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 years 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.