385: How to Save Your Rental Property When “Good” Tenants Turn BAD w/Chelsea Borden

This is Real estate rookie episode 385. Have you ever had a terrible tenant that has left you paranoid? My name is Ashley Kerr and welcome to the Rookie podcast where every week, three times a week, we bring you the motivation, inspiration and stories to get you started. If you have your own real estate horror story, share it with us@biggerpockets.com Reply so today our guest is Chelsea Borden. She is a rookie investor out of Buffalo, New York with four duplexes. And today we are going to cover $11,000 in property damages, insurance scams and a phone call in the middle of the night that all investors fear. Chelsea, welcome to the show.

Thanks for having me. Been a longtime listener of all the Bigger Pocket shows and I was saying before we got on the call that I feel like I know you at this point because you've been talking in my ear the last few years.

Well, today everyone gets to know you and unfortunately it's a traumatic experience that has happened to you with a tenant in one of your properties. So take us back to that night when you initially got the phone call that most investors dread.

Yeah, so this was with the duplex that my husband had bought long before we have ever met. But I've kind of taken the role of property manager on for the properties that we own. And this tenant we've known personally, they're, they were close to the family. We've sat across the dinner table at Thanksgiving from this person and they've been in this property for about four years. Things started to seem like they were going downhill a little bit in the past year. There's an 88 year old lady that lives below him that had gradually started complaining more and more. Smoke, smell, cats, noises. It was a Saturday night. At 10 o' clock at night she starts calling my phone, which my first instinct is probably she's just complaining about something minor because she had gotten kind of critical recently. But I pick it up and she said there's water coming through her living room ceiling. And she called the upstairs tenant. He's out of town at a concert, two hours away and is not going to be back for several hours. So I grab the keys, I go over there. I figured it's okay for me to enter. This is kind of an emergency at this point. I go into his unit and right away my heart sinks. This place looks like a hoarder house. There's junk everywhere, bags of clothes, dirty dishes, just garbage. And I look in the living room window and the guy has one of those portable air conditioner Units hooked up to the window with a dehumidifier hose leading into a spaghetti pot on the hardwood floors that has been overflowing probably for days. And the original hardwood floors that we had refinished before this guy moved in were completely warped across the living room.

So this was obviously something he'd been doing for a while in this property.

A hundred percent, yeah.

Was your husband with you at the time when you went over to the property, or was it just you initially walking in and seeing this?

It was just me.

Oh, my God. So what. Tell us about that first phone call. And that first initial reaction is looking at this as to what do you do?

My. I mean, my first reaction was empty the spaghetti pot and grab one of the random towels that were strewn all over and dry up the floor to try to plug a bleeder, I guess. And then my second reaction was, I need to document the heck out of this. So I take my phone out and I start taking photos of not only the condition of the floor and kind of the things that led up to the floor being damaged, but also just the condition of the apartment. Obviously there was smoking happening in the unit. So the lady downstairs was not crazy, even though when we had addressed it in the past, this tenant had said, she's crazy. I haven't smoked in four years. There was an ashtray with cigarettes that had been smoked before the person left, along with some illegal drug activity being evident on the table in the d. In the dining room. So taking photos. And then I just touched base with the lady downstairs and went home, vented to my husband about the situation. We kind of put our heads together to hit the ground Monday morning with our attorney.

And so what was that next step that you took with the attorney?

So we issued a 10 day notice to fix, and that basically started the clock. And we told our attorney we wanted to start the eviction process right away just to make sure he knew we meant business and sent him all the photos. We posted that notice on his door. And, you know, the next 10 days went by and of course nothing got fixed. But we got a call into the insurance company to have an insurance assessment set up for that 10 day mark. So basically we had them on the schedule to not only go and inspect the property to confirm nothing had been fixed, but have their assessment done at that time too.

And what was the tenant, the family friend, what was your communication like with him during this time frame? Like, was he even contacting you? Was there any communication at all?

He. The frustrating thing is he just acted Completely oblivious. Like the damage to the floors. He's like, oh, I don't know. That just happened. Even when we showed up with the insurance people, the place was completely spotless. Like, it was very clear he had spent the next week scrubbing this place. The cats were gone. There were two cats there that were not on the lease. And the ashtray was gone. Obviously air fresheners had been used to get rid of the smoke smell. And he just acted like he has no idea how that could have possibly happened. He still, even to the end of our communication with him, claimed that the lady was crazy and he was never smoking. And the whole time I'm thinking like, dude, I had to go into your apartment. I saw all of it. So we did email him and keep a paper trail of everything. Um, and that's kind of where I handed that part off to my husband to communicate sort of man to man with him. And it's more his immediate family that the connection with this guy was from. So I let him handle that part of the communication.

So with this guy just being nonchalant about it, and obviously you guys finding out from the insurance company, this is $11,000, what are the next steps after the 10 days is over? How do you and the attorneys proceed with it?

So luckily he did agree that he would get out by October 1st. This kind of all went down in August, so we had to. Technically, he had 90 days for getting out with the eviction process, is my understanding. He said, you know, I'll go, I have a place set up. I'll be gone by October 1st. So it wasn't forceful, but I do think kind of setting the stage that we're going to evict you probably helped with that. Of course, October 1st came around and he wasn't gone yet. And that kind of turned into two weeks of, oh, yeah, I just got to come back and get a couple things. And he said that for multiple days and we kept going back and nothing had changed there. There's still stuff all over the place. And so finally we just said, time's up. And from there he was basically in agreement that he was out, even though he left behind a 15 yard dumpster worth of stuff that we had to get cleared out. And I mean, the crazy thing is, like, this person, they had a good career, seemingly on paper, had their life together, and.

It boggles my mind that they left in this situation.

Did it? So after the insurance company left, did he basically go back to being a hoarder? Then when he moved out, was the Place trashed again.

I think it was just a very poor moving out job and everything was done in haste from my understanding. The lady downstairs said that U Haul showed up one day and he threw a bunch of stuff in there and closed it up and left but never came back. And so like a bed was left there, just tons of stuff, the fridge full of food.

We're going to take a short break and one thing before we do that though that just amazes me is how people can afford to just move to another place and buy all new stuff for their next place and leave all this stuff behind because I've been in that same situation. But when we come back, I want to hear about how you have a vacant unit now that has $11,000 in damage and how you handled that and remedied it.

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Okay, we are back from our short break. We have Chelsea here who just told us the horror story of this tenant that she had that destroyed her property. And probably the worst part about is how he acted so nonchalant, like it wasn't a big deal at all, but racked up $11,000 in damages. So finally this tenant moved out after the threat of eviction. And what were your next steps to complete the repairs of this property?

So this is our first experience where we actually tapped into using our insurance. It's one of those annoying things that you hate paying for until you actually need it. So the insurance company did pay out money for the damages. Now of course the original hardwood floors don't get made anymore and they had to factor in the labor for that and fixing everything. And the crazy thing is when you file an insurance claim like that and you provide your tenants leases to the insurance company, they actually then go to the tenant for damages. So our premiums have not changed at all. And the funny backstory to this is when my husband was younger and much less mature, he was on the other side of this situation where he, he was renting an apartment and his roommate had the big bay window open and was smoking weed one day and it was in the middle of rainstorm and it caused I think $6,000 worth of damage he said, to the apartment that they were living in. And his landlord at the time did the same thing and he ended up having to settle for like $5,000 and pay that to the insurance company. So we got that insurance check and that's what we used to repair the apartment. Obviously like I said, we filled the 15 yard dumpster worth of stuff and at that point we also figured it was a good time to upgrade the kitchen because it had the original cabinets in there, upgraded the appliances as well because they were so destroyed and disgusting from this previous tenant. So we basically revamped the apartment and got it ready to lease again.

I think that insurance piece is such a great piece of advice as to going to your insurance even before you need to make a claim and seeing if this is something that would be covered and what the steps would be to get a check at the end to cover this. Did your tenant have a renter's policy at all in place.

He didn't. He did not. And in the past two years, that's something that we required. I guess you could say he was kind of grandfathered in and was renting before we kind of got a little bit more official and better processes in place. Yeah, my husband had brought that up to him and he said, what do you mean renters insurance? So definitely something good to have and force your tenants to get.

And honestly, it would have been better for him because your insurance company would have went after his insurance company instead of him personally too. So really it would have benefited him.

And I asked the insurance guys, I was like, so how are you going to find him? And they're like, oh, we'll find him. Because he kept getting mailed to the apartment for months afterwards. And I even had to talk to the mailman. He's like, well, must be. He doesn't want to be found.

Yeah.

Okay, so with that check, how does it work with the insurance company? Do they have to vet your contractors? Do they, you know, is it just the insurance appraiser that's coming in and saying this is the damage and this is how much will give to you to get it fixed or you finding the contractors yourself, giving the estimates? How did that process work?

So it was actually super easy. They did their own independent assessment and they basically had a check to us within five days. And basically they pay out. I think it's 80% of what their total assessment would be. And if you wanted to ask for more and you, you could argue that it did cost more than that, 80% of what they assess it at, then you would have to provide proof and receipts. Otherwise you can use whatever contractors you want. They don't check on that.

Wow, that's awesome. Yeah. I think this insurance piece is really educational and I think it can also mitigate that risk a little bit that if you do have a tenant destroy the property in some circumstances that you have this option of going to your insurance company. So what have you done with the, the property since? How did the remodel go? Everything like that.

So first things first. We got the floors fixed. It would be too difficult to match up original hardwood. So we went with the, the luxury vinyl in the kitchen in the living room. Tore out the original built in cabinets that were well past their life. And we put all new cabinets in stainless steel appliances. We added a dishwasher just because that's something that we've been doing when we remodel kitchens because most of our units are in B class neighborhoods. And I think that's kind of what tenants expect. Now. We did spend money on getting granite countertops put in just for the durability of them moving forward. Had to repaint the entire apartment because it did again, smell like smoke and had been lived in for four years. And then some new windows and it was ready to rent again.

So was this the largest rehab that you ever had to do on a property?

No, actually, we have done, I guess, what you could consider an official burr. Before, on the. On the west side, we bought a house that had been lived in with, I guess the previous tenants in the area had like chickens and lots of cats. And that place pretty much had to be completely gutted. Like we did, mostly new electric, new plumbing, and that was back in 2021. So when interest rates were nice and low, and that was our first experience with a hard money lender getting a business line of credit and doing the cash out refi. And it was kind of right before the rates jumped back up. So we got it locked in at four and a half for 30 years.

Amazing.

Yeah. We were actually, we were on our honeymoon when we got the appraisal report and we saw what they appraised it for, and it was far more than what we thought it would be. We were kind of worried that we would leave money in it, and it was like the best thing ever to get that.

And your Honeywood too. Yeah. Well, there's lots we could dive into there. But the piece I want to kind of point out there is managing a project. So you have done your gut rehab that you did at the west side house, and then you've also managed this project to get this unit turned over. What are some tips that you have for managing construction projects such as finding contractors, managing contractors, selecting the right materials, things like that?

I think probably the thing that's going to make it easiest to manage a project is finding good contractors from the get go. So I have you to thank for finding the best contractors we have in Buffalo. I literally, you know, I follow you on Instagram and so I follow all your projects that you're doing. And one of the days that I think it was maybe earlier on when you were working with the contractors, I clicked on their profile. I'm like, well, if they're good enough for Ashley, they got to be better than the guys we've been using.

Okay, well, where's this story going next? Did they end up good? Did they end up bad?

They like they are. I wish we had so much more going on so that we could just keep using them because I literally messaged Riley, the one contractor on Instagram and was just like, we have, you know, a deck that we need rebuilt. Can you come out and give an estimate? He's like, well, do you want photos of her work or anything? I'm like, sure, why not?

He's telling you how to vet him?

Yeah, like, but I, I was like, I've already seen your work on Ashley's Instagram. I know she's probably, you know, definitely a stickler for doing things the right way. And pretty much from like the first experience, we've gradually done more and more with them and so like they stay on track themselves and like they'll send updates and things like that. And they're just good contractors. So I think that's probably the biggest hurdle to get over when you're managing a project. And then I mean we do everything through Home Depot for the most part with a pro account that helps us keep everything on file, all our receipts, you know, get some bulk buys going. And then as far as like cabinets, we actually started recently going through this chain called Home Outlet. I don't know if you've ever heard of them.

No, I haven't. What's up?

So also a recommendation from Riley. He said it was they were a lot better than Home Depot, but they have some of the bigger, higher quality cabinet brands but less cost than Home Depot and I would say just all around a better, better brand of cabinet. So we've been buying cabinets through them.

Yeah.

What a great tip right there in itself is ask your contractor, where should I get the best materials? Where do you get the best pricing? So that right there is a tip.

Yeah. They even said that they use it in their own personal residence. So I was like, again, if it's good enough for them, it should be good enough for a rental.

And they're also investors too. So I think finding a contractor that also has rental properties can be a huge benef into the fact they know that, you know, there's certain materials or certain things that you want to do to a rental property compared to your primary residence also too.

Yeah, I think kind of one of the things that set us off on the right foot with them is we, the first job we had them do, it was like a double decker deck on the back of one of our doubles in North Buffalo. It's kind of a common style you see around the city. It was completely rotted out and was being held up by like some two by fours. And so we had them come out and look. And they were like, well, we can tear it down and rebuild it, but you're going to save a lot of money if you just basically, I think it's called a Juliet Bulk. And he basically just put a blocker on the top door and then rebuild a set of steps on the lower. And they're like, you know, it's going to save you several thousands dollars to do it this way. And they didn't try to upsell us or anything like that. They kind of spoke our language as investors, so that was helpful in trusting them.

I want to transition to talking about the market in Buffalo. So I only have three properties in Buffalo and two are the very, very south, south, south end of Buffalo. Not even really considered too much of the city. So what are some of the reasons that you feel confident investing in Buffalo right now?

It's in our backyard, so I think that's probably kind of the, the first thing. It's easy to check up on them. Right now we're self managing because we can and it's not a ton of extra time added to our plates. I think In Buffalo, the 1% rule is definitely doable. As investors, I think other parts of the country, people are talking about how it's more and more rare to achieve the 1% rule. I think it's almost a given that you should be able to do that here in Buffalo.

And then just, yeah, the barrier of entry has been pretty low. My husband and I basically funded these by doing either house hacks or just by saving up money from our W2 jobs and putting down a standard down payment, which definitely wouldn't be doable in a place like California where the barrier to entry is a lot, a lot higher.

We're going to take a short break, Chelsea, and when I come back, I want to talk about some of the lessons learned about tenant screening and how you have your criteria set for screening tenants. We'll be right back.

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And we have Chelsea here who told us her horror story. What happened we with her tenant that was a family friend and we went over the city of Buffalo Market and a few other things and now we're going to jump into tenant screening. So Chelsea, what is your advice for a rookie investor who is maybe selecting a tenant for the first time?

Set your criteria and then stick with it no matter what. Even if you want to avoid vacancy and you want to get a unit filled. We use the standard 600 plus credit score.

3 to 1 income to rent. And we get a lot of people that inquire about our apartments, whether it be Zillow or Facebook. And I would say probably 95% of them are not qualified individuals. And if you start to kind of get out over a month of vacancy like this, this one was that we recently had to turn over was a bit slower because it fell during the winter months. And gosh, it's very tempting to want to make an exception to your criteria just to get the unit filled. But don't do it. It's much better, I would say, to lose a month worth of rent and fill it with someone that's got a contract to be there for 12 months and it turns into an absolute nightmare. I mean I've had people that have given me their friend's contact info to pretend to be their former landlord and I would call them up and it just didn't sound right. It sounded fishy trying to talk to these people. So then I got off the phone with them and I searched their address that they listed, basically skip trace to the actual owner of the property, found their number, called them up and they're like, yeah, do not run to them. We're currently suing them for $5,000 and that's just kind of what you run into, I feel like, with trying to screen tenants, but stick to your guns.

I love that piece of verifying the information and not just trusting exactly what they say on the, the application. So I've heard of people going, and I've done this before too, is looking up, you know, who actually owns the property and contacting, you know, those people or seeing if the, the, the name matches up. But great idea, skip tracing instead of trying to like find white pages, find their name, things like that too. Just pay the $0.10 sense to trip or skip, trace that one address and verify if the phone numbers match and if that's actually, you know, the person that you previously talked to that they put down. One thing that I disagree with on rental applications or kind of pull no weight for is when it lists personal references and people put their mom, their sister, their friends. I don't think I've ever, maybe in the very beginning when I started property managing, I would call them those. But why would anybody put somebody anyways that's going to say something bad about them for a personal reference too?

I mean, I've even had, I remember this is like the classic story where we had this one applicant and she seemed promising. She rolls up in like the most expensive Audi SUV and it's like a car that like I would never buy because it's was, you know, very expensive and flashy. And she walks into the fully remodeled apartment. This is the place that we did a full rehab on. And you know, she said, you know, I deserve to have like, have a nice place like this. Like I'm gonna apply to it. We get her credit report back and it's like 45 on time payments. And this loan for the SUV, she just took it out. So she hadn't even had to make a payment yet. I'm like, who would even lend to someone to get this SUV?

Can't imagine what her interest rate is on that SUV to be able to get it over 10 years.

Yeah, yeah, exactly. Financed over 10 years. But like that's one of those situations. I don't put everything into like a credit score. But I feel like if you're making on time payments all the time, you're going to have a 600 credit score. Unless you're like right out of college and you've never had a credit card in your life that's like the bare minimum. So like certainly you want to be looking for 100% on time payments for sure on the credit report.

And I think it's very Important as a landlord to be able to read a credit report because there are so many different things to take into an account. So for example, I don't put a lot of weight on medical debt. If someone has medical debt, maybe they had cancer, racked up all these medical bills, but everything else is perfect, paid on time, I would approve them for that because that I don't take that medical debt into account or student loans if it's not affecting their debt to income too much. So I, those are, you know, being able to read and understand what the different things that are against them on the credit report too. So if you are not already, I recommend signing up for like credit karma or things like other websites like that where it's free to. It's. Trust me, it's not very accurate as to what your actual credit score is in my experience. But you can at least get to understand what kind of factors go into credit and what is actually on a credit report and how to read it and go through. And that can really help you make decisions on tenants too as to understanding why their credit score is high or low too.

Yeah, we, we do have one tenant that's, he's a lawyer, so he has all sorts of law school debt and that's no big deal. But I agree with what you're saying about some of the factors. Like I know when I paid a credit card or my brother recently paid off a credit card thinking that it would help his score and it dropped it like by 20 points.

You're supposed to stay from like, like 1% to 30% that 30% utilization or whatever your credit cards to be perfect.

It's like a game, the credit card, the credit score game. But what about job history? And do you look into their employment at all and get verification that they are employed? Check pay stubs, anything like that for job verification?

Yeah, so we actually do most of our screening through Zillow because that that's usually where people apply to apartments. And for the most part anyone that we've rented to that's been qualified has uploaded pay stubs to Zillow with their application. Now we have filled units with someone that's in college and we made them have their mom as a co signer and we checked their mother's credit score and had an income verification done on her.

So yeah, we definitely do our due diligence to make sure that they have some money coming in.

And last question on the tenant screening part. Would you ever rent to a family friend or someone you know again, after this experience Experience.

Well, I kind of did. We did.

Is that one at least going better?

Yes, it is going much better. I don't. Maybe I wouldn't make an exception again after this, but this one's going fine. That we actually. So we house hack right now in North Buffalo, which like we're in the city limits, but it's in the ideal neighborhood if you're going to live within the city of Buffalo. Very desirable, a class neighborhood. We rent the upper unit to my brother currently, but he's moving out come summer, so we're gonna have to go back to having strangers as neighbors again. But it's worked out great.

Well, that is a great point too. Is like living wanting somebody, you know, live next to you too, which can be a huge benefit. Yeah.

I will say though, we still had them sign the lease.

You know, no exceptions. He still has like a tenant cloud portal that he has to pay rent through and everything like that. So we try to make it official.

Yeah. And that, that is the best way to do it is to, to have it very formal business like. Okay, Chelsea, before we wrap up here, I understand that you have an insurance pro tip for everyone as to something they should get added onto their insurance policy.

Yes. In the city of Buffalo we are notorious for having kind of an outdated sewer system. So there's a lot of basement sewer backups throughout the city when there's a lot of snow that melts or just during heavy rainstorms. And on your renters insurance policies, not every company does it, to my knowledge, but you can definitely find one that does. You can get an external utility line endorsement and it will cover you for $10,000. It only cost, I think we pay $60 annually per property. So if you ever have to basically dig up your front yard to replace the old sewer line, you would pay your deductible and then you have coverage for $10,000. And usually those jobs cost all of that 10,000 because it involves a pretty significant dig job putting in new underground pipes and things like that to your house. So it probably varies on where you live, but definitely in the city of Buffalo it's a good, good thing to have. The reason I bring that up is because there's actually a company in Buffalo that's a third party company that will provide insurance for this type of repair. And I think they charge $600 a year and they send out mailers probably on a monthly basis to Buffalo homeowners because this is such a prevalent problem. So a lot of people end up spending $600 a year to have this more expensive, expensive coverage. Whereas you could just pay $60 a year to get it added to your homeowners and save a lot of money that way.

I would say that's quite a big difference. An extra zero you're saving. Well, Chelsea, thank you so much for coming on today and sharing your horror story so everyone else can learn from your experience, but also all of the great tips and advice that you gave to our rookie listeners. We are going to put Chelsea's information in the show notes so if you'd like to learn more about Chelsea or reach out to her, you'll be available show Notes or the description on YouTube. If you guys love this episode, please give us the thumbs up on YouTube or make sure you are following us on your favorite podcast platform. Thank you guys so much for joining us. I'm Ashley and I'll see you guys next time.

Thinking.

Hey rookies, if you're watching this, we want you to apply to be a guest on the Real Estate Rookie Podcast. That's right. Ashley and I are looking for amazing stories just like yours to be a part of our Real Estate Rookie Podcast. Now look, you don't need to be an expert. You don't need to have done thousands of deals. Even if you've done one deal, your story could help inspire the next listener.

As a rookie investor. Especially if you just got your first deal. It is all fresh in your minds and you are the best person to tell your story, give your experience on how you got it done to help someone else get their first deal.

So head over to biggerpockets.com guest if you want to be a part of our show again. That's biggerpockets.com guest and we'd love to have you on.