1 Pitfall of Being a Landlord

There are many positives about purchasing a rental property and becoming a landlord. In addition to the building equity on the property that (hopefully) someone else's rent is paying for, you might even earn extra income. Over time, a good history of rental income can even help you qualify for additional real estate loans to purchase other investment properties. However, today I'd like to look at one of the downsides of being a landlord: having to evict a tenant.

When to evict
There are several reasons landlords decide to evict tenants. The most obvious reason is for non-payment of rent, but there are many other less common reasons. Suppose you own a duplex and live in one side and rent out the other. You could get frustrated with the tenant's loud parties until 4 a.m. and decide you've had enough.

Too many guests staying for long time periods of time is another relatively frequent reason. The bottom line is that there's a list of reasons that justify eviction, as long as they are specified in the lease.

The legalities of evicting someone differ significantly from state to state. There is generally a certain amount of notice you have to give, which could depend on factors such as your reason for evicting, the lease term (month-to-month renters are generally easier to kick out than those on an annual lease), and any special circumstances. There are some things that generally have to happen before you can evict someone, regardless of what state it occurs in. 

For example, in Florida, where I live, certain steps need to be followed to evict a tenant for non-payment of rent. You need to give an official eviction notice allowing the tenant three days to pay the rent or vacate. Then, you need to file for eviction with the clerk of courts in your county (there is a fee for this). The tenant is then served with a summons and notice of the court's order. Finally, the sheriff will serve a "writ of possession," which orders the tenant to leave in 24 hours or face arrest.

The financial impact
Once you decide to evict, you could lose more than just your rental income. If the tenant refuses to leave for whatever reason, the process of having them legally removed from the premises can be long and costly.

In most cases, the court orders the tenant to pay the costs to evict, but according to one lawyer in Florida (where evictions are relatively quick compared to some places), court costs total $325 for the eviction process plus $1,200 in lawyer fees for a "simple" eviction, for a total of at least $1,525. It costs more if you are trying to recover any damages from the tenant.

In other locations, the process can be more costly and lengthy. In New York City, for example, where the laws are very "pro-tenant," it can take up to five or six months to take a tenant to "housing court" as the law requires. So, not only do you have to pay for the eviction, but you lose substantial rental income as well.

Consider this...
When I first became a landlord, I made one big rookie mistake. I placed an ad for my rental apartment and gave it to the first guy who showed up with enough cash in hand for a security deposit and the first month's rent. Now that I have some experience, I can share certain things that will protect you. There is always the chance that your tenant will warrant an eviction, but you can minimize that risk. 

First, always perform a criminal background check. If you have a tenant who ends up in jail, not only will you not get rent but the eviction process becomes more complicated. A credit check is optional. I don't do one, as long as the prospective tenant can demonstrate either employment security or financial independence. Also, use an actual, legal lease document, not just something you typed up. Odds are that your own homemade "lease" will not hold up in court.

Most of all: Be picky! A good tenant can help you achieve your long-term financial goals, while a bad one can end up costing you more than you would have made in rent. Rental properties can be an excellent way to build wealth and provide income, but do your due diligence before choosing who to rent to.

Of course, there's always the option of hiring a property manager, who would handle all of this for you (including the eviction process, if necessary), and generally gets 10% of the monthly rent. If the process of choosing a tenant and evicting one sounds like a time-consuming nightmare, paying 10% to not have to worry about it may be a very worthwhile expense for you!

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