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10–12 minutes to read

My Tenants Destroyed My Rental Property

Dining Area

Back in 2013, my tenant destroyed my rental property.

Surprisingly, I’m just writing about it.

Here are a few pictures of what my beautiful home looked like when I posted it for rent in late November 2009:

Front of Home

Dining Area

Front Home Entry
Kitchen

Living Room Pic 2

Living Room Pic 1

Master Bathroom

Eagle Blvd Rear

Here is what the home looked like when I finally stepped foot in the home about five years later:

Weeded front yard

Weeded front yard

Broken Screen Door

Broken Screen Door

Busted refrigerator and cabinet

Busted refrigerator and cabinet

Knuckles in the refrigerator door

Knuckles in the refrigerator door

Food left in the refrigerator

Food left in the refrigerator

Busted Cabinet

Busted Cabinet

Up close of busted custom made cabinet

Up close of busted custom made cabinet

Filthy Carpet

Filthy Carpet

Up close of filthy carpet

Up close of filthy carpet

Up close of filthy and riped carpet

Up close of filthy and ripped carpet

Busted Bathroom Door - Fisted

Busted Bathroom Door – Fisted

Garbage door filthy

Garage door filthy

Broken pantry room door

Broken pantry room door

Dirty interior stove

Dirty interior stove

Items left in laundry room

Items left in laundry room

Door missing from hinges

Door missing from hinges

Creative art that needs a repaint

Creative art that needs a repaint

Room with filthy carpet

Room with filthy carpet

Busted rear patio door

Busted rear patio door

Filthy rear patio

Filthy rear patio

Filthy rear patio gutters

Filthy rear patio guttters

Filthy and weeded rear mulched area

Filthy and weeded rear mulched area

Filthy rear patio deck

Filthy rear patio deck

Items left in garage

Items left in garage

Items left in garage 2 - filthy garage door

Items left in garage 2 – filthy garage door

How did I let my tenants destroy my rental property?

In short, the answer is easy. I was a first time landlord who was just happy to have a renter when I had to move because of my job.

My job relocation happened in the same time period as the housing crisis.

My home was super underwater and I wasn’t in a financial position to bring money to the table in order to take a $25,000 loss.

Besides, not many people were buying homes.

So, I was forced to rent my home at a loss instead.

I made all the rookie mistakes possible.

I didn’t take a security deposit. DUMB.

I didn’t take a social security number. ALSO DUMB.

I didn’t talk to any previous landlords. REALLY DUMB.

I didn’t use a management company.

I didn’t…well, hopefully you get the picture.

I was just happy that someone was going to begin paying  me $1,100 monthly for the property in the same month that I had to move out of State.

All was well for about four years.

The tenant was paying her rent on-time and that’s all I cared about, until about June 2013.

A month earlier, her ex-husband stopped paying the rent by direct deposit.

In May 2013, I let the tenant renew the lease without rechecking any credentials. Payment on the new lease was to begin on the 1st of June 2013.

I made plans to visit the house upon renewing the lease, but I never made it.

The tenant told me that May was a busy month for her and I took her at her word. I shrugged it off, especially since I would’ve had to travel by plane to get there only to inspect the property for 5 minutes.

Life went on.

June 1st came and I didn’t receive any payment.

I reached out a couple of times and was given a few excuses.

June 14th came and I received notification of payment from her bank:  [TENANT] has sent you money.

All was well.

So, I thought.

The money never hit my bank account.

On June 2oth, I received notification of cancellation from her bank:  Payment from [TENANT] has been canceled.

At that point, I started demanding rent plus late fees.

Finally, on June 28th, again, I received notification of payment of rent and the late fees from her bank:  [TENANT] has sent you money.

On July 3rd, the same thing occurred as in the previous month.  Payment from [TENANT] has been canceled.

This went on until I sent a notice to vacate to her in August.

Good Evening [Tenant],

You will find attached, the notice of default letter for the month of August. It is important to note that our lease will not be renewed and that I am requesting the property to be returned to me no later than September 1, 2013 at 5:00pm. Of course, we have already discussed these dates via separate correspondence. It is important to note that this will always be sent via official mail.

Also take note that rent is still due, including the late charge of $25 per day, for the month of August. This language is presented in the attached letter.

I would like to schedule a final walk-through of the property in the final weekend of this month. It really was a pleasure having you as a tenant. I hope that this next month goes smooth as I will ask for your extreme flexibility as I have to get the house ready to market again.

This may require entry into the home although you may be out of town. I will be sure to give you a 24 hour notice if this is required. Please do your best to continue to keep the home in the greatest shape as possible.

So, I gave her 30 days to vacate, in which she responded by asking for more time.

Seriously.

Hi Romeo,

If you can give as much notice as possible that would be great, since I am traveling so much [redacted] is here alone and I do not want her to feel uncomfortable. Also, a gentleman phoned today to stop by, but it was late afternoon and I had to run out. We have scheduled a time for him to come by this week. (I didn’t quite catch his name.)

We have enjoyed being here the past four years and hope to use for rental reference.

Thank you!

She made one final payment in August 2013.

When I finally made it to the property.

She was gone and the house was left as is.

Not once did I step foot into my property in the four years the tenant lived there.

And that’s how I let my tenant destroy my rental property.

With no security deposit, forwarding address, or social security number, I really had no recourse.

You live and you learn.

And I learned that the best thing to do is make quarterly inspections of your rental properties or hire a property manager to do it for you if you ever have to become an out-of-state landlord.

11–13 minutes to read

How to the Right Mortgage Loan Officer Can Save You Thousands of Dollars

A few months back, I was looking for a conventional mortgage loan for my real estate properties.

Of course, like any savvy investor, I wanted to save the most I could by putting the least amount of money down on my properties.

Unfortunately, I was a beginner investor in the Memphis area so I had no clue how to start my search for a mortgage loan officer.

Usually, one can easily find a mortgage loan office by joining and networking among their local Real Estate Investor Association. But, I never joined.

So, I pulled the typical rookie mistake.

I took the recommendation of my Realtor. While this, in and of itself, is not a bad thing, it does prevent most people from rate shopping.

At the time, I was looking for a lender that would eventually allow me to finance more than four properties.

After calling up the mortgage loan officer that my Realtor’s recommended, I decided on using him based on the fact this mortgage loan officer was local, the bank that he worked for was a portfolio lender,  and their underwriting was done “in-house”. Having loans approved in-house makes for a very efficient process because my mortgage loan officer could have simply walked into the next room to talk to the approving authority instead of dealing with a separate distant underwriting department.

Also, I found out that his bank, Iberia, would have allowed me to finance up to ten properties. This was good start because most lenders only allow investors to have four properties financed.

Once the mortgage loan officer and I got started, he sent over the quote I requested on a $125,000 property.

4.5% 3o year fixed rate.

20% down payment

No origination charges or other fees.

Principal, Interest: $506.82 monthly

Cash due at closing (before other closing fees*): $25,000

At 20% down, I would have had to bring $25,000 to the table.

Not bad.

1. Don’t Settle For the First Mortgage Loan Officer’s Terms

I thought the rate was a little high for the interest rate environment we were in, but I had to consider that the property was an investment property and not a primary residence. If it were a primary residence, the rate would have been around 3.5%.

Regardless, a week earlier, I received an even higher rate from Wells Fargo.

A week earlier, Wells Fargo gave me the following terms:

5.0% 30 year fixed

20% down payment

No origination charges or other fees.

Principal, Interest: $536.82 monthly

Cash due at closing (before other closing fees*): $25,000

So, I was moving in the right direction.

Had I stopped with Wells Fargo I would have been paying a half percentage rate more. Or about $30 more per month. Over 360 months and that calculates out to an extra $10,800.

I decided to call around to other banks to see just how much of a deal I was getting.

The next mortgage loan officer I contacted was from Quicken Loans.

There terms, too me, were way out of my range.

4.25% 30 year fixed

25% down

2.25 points due at closing ($2,025)

Principal, Interest, and Mortgage Insurance: $461.19 monthly

Cash due at closing (before other closing fees8): $33,275

Adding the points to the down payment, I would have had to bring $33,275 to the table…just to close, in addition to other closing costs!

At that point, I concluded Iberia was the bank for me.

2. Ensure You Know the Current Mortgage Buyback Guidelines

I thought I was all set to go with Iberia until my friend and I started comparing rates.

He, too, was searching for mortgage rates.

After I disclosed the terms given to me by Iberia, he told me that he received similar terms with US Bank Home mortgage, but he would only had to put 15% down.

I was initially puzzled and actually didn’t believe him.

Up to this point, every bank I talked to and every online search I did led me to believe that 20% down was the minimum for any investment property loans.

Why wouldn’t I want to save an extra 5% up front?

A 5% savings, or $6,260, could go towards my rehab cost or my cash reserves requirement.

So, I called US Bank Home mortgage to verify.

As soon as a representative from their mortgage call center got on the phone, I asked about the 15% down requirement and was quickly told that I was wrong, that the minimum down payment due to Fannie Mae and Freddie Mac Guidelines for all investment property loans was 20% down.

At this point, I didn’t know who to believe, my friend or the bank representative’s mortgage loan officer. So, I told my friend about the bank’s conversation via text message, telling him what the bank had told me, to which he quickly responded with a link:

Fannie Mae Standard Eligibility Requirements for Investment Property [pdf]

Clearly, in Fannie Mae’s guidelines, the Maximum Loan to Value required was only 85%, not 80%, which meant that only 15% was required for a down payment, assuming US Bank used these same guidelines.

Seeing this, I did my own research looking into Freddie Mac’s Requirements for Conforming and Super Conforming Mortgages and saw that they, too, only required 15% down for investment properties.

Armed with this data, I talked to my friend again and asked him to give me the contact information to the person at US Bank to whom he had talked. And that’s when I got the confirmation that I only needed to have 15% down for my investment property.

3. Trust, but Verify, the Information You Receive From Your Mortgage Loan Officer

I was ecstatic to have learned this “new” information.

Apparently, these guidelines changed earlier in 2016.

So, it’s kind of forgivable that not every mortgage loan officer I talked to knew these guidelines.

Armed with this new information, I called my mortgage loan officer at Iberia and I informed him of the guidelines that I now knew about and asked how would my terms change.

At 15% down, my terms changed as follows:

4.75% 30 year fixed

PMI $96 per month

No origination charges or other fees

Principal, Interest, and Mortgage Insurance: $650.25 monthly

Cash due at closing (before other closing fees*): $18,750

While this was better for my cash reserves, I wasn’t prepared to pay 4.75% and an extra $96 monthly for PMI. I thought $96 for PMI was excessive, given that a typical rate is .75% of the loan value.

Given these high numbers and the fact that I the mortgage loan lender didn’t provide me the 15% down payment option before, I chose to search for a better deal.

I called up the mortgage loan officer who told my friend about the 15% investment property terms to see the terms he’d give me.

Ultimately, after confirming that US Bank allowed for a 15% down payment for my investment properties, I decided to cancel my application with Iberia.

My ultimate terms from US Bank were as follows:

4.25% 30 year fixed for $102,000

PMI $43.14 per month

$395 Application Fee + $395 Loan Commitment Fee = $770 

Principal, Interest, and Mortgage Insurance: $523.59 monthly

Cash due at closing (before other closing fees*): $19,500

Conclusion

Ultimately, going with a mortgage loan officer who knew the most current guidelines saved me $5,500 at closing. And the cost to me was only an extra $15 per month when compared to my first quote. Because I received two mortgages through the same mortgage loan officer, I kept over $11,000 in my pocket.

If I ever get another conventional mortgage to purchase an investment property, I’ll be sure to first check the most current lending guidelines, and then call around to see which bank adheres to them. Luckily, I found a mortgage loan officer at US Bank that knew his stuff. And for that reason, I’ll likely just stick with him.

*Other closing fees include escrow, title insurance, title company fees, appraisal fees, termite inspections, recording fees, etc.

12–14 minutes to read

Are Hard Money Lenders a Good Idea?

A few months ago, I saw a killer bargain listed in the MLS. The home was in the suburbs of Memphis, TN, a few miles away from my home. 8174 Old Brownsville, Rd. The listing agent listed it for a quick sale of $144,900. After a quick preliminary review of the neighborhood comparables given to me […]

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11–13 minutes to read

Is “Flipping” or “Buying and Holding” Real Estate a Better Strategy

October 2016. That’s when I created my arbitrary goal to accumulate one million dollars in real estate gross earnings. This goal followed shortly after I closed on two properties that I purchased for rental income in the suburbs of Memphis, TN. While many people use real estate to create passive income, build wealth, and obtain […]

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11–13 minutes to read

Can you find out how much someone owes on their mortgage?

how-to-determine-mortgage-balance

When I began making offers on owner occupied homes listed in the MLS, one of the things I wish I could find was the amount someone owed on their mortgage. The idea was simple, if I could find out the amount they owed, and could offer a little bit above this amount, I would increase […]

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8 minutes to read

Freee-domm……

As expressed by the legendary thirteenth century Scottish hero, William Wallace, “Freeeeeedddddoooooommm…..!!!!” Yes. Freedom, indeed. Financial freedom speaking, that is…of my rental property. As of the 19th of November, I’m finally free of my home that was forced into a rental property back in 2009 when I couldn’t sell it because of my lack of funds […]

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