Thursday, September 01, 2005

Eviction Notice Part of the Investment Process

Chris stroked his beard and shook his head, saying: "It's not fun." He was talking about having to walk up to the door of one of his rental properties recently with an armed sheriff and serve eviction papers to one of his tenants.

The couple had been living there about a year and suddenly the check didn't come. He gave notice, per the lease, and the check still didn't come. After meeting with the husband, he was given assurances that the back rent would be paid and that he would make sure his payments would be on time in the future. Another month later, Chris knew he was going to have to evict this man, his wife and children -- not a comfortable thought.

All Chris wanted to do was rent out good, clean, affordable properties to good tenants, now he was having to exercise the "heavy" part of the lease: tell the renter they were no longer welcome to live there, change the locks, put all the furniture outside and go to court for money owed -- even though he knew he would probably never see it. What followed was an emotional explosion from the wife toward her husband (who she thought had settled the debt).

If you ever have to face evicting a tenant, all sorts of thoughts float through your mind. First of all, an investor never wants to believe that the person they were so happy to rent their dwelling to a few months before is not someone they will be walking up to the door with law enforcement and telling (not asking) them to leave.

Second, since most investors have properties leveraged with a mortgage, you start worrying that you won't be able to make the payments on that mortgage and that the lender will start making some threats of his own.

Third, as you enter the property you are clinging on a thin strand of hope that maybe, just maybe, the house doesn't need a lot of repair, causing even more financial setback.

If you ever face evicting someone, the process differs state by state, even county by county. In Chris' case, he had to serve notice five days after the check was late and from that point, he was going to have to wait three weeks before the court met to hear the case (as it does every month). In the meantime, the sheriff calls and sets up a time to visit the tenant's house and serve notice of the court date. As you may calculate, by that time, your tenant may be two months behind in rent and you're two months behind in mortgages to your lender.

In between the filing and court date, he attempted to work out finances with the tenants, warning them that eviction day was coming. (He was, of course, promised that all the household goods would be moved out by then.) Once the court date came and the judge gave approval for the eviction, he then joined the sheriff and walked up to the door to change the locks and inspect the property.

In this case, the worst happened -- all the furniture and belongings were still in the house and the wife never knew what was happening. Chris was the one to break the bad news. She sat there and cried and apologized profusely, promising to pay him back (and payments have begun).

Nevertheless, the furniture had to be moved out and fix up on the unit begin -- which was taking longer and costing more than Chris had anticipated.

As you consider investing, be sure to look over the good, the bad and the ugly of investing. Look through your lease carefully about your rights as the landlord and the process lined up for taking back ownership of your property and evicting the tenants. Especially consider the tenant-landlord laws of your jurisdiction. While they are created to protect the housing rights of both tenant and landlord, they can also cost you a lot of money and you need to be sure you're able to pay.

Mr. Carr has covered real estate since 1989. He is the author of Real Estate Investing Made Simple. Got a personal real estate issue? Post your questions and comments at Anthony's blog.

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