I had a discussion with a co-worker the other day about the moral struggles that come with owning rental properties.
The debate started when I began to complain about previous tenants of mine (I try not to complain too much about tenants if I can help it, but sometimes it just comes out). I told him a horror story about one of my units. The tenants were avid meth users that I’d inherited from the previous owner. His lack of proper screening practices meant that I was left to deal with them after taking over the property.
I told my co-worker about my numerous conversations and dealings with children’s aid and police in relation to this family. When I finally took over the unit and got them out, it took me 6 months to clean up the dog shit strewn across the walls, countless holes in the walls, electrical issues, floor repairs….and the list went on….
My co-worker then brought up the moral issue of whether or not I should have tried to house them longer and rehabilitate the family into bettering themselves rather than simply trying to kick them out onto the street (especially for the kids sake). WHAT! (at this point I know he was trying to get under my skin, but I entertained the debate)
My rebuttal was simple, I wasn’t responsible for these people, they chose the path that they went down. I wasn’t going to continue to provide housing for them as they destroyed my property and took money away from my business and livelihood. I would have been a sucker to try to help these people. They needed to help themselves.
He then asked me whether or not I believed that I was responsible for these people once they were under my roof.
To an extent I was responsible for these people, but only to provide them a habitable place to stay. The lease that they signed before renting the place did not mention my responsibility for sorting out domestic, emotional or drug issues.
My friend loves to touch on the moral issues of any type of capitalism, but he also understands and believes that capitalism is an important part of our society. He loves to play devil’s advocate when it comes to my real estate business, and I’m okay with that.
In the past, I’ve had single mothers who were about to give birth in days, literally crying at my feet asking me to let them rent a unit from me. I had to turn them away. All I could think of was this girl’s abusive boyfriend eventually squatting in my house and punching holes in the walls after drunken binges every weekend.
I’ve dealt with too many nightmare tenants to risk another bad one coming in. And I learned a lot about pre-screening people from my days as a police officer. I’ve learned the importance of using my senses before I trust someone, especially by doing something like entering into a lease agreement with them.
I’ve lost tens of thousands of dollars due to problem tenants that I’ve inherited from my previous landlord. Some that I found out were actually living in motels or on the street because I didn’t let them stay in my units. I’ve had to make some hard decisions about whether or not to seek evictions for previously bad tenants that were trying to turn their lives around. But it’s also bit me in the ass when their old delinquent tenancies crept back into their lives.
If you have a bleeding heart in this profession, your business will fail. How can you flourish with your rental properties if you are always shelling out money to fix up units or deal with the issues of problem tenants? Your time and money invested will add up fast.
I know this seems like a no-brainer to most, but to some it won’t be so easy. My co-worker always tells me he could never be a landlord, because he would get walked all over. And he’s right. He doesn’t have the heart to tell someone no, especially someone he believes is in need of help.
My standpoint on this is still the same, I can’t help someone who isn’t willing to help themselves (I don’t know if I’m going too deep on this rant, but these are important points that I like to share with potential landlords). And I can’t be the one to house them, because my livelihood also hinges on the success of my rental properties.
The debate with my friend soon diverted into another territory. His point was simple:
He said that I am getting rich off of the poor with my real estate business.
Think about this one for a second. At face value, one may say this is true, but this point needs some clarification and exploration.
Most home owners have a higher net worth than renters. And this can be attributed to principal pay down and appreciation of the home.
Renters pay down a mortgage…but it’s my mortgage they pay down as their landlord. So essentially, I have a team of people that go out and work every day (40+ hours a week) to hustle to pay the rent which in turn pays down my mortgage. So if I were to multiply the 40 hours a week of work per family of my 16 units (40 hours x 16 units), that would equal 640 hours of labour every week that goes into paying down my mortgage. Mind you, some tenants work less than 40 hours (or no hours at all!) and others work more than 40 hours. But the bottom line is, more hours than I could possibly work myself go into paying down my mortgage and fattening my pockets.
Now this sounds pretty much like a win for me and a loss for the tenant, but it’s not. I’ve rented before, and it was an essential stepping stone for me to eventually save up for a downpayment for my first house.
Right after high school I wouldn’t have had the money or means to buy a house right out of the gate. And I’d assume that 99.9 percent of people out there don’t buy a house right out of high school. They usually live in student housing or some other type of rental property first.
Even the wealthy rent houses and cottages in different parts of the country. People from every socio-economic status, race, age, creed, sex, etc. rent properties. Some people rent until they can save up to buy, and others rent because it fits into their lifestyle. They leave it up to the landlord to fix a broken toilet and pay the property taxes and deal with the headaches of keeping a property habitable. When you own a house, things break all the time, and you have to deal with it, and some people would rather call up the landlord to fix it than fix it themselves.
And that’s okay.
The relationship between tenant and landlord is reciprocal. It’s necessary.
I do plan to eventually become super wealthy from real estate, but not without helping others reach their own financial goals as well by providing a great housing environment for them to raise their kids, save up for college, build their own business, or whatever their aspirations may be at that point in their lives.
Every tenant has the option to buy a house, or rental properties, start a business, or whichever path they choose to build up their own wealth. Nothing I am doing is keeping them in a place which they cannot get out of.
It’s the same type of idea as my current day job. At this point in my life, the cashflow from my job is paying my daily expenses. All of my savings are in real estate. I despise having a job, but I’m working at breaking free from my job. And even though my boss is becoming rich off of my efforts and diligent work, I’m crafting my escape at night while I work on my job during the day. As Jim Rohn once said, work full time on your day job, and part time on your fortune.
If my boss didn’t employ me, I wouldn’t have the ability to pay my bills and living expenses while I built my real estate portfolio. It’s a reciprocal relationship. And I don’t fault my boss for wanting to become rich (I know he’s very wealthy), but I just focus on building my own wealth, instead of wasting my energy on worrying about what my boss is doing.
The faster I realized that my real estate business hinges on providing value to my tenants through my actions as a diligent and present landlord, the happier my tenants have been to pay me the rent when the first of the month rolled around.
If I wasn’t attentive to my tenants needs and didn’t treat them as any business would treat their customers (and they are my customers), the more likely they would be to leave or argue and fight with me over paying the rent.
And rightly so…
How can a business provide crappy service, yet still demand payment at the end of the transaction?
The business only prospers when it provides incredible, real value to it’s customers.
The more value I provide to my tenants, the better return I get on my investment. I’ve come to realize this more and more as my time continues as a landlord.
My duty is to provide the best housing for my tenants and let them live a peaceful and happy existence, because the rewards will come back to me tenfold.