supposedly a family member visited a few days ago to feed the dog, but was left in the home to poop, etc.

Have any of you been in a scenario like this? Can we remove dog and put outside instead of keeping inside the property? Can dog be put in the garage? Crated? What can we do to minimize more damage to the property? Any suggestions would be greatly appreciated.

How would you like to be the owner of this property? How would you like to be the Property Manager or Landlord? What would you do? Neither the TAR (TX Assc. of Realtors) Lease Agreement nor the TAR Pet Addendum address this specific scenario, so the Property Manager is in fuzzy legal territory and may have to justify whatever decision he makes to the Tenant, Property Owner, and/or (in the worst case scenario) a Judge.

My advice, for better or worse, was as follows:

I think the dog needs to be removed from the house immediately and taken to an animal shelter. Whatever fallout might happen from that isn’t as bad as letting a carpet that may still be salvageable continue to be damaged to a point it needs replacing. I don’t view it any differently than an ongoing water leak or other condition that, if not mitigated or stopped immediately, will cause greater damage to the property. If you’re worried about being sued, I’d say that the owner will have a stronger case against you for allowing the damage to continue than the tenant will have against you for removing the dog. Of course I’m not a lawyer and I could be wrong.

The other point this brings up is one that I repeat often to our investor buyers, especially those who make extensive use of spreadsheets that analyze investment scenarios to the granular level. Once something like the above scenario happens, you can toss your spreadsheet out the window. Your hours of analysis and projections don’t matter anymore. You may be looking at a cash flow hole equal to 6 month’s rent or more (after repairs, vacancy, lost rent, eviction costs, advertising, leasing fees, etc.) before the property returns to normal leased status.

In 5 or 10 from now, when looking back on whether your investment property turned out to be a good financial move or not, the biggest determinant of that outcome, aside from value appreciation, will be the amount of tenant turnover, vacancy and repairs you incurred, not whether the home rented for an extra $25 or $50 per month over other homes you were considering, or whether your spreadsheet produced 1% or 2% better projected return for a particular property vs. another.

This is why we advise investment buyers to first and foremost look for an investment home that will attract quality tenants in an area with better potential for 5 year appreciation. This usually correlates with closer in (to Austin) locations and/or better schools. Better tenants decrease (but don’t eliminate) the potential for show-stopper scenarios such as the one outlined above.

The downside for the investors who follow this approach is that their spreadsheet scenarios look less favorable than the scenarios we can achieve going into starter home neighborhoods on the outskirts of Austin. But, again, it’s the quality of the tenant you attract, and the quality of the location in which you buy – not the quality of your spreadsheet analysis – that will provide you the best chance of having a favorable return down the road.

4 thoughts on “Austin Landlord Tales – The Risks of Real Estate Investing”

  1. I realized after posting this that I didn’t metion how terrible it is that this female tenant suffered this abuse and that it might appear I glazed over that aspect matter-of-fact-like while discussing the scenario in the context of landlording and investing.

    I hope she is OK and gets out of the hospital soon and I hope the person who beat her remains in jail and is punished. Meanwhile, the Property Manager does have to make decisions, and it’s not clear what the most prudent course of action will be. Family violence and the aftermath is in fact something that landlords and property managers have to deal with. A new law in Texas allows a victim of family violence to legally be removed from a lease agreement under certain circumstances, which is meant to remove one of the barriers that often make victims feel trapped – that they will ruin their credit and rental history if they try to escape the situation.

  2. After 12 years and many renters I’ve learnt that I can’t judge a tenant by dress, tatoos, etc…but unfortunately – I say this because my working class egalitarian tendancies had to be reigned in – experience has shown professional renters are much more landlord friendly. It is also imperative to do a background check. Putting a little money and a lot of ‘elbow grease’ in the place has proven to be a good move. A small time landlord just cannot take the risk of anything else, especially in a competitive rental renter’s market environment that we are just now coming back out of here in Austin. Here’s my story..

    I’ve had a duplex in central Austin since 94. During all those years the ‘cache’ of its location has steadily risen..thank goodness.. as Austin has arrived on the map outside of TX (where?) and has blosomed into much more than a slightly redneck (very 🙂 good times college town. Anyway, in the late 90s I started to get problematic renters – late or no rent, etc. The worst tenant I had was a building maintenance worker at one of the hospitals. I thought that may be a good sign until I realised that it only meant that he had a handy supply of 6 inch nails for hanging single guy redneck decorations in the sheet rock – Budlite signs, guitars, and pinups etc. Then, despite a no pets provision I discoverd not only that a large dog was living there and by the odor was confused about the difference between inside and outside but a little later a large litter of kittens had arrived and were peeing all over the place. His original room mate on the lease dissapeared after a few months and was replaced, without my knowledge and permission and despite a clause prohibiting subletting, by a jobless male ‘friend’ he met at a bar and who had a girlfriend pretty much also living there and who was apparently in the lingerie modelling line of work. During that time several expensive tools dissapeared from my garage on the other side…hmmm?. Eventually, the friend left and the rent checks also stopped arriving having been replaced by layered promises and sob stories about a difficult month. I do blame the leasing agent too as she moved them in before showing me a copy of their background and credit checks, despite our explicit agreement that they must pass muster and that I should see the background documents before any keys were handed out. I later had to sue that agent for return of the leasing fee – it was settled out of court. I found the reason given that they moved from their last apartment in Houston was because they ‘often heard gunshots outside’ and that one of them had a $100,000 bankruptcy, but alas they were moved in and I was out of state and out of immediate options. After about 9 or ten months when I was back living on the other side of the duplex I couldn’t take it any more. I started eviction proceedings for lack of rent and the remaining guy was gone after another month without ever making up a couple of month of rent. This was around 2000 and I decided to experiment and try and market it more to professionals – effectively by charging more for he extra money put into a more expensive product. I thoroghly remodelled the place, aiming for ‘higher level’ tenants, the first of which were a very young tatoo-covered tech couple with nose rings, etc who arrived for the dot-com boom. I was afraid of the first impression but they had verified good references and credit and it turned out that they were amongst the most polite, respectful, clean tenants. They always paid a day early and they put effort into cleaning the place when the dot bomb occured and they left town 18 months later. Since that time I have kept the place up and not had any significant problems – touch wood of course!

  3. I am really amazed that in a City like Austin Apartment Managers follow such deceptive practices. that is not typical of most places – Madison, Wisconsin, Ann Arbor Michigan to list a few. Consider this scenario which is very typical in Austin:

    You go online or pick up those Apartment Guide and similar adverts. Most often you see a Rental Rate, say $800.00/MO for a certain floor plan that you like. You call the place, ask what the rent would be for that particular floor plan. You are told $800.00/MO confirming the advertized rate (they may tell you that was their “look and lease” rate. You like the place, fill out the application and pay the application fee – non-refundable of course!

    They checked you out and now is the time to sign the lease. Guess what? You are presented with a lease, prefilled of course, along with ADDENDUMS where in essence it says that you acknowlege that that MARKET RATE THE APARTMENT was not $800.00/MO with $1200.00 and that $800.00/MO was your discounted rate. Additionally, you agree to paya late fee if you do not pay by due date (NO Problems HERE, this is typical). And guess what: you are also asked to agree to pay the difference between the Market Rate and the Advertised Rate ($1200.00 – 800.00). Amazing!

    How is this different than the much maligned Credit Card issuer’s practices where one late payment results in 10% rate jumping to default rate of 23.99 % or some similar number. You may noticed that this practice has been under fire lately and US Senate has held hearing to rein-in these practices. It is about Austin’s Apartment management Cos. stop these practices or Austin will act.

  4. Hi James,

    I haven’t heard of that practice before, but all I rent and manage is houses. It’s all straight forward and simple for those who qualify.

    The lease is negotiable though. If an apartment tries a bait and switch or wants to write funny business into the lease, just walk away. Apartments don’t like vacancy. You can find one that deals fair.



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