Tenant Troubles: The Fine Line Between Fairness and Financial Loss
Welcome back Alchemists! I hope you are progressing toward your real estate goals.
Over the years, I found a recurring curiosity trying to understand how people come to hold certain beliefs. I have experienced the impacts of a contemporary culture that has infused many people with the notion that being a landlord is easy money. The more successful you are, the more some tenants are prone to believe that they are entitled to your profits. To reframe this issue into another context, it is similar to Apple customers expecting to pay less for their iPhone 16 Pro because they know Apple is profitable.
Of course, many people struggle with the cost of housing, and that is something every landlord should keep in mind when doing business. However, some tenants who are well-paid and well-educated should expect to pay their fair share.
I recently had a tenant move out. This family had been with us for three years. While rents in Brooklyn had increased by over 25%, I kept their rent affordable throughout COVID-19. I believe families need a stable and safe place to live, so I generally increase the rent in small increments regardless of market conditions. This particular family had a gross income of about $225K and an MD degree. Late into their third year with us, I was informed that they would be moving out at the end of the lease due to a job loss. Move-outs often correspond with other major life events, making them incredibly stressful for many people. After the move-out, the tenant sent me a text apologizing for some damage and admitting that the removal of wallpaper caused significant damage to a small wall. For three years, we had a terrific relationship with zero antagonism. I fully understand my tenants pay a high premium and expect a commensurate level of service. In return, I expect people to take personal responsibility for their actions and their consequences.
It took me a few days to get into the apartment after the move-out. As I surveyed the apartment, it seemed like it was left in generally good condition with the exception of this one wall and the backyard. So, it was time to roll up my sleeves and get this unit ready for the next tenant. While a landlord is technically entitled to hire a professional to repair damage and charge the cost back to the tenant, I figured that one way in which I could be helpful to this family, given the job loss, would be to do the work myself. I was hoping to pass on the savings so I could refund more of the security deposit.
It took a few days’ work and a couple of hundred dollars’ worth of supplies to fix the wall. It also took about the same number of days to clean the yard. Since I was firmly aware of this family’s situation, I would only charge them for egregious and obvious damage. While many people use “normal wear and tear” as a benchmark, that term means very different things to different people. If a tenant left over 150 holes in the wall from hanging shelves and other items, is that “normal”? The point here is that there are judgment calls that can easily be argued both ways. In this case, I thought that charging the tenant for the bare minimum and charging them half the Brooklyn market rate for my time to do the repairs would be appreciated. To my surprise, that was not the case.
When I informed the tenant that the damage would be deducted from the security deposit, about 20% of the original amount, they responded with surprise. In short, things got heated. The tenant did not contest the damage, and the conversation devolved into an argument about the specific technicalities of landlord-tenant law. In my book, using the law to extract value using legal technicalities is akin to stealing, regardless of which side is doing it. You may not wind up in jail, but this type of behavior comes with consequences.
This is how you burn bridges and destroy relationships. Some tenants think they can use the technicalities in the law to strong arm landlords. In reality, the only way to enforce a contract is to go to court. What’s worse is that many tenants think they can play the ‘sovereign citizen’ trope, just quote a bunch of laws they have no understanding of thinking they are magical lawfare spells. While the laws are on the books, they are there to protect both sides. Contracts are easy, forcing your counterparty to hold up their end of the deal takes a great deal of effort. Judges don’t look to kindly on people trying to shirk responsibility and attempting use the legal system to extract unearned financial benefit.
This is one reason why prospective landlords get references from previous landlords, and you should too!
These are the hard conversations that come with being a landlord. Some people make financial decisions and live a lifestyle that can have negative long-term consequences. When they are faced with the consequences of their decisions, a lack of savings, they turn to their landlord hat-in-hand asking for help. A working couple, earning over $225K should know better. If you choose to make your rental home look like an architectural magazine photo spread of some millionaire’s Brooklyn brownstone garden apartment, you should probably be a millionaire.
GIRDEDAs a landlord, you engage with people who have very different world views, lifestyles, and expectations. I have a simple way of doing business that lets me sleep well at night, “take less than your share”. I have been blessed with a successful business and have focused on doing well and doing good at the same time. This approach makes me girded for conflict, I will fight like hell because people who want more after you have already given more than your share deserve no quarter in the fight.
As I tell many of my tenants when I do my intro, I will be the best landlord you have ever had or the worst, that depends on you. Tenants who seek contentious and adversarial interactions will get an experienced foe, girded for battle and ready for losses. Tenants who seek resolutions through mutual understanding and respect will have an experience akin to living in a building owned by a family member. Many people lose sight of the fact that not every landlord is trying to bilk them of their last dime, and not every landlord raises the rent to market every year. Most importantly, many tenants fail to realize that building a long-term relationship with a landlord could be a better financial move than buying a home in places like Brooklyn, where the cost of owning can be 2x to 3x higher than the monthly cost of rent.
While contracts, lawyers, and judges have their place, resolving conflict without third party involvement is usually the most economical. Situations like these sometimes drive us to emotional decisions in pursuit of ‘justice.’ An experienced operator knows these feelings, but also knows that there is no line for ‘justice’ on the balance sheet. I for one focus on my own success. Those I choose to no longer do business with, will likely find failure all on their own. They need none of my help to get there. Knowing when to cut your losses is just as important as knowing when to take your profits.
In the end, dealing with the few hundred dollars at stake is a complete waste of time. You will make more money using your time productively growing your business than spending hours on documents and going to small claims court. Fortunately, returning a security deposit by mail requires the sharing of a new address. Funny enough, less informed tenants don’t know there is lots of public information online, like the mailing address of a properties registered owner and other tidbits of information, very useful in helping to make sure these tenants don’t escape the truth and consequences of their behavior when they sign a lease in a new city.
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