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Dream Job or Nightmare?
Becoming a landlord isn’t as simple as
buying a house and renting it out. Some
veterans of the business share their
experiences.
By Brian Knavish
A couple happens to be driving down
the road when they notice a “for
sale” sign on a small building in a
familiar part of town. The building
once was the site of a doctor’s
office; it’s an old house that could easily be
split into a duplex.
The entrepreneurial muscle in their brains
starts working. “You know,” one says, “we
should buy that place. We could turn it into
apartments and rent it out.” The other nods in
agreement. “Buying the building will be the
upfront cost, but after that, it will pay for itself
in rent.”
Photo: Eric Koenig at one of his rental properties
The details may vary in actual
circumstances, but the theme is a common
one. Business-minded folks looking to make
money often want to get into real estate –
specifically, the rental business. They figure
they’ll buy the property, put a classified ad in
the paper, and start collecting rent checks.
But, according to those involved in the
business, there is plenty more that goes into
the equation.
“A lot of people think they’re going to get
a few buildings to rent, and the money will just
roll in,” says Lenny Desmet, who, with his
family, owns several small apartment buildings
in Bridgeville, Cecil and South Fayette. “It
doesn’t work that way . . . it doesn’t work that
way at all. There’s a lot more to it.”
Of course, there’s
paying the mortgage
on the building, and
then, what if remodeling is necessary? What
about insurance? Taxes? Legal issues? Then
there’s the matter of finding tenants, keeping
tenants and getting tenants to consistently pay
their rent, in-full, on time. There are midnight
maintenance calls, bickering tenants, and even
legal issues that come with evictions.
And it’s not just the additional costs that
people neglect to realize when kicking around
the landlord idea; there are intense demands
on a landlord’s time and freedom.
Just ask Eric Koenig.
In addition to working full-time for AT&T
and owning and operating a screenprinting/
embroidery business, Koenig owns
eight rental properties throughout the South
Hills with his business partner, Rick Faust.
Koenig says that being a landlord is a full-time
commitment. “The calls always seem to come
on Sundays or late at night,” he says.
Koenig recalled one time, on Super Bowl
Sunday, when his obligations as a landlord
blitzed his social life. “It was 10 minutes before
kickoff, and I get a call from a tenant who says
there’s no water in the house. I had to go over
there to find out it was a frozen pipe.”
Photo: Eric Koenig arrives to continue renovating a rental unit.
On the other hand, Koenig and Desmet
agree that, despite the challenges and costs,
owning rental properties can be a profitable
and rewarding business. Other landlords curse
the day they entered the profession.
But if you are eager to move into the
property rental business, you should first do
your research and closely consider the
following topics:
Finding Tenants
Among the greatest fears of any landlord is
buying a building, paying to have it remodeled,
then waiting for the apartments to be
occupied. If the apartment is vacant, the
landlord is making no money and the
“investment” is losing money. This problem is
magnified if the structure is a single-family
home.
“If it’s an apartment building with several
units and you have one vacancy, at least you’re
still collecting rent from the others,” says
Koenig. “But if it’s a single-family home and
it’s vacant, you’re not making any money on
that property.”
Therefore, consider the type of structure,
time of year, location, and even economic
landscape before purchasing. “No one wants to
move in the winter, so that’s a bad At the same time, the slumping
housing market has actually helped
many in the landlord business.
According to Desmet, “A lot of
people are renting because no one
wants to buy right now.”
Finding Good Tenants
Finding people to rent an
apartment isn’t the only issue.
“You don’t just want tenants,
you want good tenants,” Koenig
says. The goal is to find tenants
who will take care of the property
and will actually pay the rent.
Because of “bad tenants,” one
Canonsburg landlord (who wished
to remain anonymous) regrets
entering the real estate business.
“Sometimes people don’t pay the
rent because they can’t, for
whatever reason,” she says. “But,
unfortunately, some people know
the law is in their favor and they
choose not to pay rent.”
“We’ve had to evict quite a few
tenants, but even after that, who
knows if we’ll ever see the money
they owe us? As the owner of that
building, you have to pay that
mortgage every month. If you’re not
getting rent from your tenants, you
have to somehow find a way to pay
that mortgage.”
Background Check
So, how do you find these elusive
good tenants? The background
check is a pivotal tool. Some
landlords use third-party
background check companies;
others rely on an application,
credit history and references. The
goal isn’t to offer a Freudian
analysis of the potential tenant’s
psyche, but rather to simply find
out if, in the past, they’ve paid
their rent and taken care of the
buildings in which they lived.
References – especially from past
landlords – are key, but even at
that, consider the source.
“It’s good practice to talk to
past landlords. Not the most recent
landlord, but the one before that,”
says Koenig. “The most recent
landlord might not give you all the
correct information, especially if he
wants this person out of his
property.”
Interestingly, Koenig has found
that many applicants have “rejected
themselves.”
When the would-be renter gets the
application – a pretty thorough bit
of questioning – many never turn it
back in. “They see what we’re
trying to find out and they look
elsewhere.”
Maintenance
Even the best-maintained building
will require a certain degree of
handy-work. From routine grass
cutting to basic jobs like replacing
a leaky faucet to more involved
projects like putting on a new roof,
owning a building involves ongoing
work.
Those involved in the business
suggest having a plan – and budget
– to tackle these projects. Desmet,
who is also involved in contracting
work, does most of the repair jobs
himself. “If you don’t know how to
do the maintenance yourself, that
means you’re going to have to hire
somebody, and that can cut into
the money you make,” he says.
Koenig does basic jobs himself,
then hires contractors for larger
projects. “You’ve got to find people
you trust,” he says. “I know if I
have to hire a plumber, I can call
my guy, tell him what’s going on,
and he’ll take care of it at a fair
price.”
Also, depending on the type of
rental agreement, some landlords
pin a portion or all of the
maintenance responsibility on the
tenant.
Pets
Furry friends create a slippery
slope.Some landlords reject the idea
of pets, period, because of the
damage they can do to carpets,
furniture, doors, etc. Others see
pet-friendly apartments as a big
money maker.
“We don’t allow pets in any of our
properties, but I’ve heard
arguments both ways,” says Koenig.
“If you allow pets, then your
market for tenants is larger,
because there are a lot of people
out there with pets looking to rent
an apartment. Plus, your
competition is less, because so
many landlords don’t allow pets.”
Some landlords place limits on
the type or size of the pet . . . cats
only, dogs under 20 pounds, and
so on.
Kinds of Rentals
The basic way to become a landlord is
to buy a building on the open market
and rent out the space. But there are as
many types of rental agreements as there
are types of apartments, everything from
Section 8 housing to rent-to-own
agreements.
Most of the properties Koenig deals
with are of the “rent to own” variety. In
other words, the tenants are paying rent
with the idea of eventually buying the
place. One of the major benefits of this
approach, says Koenig, is that the
renters are more likely to take care of
the property.
“When they’re looking to buy the
house, they’re not going to want to trash
it,” he says. “Plus, when we do rent-toown,
they’re responsible for their own
maintenance. But even with rent-to-own, there are a lot of different
ways to do it.”
Landlords suggest researching the business, learning the
demographics in the area your property is located, and catering the
rental agreement to that demographic.
Get Educated
“It was amazing to me when we got into this
how many different areas of real estate there
are, and how many different ways people are
putting property up for sale,” Koenig says.
“There’s no way you could know it all.”
A landlord’s body of knowledge should
include the various types of property
acquisitions, rental agreements, insurance
requirements and tax obligations. One
recommendation: take a class and join a
landlord association. Many community
colleges, and even local real estate
companies, offer classes on the business.
Additionally, there are countless landlord
associations in the region, such as ACRE of
Pittsburgh Inc., the Western Pennsylvania
Real Estate Investors Association and the
Apartment Association of Metropolitan
Pittsburgh. One of the best things you can
do initially is to talk to as many real estate agents who specialize in
rental property as you can find. Their advice could help you avoid
pitfalls and save you more headaches than there are painkillers.
“It can be a good business,” says Desmet, who paused before
adding, “You just need to know what you’re getting into.”
"In Pittsburgh, you’ll find top-quality builders who know how to
price a project for quality workmanship and will stand behind their warranty. Price, quality, service, pick any two. If a bid comes in $10,000 or $15,000 lower than others, you need to step back and ask yourself why.“
- Steve Fink, Paragon Homes
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