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.