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Aside from the “toilet call,” the number one concern of new real estate investors is the eviction. What will happen if they need to evict a tenant? Will they even be able to do it? Are property laws so in favor of tenants that they can just continue to squat even without paying rent? What about if you are in a very renter friendly state like New York?
All of these concerns pile up. And rightfully so.
The tenants receive a safe, affordable place to live that they may otherwise not be able to obtain due to credit history, income, or otherwise. And the owner receive a return on their investment in these 5 key ways including cash flow and appreciation.
However, that arrangement completely falls apart if tenants fail to pay their rent consistently. That is when real estate investors will need to consider and enact an eviction.
I am here to tell you, as an active real estate investor, that an eviction is not as bad as it sounds. Unfortunately, Selenid and I have had to evict tenants twice so far in our real estate investing career. Is it fun? No. But does it totally derail everything and outweigh all of the benefits of real estate investing. Absolutely not.
Hopefully this post can help dispel some concerns of potential investors and help current investors who may be going through something similar!
There are many reasons that an eviction may be necessary for a real estate investor. By far away, the most common is non-payment of rent. Others can include:
Whatever the reason, the end result is the same: the need for both parties to move on in their best interest.
Of course the easiest way to avoid dealing with an eviction is to invest passively in real estate. Then it's someone else's (i.e. the sponsor's) problem! But that means the sponsor also receives the lion's share of the benefits in terms of cash flow, appreciation, and tax benefits. This post can help you figure out if you are a better active or passive real estate investor…
However, for active investors, an ounce of prevention is worth a pound of cure. Similarly, the easiest way to avoid an eviction is by never needing one by selecting good tenants to begin with. This comes down to a few things in my eyes:
However, nothing is foolproof. And even though Selenid and I feel that we have become good judges of prospective tenants, some have still had issues.
Basically, we talk to the tenants about the issue and try to create a plan for remediation.
If the issue is non-payment, we try to find out what is going on. Were there unexpected expenses? And issue with employment? Something else? Then, we offer a payment plan with strict dates to be caught up. We let them know that if these dates are not met, we will unfortunately have to move forward with an eviction.
If the issue is a nuisance or some other manner of not following terms of the lease, we explain the issue and set a deadline for it to be resolved. We let them know that if these conditions are not met, we will unfortunately have to move forward with an eviction.
In our experience, this works out about 60-70% of the time. If it doesn't, as real estate investors, we move on to an eviction.
As with most things we have experienced as investors, we felt very nervous the first time we had to manage an eviction. Especially being in New York State, a notoriously renter friendly state.
But it actually wasn't too bad. I'll share the steps the we went through. The basic premises will be the same everywhere. But make sure to check on your own state laws.
Easy, right?
Because we actually didn't really have to do most of this. We have an awesome real estate attorney. So, here is the actual breakdown of what happens:
So, overall, it's really not bad at all!
Yes, it costs a bit. But not as bad as I expected. Yes, it is a process. But the patience is worth it, especially having someone else do the heavy lifting.
Having to deal with an eviction should not discourage you from investing in real estate. The benefits still way outweigh even this more major hassle.
As you get started investing, meet with different attorneys and find a real estate attorney who can both represent you during your deals and also help with issues like this. Then all bases are covered no matter what issues arise.
After that, focus on choosing the best tenants you can and maintaining a nice property. 99% of the time, this will avoid any issues leading to an eviction. But, if one if still necessary, now you know how it works and that you actually don't need to do it yourself!
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What do you think? Does an eviction scare you away from becoming a real estate investor? Why? Have you dealt with one? How was it? Let me know in the comments below!
