Growing Pot – A Growing Menace for Landlords

As most people know, the great state of Washington decided last fall that it was a good idea to allow its citizenry to not only possess marijuana, but also grow it. While the law established control mechanisms, the legal action seems to have ‘softened’ the position of some law enforcement officials as well as the general population.marijuana

As a result, there is a growing (no pun intended) tolerance and acceptance towards indoor cultivation of marijuana. This social shift could place increasing burden on landlords and property managers coping from the residual effects of an indoor pot-growing operation.

To wit, we just toured a Federal Way, WA home where the previous tenant had an illegal operation going on. He was growing it in both the garage and the two bedrooms. The amount of mold present in the house was as great as we have ever seen!

Mold is already a HUGE problem in the Pacific Northwest. For residential occupants to add large amounts of moisture and heat to their homes for their pot-growing operation threatens to completely destroy entire homes.

For this Federal Way home, entire walls will need to be dismantled. The kitchen and bathroom are a total loss. The garage has so much mold and moisture that some of the framing was compromised. The extent of damage from the mold and moisture is unlike anything we have ever seen before. Sure, tenants forget to use the bathroom fan and some mold starts to grow on the ceiling. That is nothing compared to this!

Landlords – inspect your properties regularly. Have a ‘no cultivation’ clause in your lease. Enforce it!

Peter Nelson is a clean and sober President of Full Service Property Management. Full Service PM offers landlords of homes, condos, apartments, and HOAs in the greater Seattle area a full suite of management, maintenance and construction services. They may be found at www.fullservicepm.com.

The Easy Lies

It is not uncommon for rental prospects to lie.  This is especially true for the ones that really have something to lie about!  It is exactly these prospects that we as property managers are particularly interested in weeding out.pinnochio

The easy lies are, well, easy to ferret out.  It is the good liars that are trickier.  We usually still get them through some tried-and-true methods we won’t go into here.  But right now we wanted to share some of the more common lies we hear all the time.

Caveat: The prospects you are dealing with will be sure to point out that while the lie may be true for all of the other prospects, it isn’t true for them.  We’ll let you decide that one!

Lie #1 – “It was my roommate’s eviction.”

We hear ths one allll the time: “I was living with a roommate and I had to move and he/she promised to pay the rent but never did and now they are coming after me.”  This can sometimes be qualified with “And now I am paying back every cent to the property manager.”

This lie usually comes with an apartment.  But we’ve also heard it for houses.  We are still waiting to meet one – just one – of those roommates!  To this day no one has come through our doors and said “Yep, it was me!  My roommate moved out on me and I couldn’t afford the place so I just stopped paying the rent.”

But the other issue we have with this lie is this: Does the prospect not understand his/her obligation under the lease?  Because if they did then they would have found a roommate to take over their part of the lease or otherwise negotiated something else.

More than likely, though, something happened with one or both of them and they failed to honor their obligation.  For us, it is guilty by association.

Lie #2 – “My dog/cat is house trained and never makes a mess.”

Again, we have never had a prospect show up to a showing and say “My dog/cat pees all over the place and is uncontrollable.”  Occasionally they will proffer that their dog does like to bark, but that is the extent of it. 

The only way through this lie is previous landlords.  And that is a whole different lie that needs to be checked.  (We blogged previously about this.)  You have to make sure there is no application fraud going on in the form of the prospect putting their best friend down as a fake landlord.

Lie #3 – “I want to be perfectly honest with you.  My credit is not all that good.”

This isn’t a total lie.  They ARE being perfectly honest with you (usually).  Where this becomes deceptive is the attempt to build trust with the words “I want to be perfectly honest with you.”  Really?  How else were you planning to be with me?  Dishonest?

But really, they know as well as you that they don’t really have an option other than being “perfectly honest” because if you do your background check like you are supposed to then you are going to uncover all the dirt on them anyhow!

Usually when we hear these words (and the other lies) our antenna go up and we are put on alert that this prospect or prospects may not be the type of renter we are looking for.

 

For more information on screening tenants, visit blog.fullservicepm.com.  Peter Nelson is President of Full Service Property Management of Seattle, WA – a leading property management company of homes, apartments, townhomes, and condos..  He has been leasing residential property for over 28 years.  Their website is www.fullservicepm.com.

The long-term advantages of investing in real estate

Investment property, or rental real estate, is considered by most investment brokers to be a cornerstone to a diversified investment strategy.  But it typically is not a “get rich quick” type of investment.  Sure, there are the stories out there of “flippers” buying foreclosures at the auction and turning them around and selling them a few months later for tens or even hundreds of thousands of dollars.tenant-screening-process1

But those stories are in the minority, and most Americans’ real estate investment adds up to the equity they have in their home or previous home.  Since the 2008 real estate crash, that equity has shrunk.  Nevertheless, the soundness of real estate investing remains the same.  A quick peruse of Forbes Top 100 reveals that these thoughts are shared by most of the world’s richest people.

Here is a simple example that illustrates the point.  It’s called “other people’s money”.

Assume you purchase a home for $200,000.  Say you put down 20%, or $40,000, and get a loan for the other $160,000.  A year goes by and real estate in your area has appreciated 10%.  At the end of one year your chunk of ground on Baltic Ave. or Boardwalk is now worth $220,000.  Right?

Suppose for the sake of this example that after one year you decide to sell.  Further suppose, for simplicity sake, that there are no real estate commissions or closing costs.  So you sell the property for $220,000 and pay off your $160,000 loan.  That leaves you with $60,000 gross profit on a $40,000 investment.

That, my friends, is called a 50% return on investment (ROI)!  Even Wall Street can’t come close to matching those numbers.  Not legally anyway!  🙂  For those of you doing the math at home, you can arrive at the ROI by multiplying the leverage factor ($40K out of $200K is a 5:1 leverage) by the market appreciation (10% in our example).

The savvy investor will immediately counter with: 1) no one holds real estate for just one year; 2) there is no guarantee of a 10% rise in real estate, and; 3) everybody knows that closing costs can be a significant part of any real estate transaction.  And he would be perfectly correct on all three accounts.  But let’s delve into each of these arguments a little further because they warrant further consideration.

1. Liquidity.  You should not go into real estate with the idea of holding for one year and then selling.  We’re not talking stocks here.  Real estate is an illiquid investment and anyone who tells you otherwise is either lying or a foreclosure flipper.  Real estate as an investment strategy is a long-term, “buy-and-hold” deal.   We used one year in our example to prove a point.  The reality is, just like most other investment, the gains compound over the years.  The gains in subsequent years add on top of the gain this first year.

2. Guarantee.  We can’t argue this one.  There is no guarantee to this investment, or to life.   A lot of people who bought in 2007 and 2008 at the height of the recent market found that lesson our the hard way.  Markets go up and down.  But if you are in it for the long haul then you have history on your side.  Just as the Dow Jones Industrial has had recessions and depressions, over the long haul it has continued to go up.  So if you stick with the buy-and-hold strategy then you’ll recover from a short-term loss.

3. Closing Costs.  The effect of closing costs on a transaction decrease over time.  In our example above after just one year a 6% real estate commission would reduce that $40,000 by $13,200.  (Still not a bad profit!).  But in 5 years if that property rises to, say, $250,000 then the $90,000 profit ($250K – $160K) is only reduced by $15,000.   A bigger number to be sure, but a smaller percentage of the gross profit.  And would anyone be crying over a $75,000 profit in 5 years?!!

This example is a very simplified example.  The reality gets more complicated.  For instance, we did not take into account the tax benefits that might accrue from depreciating real property.  Nor did we account for the return on principal that occurs every month as a little bit of the principal of the mortgage is paid down.  These secondary effects only add to the equation.

Peter Nelson is President of Full Service Property Management in Seattle, WA — a full service property management and real estate brokerage firm providing a fresh, rewarding approach to real property management.  Their website has a wealth of information.

New Website

As you may have noticed, we’ve just updated our website as of about 1 o’clock this afternoon.  We really think this new layout is much easier to navigate and is certainly more visually appealing.  However, if you notice any issues with the site, or if you have any suggestions, please feel free to leave us some feedback.  We’re always open to suggestions, and anything we can do to make your day easier is certainly a priority.