7 Survival Tips for the Accidental Landlord

Nothing says “future distressed seller” like an Accidental Landlord.

Becoming a landlord by choice can be an excellent, intelligent financial decision.

But turning into a landlord because the property you thought would flip quickly just couldn’t sell…. Well that usually just sucks.

Too many investors screw up the calculation on their acquisition price or rehab costs, and then find themselves with no choice but to rent out the property and mitigate the damage.  Or they found a title problem.  Or a foundation issue that doesn’t impact safety, but prevents a sale.  In these cases, the flip usually needs to become a rental.

A cash investor usually has no problem doing this. Even accounting for professional property management, property taxes, insurance and maintenance bills, most cash investors are going to have positive cash flow at the end of the month with a rental property.

The problem is when you used leverage to buy that flip.

Most people don’t believe this, but even with a hard money loan, you can make a nice profit off of a rental property.  IF you were conservative with the loan amount, IF you had enough skin in the game, and IF you don’t have a short-term balloon.

So what’s an Accidental Landlord to do?  Here are some Emergency Tips:

Rent Quickly– the longer the house sits empty …  or the longer you wait to list it or market it as a rental … the less likely you are to make a profit.  So market as a rental as soon as you realize that’s the only viable option. 

Price it Right.  Then price it right.  This goes hand-in-hand with Rent Quickly.  Do some quick market research, see what the rental comps are… then price 10% below the market to get someone in right away.  Waiting a few months to rent the house out will hurt a lot more than dropping the rent right away.

Rent to the Right Tenant.  Losing a tenant (or cleaning up after one who trashed the place) is a sure way to kill profits.  Screening takes time and money… and requires experience.  But it is a smart investment to do a background check and credit check.  You may not care if they were 30 days late on a Visa bill…. but you want to make sure your prospective tenant hasn’t left a trail of jilted landlords.

Consider Professional Management.  We are a DIY nation.  But are you cut out to be a landlord?  Do you like early calls on a Saturday?  How will you handle the inevitable emergencies?  Do you feel comfortable with the screening, billing and collecting process?  Managing tenants is a BUSINESS.  Are you set up for that?  If not, find a good property manager.  Delegate.

Talk to an Accountant.  You need to know what you can and can’t expense on a rental property.  If you are used to flipping, you may not have a clue how depreciation works.  But it’s an important part of the profit equation for all buy-and-hold strategies.  And you have to recapture depreciation when you sell, so you might as well learn how to benefit from it.  You also need different record keeping for your rentals than for your flips.  So don’t forget to call the CPA.

Talk to a Lawyer.  Sure, you can use an off-the-shelf lease agreement.  Just fill in the blanks and hope for the best.  But do you understand your state’s landlord-tenant law?  Do you know the rules for escrowing a security deposit?  Or what notice you must send for non-payment?  Or what the Fair Housing Act requires? Again, most flippers try to get by without a lawyer on the team (except for at closing).  Landlords always need competent legal counsel.

Call your Insurance Agent.  Make sure the policy you bought to cover your rehab and flip will work.  It usually won’t.  You need to insure the property against damage and yourself against liability.  If a guest of your tenant gets hurt… you will get sued.  And you want to make sure your tenant understands they have to insure their stuff—that’s not usually covered under your policy.

What other tips do YOU have for an Accidental Landlord?  What does a flipper need to know if they suddenly find themselves with a rental property?

Please leave a Comment below!


Plays 2 Run- Politics and Foreclosure Tactics

I love political commentary. Especially from those who identify and label bullshit.

One of my favorite guys to listen to is Alan Kelly (@playmakeralan), the CEO of Playmaker Systems and author of The Elements of Influence.  He does a great job of weekly breaking down political bullshit on The Morning Briefing- POTUS.

Alan frames his discussion in terms of “running plays”.  The plays he discusses are not limited to politics– they work in business as well.  They are the methods of advancing ideas, controlling markets, positioning products, and beating the competition.

In his system, Alan identifies 28 “Plays” (a stratagem, one of a finite set of discrete strategic maneuvers).  They are each labeled, defined and thoroughly discussed.   If you love strategy, game theory, and competition, get the book and visit the site.

Here are 9 of Alan’s Plays and how we regularly see them run at a foreclosure auction.

PASS-Exit the Marketplace.  The strategic withdrawal from the marketplace. From time to time, an investor’s war chest gets empty… or close enough.  Rather than show up at the sale and risk making a wrong move, the investor can take a vacation, focus on other investment strategies, or just go to the sale and hang back.  This strategic retreat allows the investor to live to fight another day.  Retreat… regroup… redeploy.

PING-Hint and Hide. The oblique reference or suggestion, enabled either by a player’s mere presence or its implied interests in topics, events and developments. The investor who wants to control a segment of the auction may strategically bid on properties that don’t fit his investment profile… just to throw others off.  Showing interest in everything can mask the investor’s true intention.  Bidding on farm properties when you are a single family home investor.  Buying the raw land out from under the developer.  These are not direct attacks, but simple hints that a competitor needs to look out for you.

RED HERRINGSend Off Course. Action drawing a competitor away from its preferred position or intended course of action. How many times have you heard investors at an auction asking each other about a sinkhole, or whether the property was occupied, or whether the roof was shot.  This might be genuine curiosity… or it could be a Red Herring.  The beauty of this Play is that you never know…

JAM-Gum Up the Works. Disable or disorganize another player’s activities or communications.  Investors love to distract their competition during the sale.  Asking them questions, calling their phone, or otherwise running a pick play to prevent them from bidding on the property up for grabs.

CHALLENGE- Exhort Others to Action. The public appeal, suggestion or demand by a player.  Investors love to push their competition off a property.  Sometimes directly, sometimes indirectly.  The open challenge “Come on, you know you want this one” can get in another bidder’s head just long enough that they don’t bid on time…. or even better yet… push them into buying a mistake.

BAIT-Taunt, Provoke a Reaction. The overt provocation of another player through action or information. People who are taunted get angry.  Angry bidders make mistakes.  Provoking the competition usually results in them making a poor choice.  The Information Bait is a little more subtle, but just as effective.

DRAFT- Follow, Feed-Off, Then Try to PassThe attempt to feed off another’s energy, innovation or best practice with the intent of overtaking.  At foreclosure auctions, we call this Piggybacking… the investor who doesn’t do their homework, but simply outbids someone who knows what they are doing.  It takes less energy to draft… but its also easier for the lead car to put you in the wall when you try to pass to the outside.

PLANT- A Secret Ally. A trusted and confidential ally- usually disguised or undisclosed to the opponent, who is placed to seed information.  This doesn’t work well at small auctions, and a plant can only be used once per player.  But we often see new plants at our sale conducting whisper campaigns.  Especially when new bidders with lots of cash show up.  Be cautious of the friendly person chatting you up at the sale…

CRAZY IVAN-Turn and Attack Unexpectedly. The deliberate invitation or initiation of an attack.  Crazy Ivan is one of my specialties… the suicide maneuver for tactical advantage.  Remember Hunt for Red October, where they spin the sub? I love leaving everybody in the room wondering what the hell I am thinking. We buy so many houses that it starts to get predictable, which invites Drafting.  Crazy Ivan just keeps it real…

 So what other games and plays do you see at foreclosure auctions?  What works… what doesn’t?

Please respond in the Comments Below!


Foreclosure Hazard Stories… #46 and #47

It doesn’t seem to matter how long you do something… there is always something new to learn.

In the past week we’ve had two “learning experiences” I’d prefer to have skipped.

1. You Need Accurate Info at the Foreclosure Auction

Accurate information is a must.  Everybody knows that.  But we learned today  information can be “accurate” and “misleading” at the same time.

We have a spreadsheet listing every property for each day’s foreclosure auction.  Our list has all the information we think we need to make intelligent decisions… case number, names, address, size, year, type of construction, etc.  This way if the bank offers a deep discount on something we didn’t see, at least we have a fighting chance of deciding whether to bid.

Well, there wasn’t much of interest at this particular sale.  But there was one property where the bank’s maximum bid seemed really cheap.  We were generally familiar with the area, even though we had not seen the particular house.  It was a new house, on a little bit of land, in an area of farms. And it sounded like a great deal.

So we bid on it, won and paid the deposit.  $3k in cash.

Then we drove out to see our new house.  And then we realized our mistake.

Well… the mistake of the person who prepared our spreadsheet.

See, our list said this was a “2034SF/08” house.  That means it is just over two-thousand square feet of living space, built in 2008.  Or, at least, that’s what it is SUPPOSED to mean.

Turns out… this is a 1908 house.  Not a 2008 house.  Hundred years off.  Our spreadsheet was accurate… it was in fact an “08” house… just not “2008”.  That’s extremely accurate and incredibly misleading at the same time.

A 2008 house would have been a no-brainer… easy rehab and flip for top dollar. 

A 1908 was also a no-brainer…. forfeit the deposit.

Any way… lesson learned, right?

2. You Just Can’t Avoid Crazy People.

We bought a great house about a month ago.  The owners had done everything they could to keep the house… filing answers, counterclaims, motions and appeals.  They had even filed a separate federal lawsuit, alleging the foreclosing bank committed fraud.  ALL of this crap had been summarily dismissed.

We had to evict the owners, who still thought the federal lawsuit protected them (even though it was dismissed months earlier).  They were a little nasty about it… telling our agent that he needed to find a better job, wasn’t getting paid enough, and didn’t know what he was talking about.  However, once the Sheriff posted the writ, they moved all their things.  Surprisingly, they even left the house relatively clean.

So we rehabbed (tile, carpet, counters, paint, pool screen, etc) and put the house on the market.  Got a contract right away at our asking price.

Great.  Just the way it is supposed to work.  Everything is perfect.

Then right before closing, the old owners filed a “lis pendens” in the public records.


Now, all a lis pendens does is warn people a property is involved in litigation.  This particular lis pendens is complete bullshit… it references the state foreclosure case and the federal case they filed… both of which have been dismissed and appeal times have run.  So the “pending” action it supposedly warns of is non-existent.  And it doesn’t even give the property address, so it doesn’t meet the definition of a lis pendens either.

There is absolutely no merit to their claim, and we will have it resolved within a week.  Luckily, we know exactly what to do, and can handle this inexpensively and quickly, since we don’t have to hire outside legal counsel.  More importantly, these owners filed their bullshit paperwork with enough lead time that it won’t screw up our closing.

But you can’t predict Crazy. 

And if this had happened to another investor… or happened a little closer to the closing… it could cost a LOT of money.  And it could cost the deal.  Obviously Crazy Owner has no money… so even if the court sanctions them for wasting everybody’s time, good luck collecting.

Just another risk of buying foreclosures at the auction.  Luckily this one wasn’t our fault and could never have been predicted….

What other risks have you seen at foreclosure sales?  What have Crazy People done to mess up your investments?

Please COMMENT below– Thanks!