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Monday, October 09, 2006

Nightmare Renting Scenarios

I'll freely admit it - renting is suck. This evening I opened my door to take out the trash and my 16 pound psychotic Pug broke loose and ran down the hall to meet my new neighbor, who was headed for the elevator.

The man, easily in his early 50's, backed into the wall while shrieking like the 10 year old girl in "Little Miss Sunshine". I quickly gathered up the dog and apologized profusely - aware that there are a few select "special" people who can be afraid of even the tiniest of pooches. Later my wife and I were treated with a visit from building security. Yeah, tasty.

I've been noticing quite a few condos for rent on craigslist as of late, and at very attractive prices. I believe that most of these units are investor owned.

Before you decide to rent one of these units, invest a little time researching the financial condition of the owner. You could save yourself thousands of dollars and years of headache.

In San Diego in 2004, my wife and I rented a small house near downtown from a young mid 30's couple. The house zillowed out at $550,000 and had been fully renovated, with stainless steel appliances, hot tub and a large, beautifully landscaped courtyard. My wife had to have it, and at only $1595/mo it seemed like a real keeper.

The landlords were giddy with excitement, having just purchased another home in the trendy nearby neighborhood Hillcrest, using the equity from their new rental. They, the new "Lumpenvestoriat"; passive-income loving landlords and us, puny serfs, only too happy to be their first tenants.

The two barely cleared $50K each working as managers at chic national establishments such as (yes, I'm serious); Smart & Final and Alamo Car Rental, yet now owned over $1.3M in Real Estate.

"Don't worry, someday you'll be where we are now. All it takes is a little hard work and a few years to build equity." they said.

We stayed for a year and then decided to rent a condo in Little Italy (downtown San Diego). We didn't get our $3200 deposit back, so we sued the smug retail managers in small claims court. They countered, saying we had destroyed the house; even producing photos taken during the renovation and passed them off as current! The judge believed them and we lost another $2200. We then appealed, won the case and were awarded our entire deposit plus all attorney fees.

The entire process took nearly two years and we are still trying to collect from these mental giants. The checks they send us are coming less and less frequently and in much smaller amounts. My wife wanted to bail on the whole thing, but I have this pesky issue with injustice and hypocrisy.

Their deed records indicate some impressive loans and it's clear they are in deep financial trouble. An attempt in 2005 to sell their rental failed, and now both of their properties have already lost over $200K in equity, combined. I see BK in their near future.

The Little Italy condo we rented was a 2 bedroom with nice views of the city and harbor. At $1800 per month it also seemed like a great bargain, zillowing out at around $650,000.

The 22 year old kid we leased it from was also a first time landlord and homeowner and occupying the unit. "Where will you live?" I asked. "Oh, I'm going to live at my Mom's house in Chula Vista." Odd. If you own this great place downtown, why move back in with moms?

I still didn't have a clear picture of what was going on.

It turned out that the neophyte landlord was also a fledgling real estate agent and purchased the property with a friend. They bought it in 2004 for $440K and were probably expecting to net a tidy $100-150K after renting to us for the year.

My wife and I spent the New Year in Japan and upon our return were presented with a $200 rent increase. It then occurred to me that this was all part of his master plan. We had been used!

Luckily we had already made plans to move to Seattle so we weren't affected.

Since March 15 of 2006 he's had the property on and off the MLS twice and it's now listed on craigslist for $515,000. The problem is that there are many other identical condos 5 to 10 stories higher up going for $75-100K less. In addition, there are now 10 units in the building in preforeclosure or foreclosure. A 14th floor unit was just listed this weekend for $320,000! The $1M to $1.4M 17th floor penthouses are now going for $700-1.1M - and still aren't selling.

I'm posting this story as a warning to renters who may be lured into a "good deal" while specuvestors continue to play the market here in Seattle. You may have some of the issues described above - or, in the case of foreclosure, you may actually have to vacate.

Having said all that, I'm still not willing to destroy my financial future by purchasing now just to avoid a few temporary headaches. The grass is always greener (quite literally) on the other side; there are just as many headaches with owning, but at least you have a bit more control of your density.

For what it's worth, my advice is to stay away from investor rentals. If you must rent from these types, write your own lease agreement and force them to sign a two or three year lease that gives you the option to break your lease after 1 year (with a small financial penalty; say, one months' rent) at any time. That way you may be able to take advantage of a potential buying situation during your lease. Build in 5-7% yearly rent increases to make them feel warm and fuzzy. If they don't take the bait, just move on to the next future retail chain manager.

13 comments:

SeattleMoose said...

Wow, you have really been thru the wringer.

I think we are also going to lose our deposit ($1850) because the flipper who owns the home we rent has no job, refuses to get a job, and thinks she can keep living off credit cards and then magically sell her "big investment" and walk off to retire in some tropical place with all her winnings.

This woman is in her late 50's and is quite frankly, nuts. She came across as a "professional" when we were still fishing and we fell for it. It was only later did we find out that she is a habitual liar.

I think your advice to find out the financial condition of the owner is excellent advice. She demanded a credit check and payment stub from us, but these days that should go both ways. Renting from a loser and/or FB means you can kiss your deposit good-by.

The Tim said...

Dang, man. It sounds like you've "done the time." I've had a pretty breezy rental experience the past four years. Although the apartment I lived in just before I got married (pretty much Woodinville's cheapest complex) has since converted to condos.

BTW, Darth Vader visited me from the planet Vulcan and told me that I have to tell you (or he'll melt my brain) that I loved the BTTF reference.

Kaleetan said...

Synthetic .. are you serious about this comment, or is this just wishfull thinking?

"I can't tell you exactly how bad it will be, but most likely it will be worse than anything we've seen since the depression.

I'm expecting a return to 1999-00' prices and a massive, nationwide recession by mid-2007."

... if anything the Fed will have to raise rates to slow down the economy next summer.

1999 Prices?? - your a funny guy

Eleua said...

Kaleetan,

Synthetik is a moderate.

I'm predicting 1997 or earlier prices.

Eleua said...

... if anything the Fed will have to raise rates to slow down the economy next summer.


THAT is wishful thinking.

The FED is just aching to cut. Any weakness in the economy will be met with rate cuts. Given that HOUSING IS THE ECONOMY, any weakness there will be what the FED is targeting.

As long as the US$ continues to defy gravity, expect more tomfoolery from the FED. They will cut until the US$ burns, then they will soil themselves, get replaced, and the new crew will hike rates - too little, too late.

We need a recession, but that is contrary to national monatary policy. Easy money caused this mess, and more easy money won't cure us.

You don't cure a hangover with more liquor.

synthetik said...

..you have really been through the wringer.

I've got the 1000sqft stare now. All renters get it when they've been under the man's thumb too long.

...wishful thinking?

no! I absolutely don't wish for a anything but a return to normalcy (in economics, there is no such thing). I just see that we should have had some kind of depression (what DOES define a depress? 10% decline in GDP?) in 2001-2005+? In Nov of 1973 I was not quite 4 years old. During the following 1.5 years, GDP fell by 4.9%, the worst since the depression.

I don't see how current economic conditions aren't ripe for a much worse situation than above. Back then we had a manufacturing base at least.

If you apply typical RECENT historical housing growth from the last 30 years I don't see why 1999 prices aren't realistic.

Let's just hope Hannibal Lecter over there isn't correct.

synthetik said...

For the record, I've owned 4 properties between 1991 to 2003. All were fixers to some degree or another.

Like any homeowner, I have my share of horror stories.

When you have STUFF, it breaks. Sometimes it's good to be "off the grid"

biliruben said...

One suggestion, Synthetic.

No, don't buy.

Train your dog. ;)

PepeDaniels said...

The only thing possibly worse than renting in a nightmare is owning a condo in a nightmare situation.

I had a co-worker in S. Florida who lived below a fellow-condo owner nut job. They were constantly doing "repairs", often past midnight. Despite well documented complaints to the condo board, police reports, the whole nine yards, nothing really happened. It can often be a futile effort on top of a frustrating experience.

Additionally, they probably ended up losing money when the had enough and moved out. It had reached a point where it was really affecting their personal lives due to lack of sleep.

I've had a mix of rental experiences living in NY, FL and here in WA. Being tied into a bad situation financially seems like the thing to avoid. I like the idea of asking the landlord for a credit report - why not throw in a criminal background check as well!!

I'm not a huge fan of Seattle but I have to say that people are generally very civil. Here, you're more likely to get a snotty look because you didn't recycle properly one time or something.

Lake Hills Renter said...

I've been renting in the area since I moved here in 2000. I got tired of apartment life in 2003 and moved into a MIL in Sammamish. That was too noisy, so I exercised a clause in my lease and got out of it after only a few months. I now rent the ground (top) floor of a duplex in Lake Hills and it's great. I already knew the landlord, he gave me a great deal, and my best friend lives downstairs. Plus my commute is all of 10 minutes. I don't mind renting at all now. I'm saving a ton of money. I'll get good and ready to jump in once the market returns to sanity.

dalas said...

there are duplex in Lake Hills?

SDtoSEA said...

Synthetic,

Sorry to hear about your rental struggles here in SD. I feel very lucky to be renting a home in Rancho Penasquitos from a longtime owner (bought in '78). No worries about him ending upside down.

Another year here and then back to Seattle.

Lake Hills Renter said...

there are duplex in Lake Hills?

It's a 4 bedroom 2-story single family home the landlord remodelled into two separate units (top floor and bottom floor) by sealing off the stairwell and turning it into a laundry room. Is there another term for this than a duplex?