How to Save Your Rental Property When “Good” Tenants Turn BAD
Could your rental property be occupied by bad tenants masquerading as good residents? After an incident that led to thousands in property damage, a complex insurance claim, and an eviction, today’s guest learned the importance of a watertight tenant screening process. And YOU can, too—without all the drama!
Welcome back to the Real Estate Rookie podcast! Chelsea Borden owns four duplexes in Buffalo, New York—an investing market with a low barrier to entry, where new investors can achieve the one-percent rule with relative ease. What Chelsea learned, however, is that it only takes one bad tenant to disrupt an otherwise-smooth long-term rental operation. In this episode, she shares how a family friend caused $11,000 in damage. By acting swiftly, Chelsea was ultimately able to evict the tenant, rehab the property, and place a new tenant.
Tune in as Chelsea shares her biggest lessons learned from this costly experience. You’ll learn the ins and outs of filing insurance claims, why you should require your tenants to carry renters insurance, and how to get the ball rolling when evicting a tenant. Chelsea also shares her best tips on home renovation projects, screening tenants, and homeowners insurance policies!
Ashley:
This is Real Estate rookie episode 385. Have you ever had a terrible tenant that has left you paranoid? My name is Ashley Care 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 at 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.
Chelsea:
Thanks for having me. Been a long time listener of all the BiggerPockets 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 to my ear the last few years.
Ashley:
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.
Chelsea:
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 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 spokes 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 picked 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 he’s 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. My god, 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.
Ashley:
So this was obviously something he’d been doing for a while in this property.
Chelsea:
A hundred percent, yeah.
Ashley:
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?
Chelsea:
It was just me. Oh
Ashley:
My God. So tell us about that first phone call and that first initial reaction is looking at this as to what do you do?
Chelsea:
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 started 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 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.
Ashley:
And so what was that next step that you took with the attorney?
Chelsea:
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 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.
Ashley:
And what was the tenant, the family friend, what was your communication like with him during this timeframe? Was he even contacting you? Was there any communication at all?
Chelsea:
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. 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, 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. 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.
Ashley:
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?
Chelsea:
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, 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 was 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. I mean the crazy thing is 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.
Ashley:
So after the insurance company left, did he basically go back to being on Hoarder then when he moved out? Was the place trashed again?
Chelsea:
I think it was just a very poor moving out job and everything was done in haste. From my understanding, the lady downstairs said the 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 a bed was left there. Just tons of stuff. The fridge full of food.
Ashley:
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, 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. 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 it’s how he acted so nonchalant like it wasn’t a big deal at all, but wrapped 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?
Chelsea:
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 in fixing everything. And the crazy thing is when you file an insurance claim like that and you provide your tenant’s 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 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 the 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. 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.
Ashley:
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?
Chelsea:
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 it 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 renter’s insurance? Definitely something good to have and force your tenants to get.
Ashley:
And honestly, it would’ve been better for him because your insurance company would’ve went after his insurance company instead of him personally too. So really it would’ve benefited him.
Chelsea:
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 is like, well, it must be, he doesn’t want to be found.
Ashley:
Yeah, geez. Okay, so with that check, how does it work with the insurance company? Do they have to vet your contractors? Is it just the insurance appraiser that’s coming in and saying, this is the damage and this is how much we’ll give to you to get it fixed? Or are you finding the contractors yourself giving the estimates? How did that process work?
Chelsea:
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 could argue that it did cost more than that 80% of what they assessed 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.
Ashley:
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 property since? How did the remodel go? Everything like that.
Chelsea:
So first things first, we got the floors fixed. It would be too difficult to match up original hardwood. So we went with the luxury vinyl in the kitchen and the living room. We 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 it had been lived in for four years and then some new windows and it was ready to rent again.
Ashley:
So was this the largest rehab that you ever had to do on a property?
Chelsea:
No, actually we have done, I guess what you could consider an official burr before on the west side, we bought a house that had been lived in with, I guess the previous tenants in the area had chickens, lots of cats, and that place pretty much had to be completely gutted. 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.
Ashley:
Oh, amazing.
Chelsea:
Yeah, actually we were on our honeymoon when we got the appraisal report and we saw what they appraised it for and it is far more than what we thought it would be. We were kind of worried that we would leave money in it and it was the best thing ever to get that.
Ashley:
And your Hollywood too. Yeah. Well there’s lots we could dive into there, but the piece I want to 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?
Chelsea:
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 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.
Ashley:
Oh, okay, well where’s this story going next? Did they end up good? Did they end up bad?
Chelsea:
They are. I wish we had so much more going on so that we could just keep using them because I literally messaged Riley one contractor on Instagram and was just like, we have a deck that we need rebuilt. Can you come out and give an estimate? He is like, well, do you want photos of our work or anything? I’m like, sure, why not?
Ashley:
He’s telling you how to vet him.
Chelsea:
Yeah, but I was like, I’ve already seen your work on Ashley’s Instagram. I know she’s probably definitely a stickler for doing things the right way. And pretty much from the first experience, we’ve gradually done more and more with them and so they stay on track themselves and 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, get some bulk buys going. And then as far as cabinets, we actually started recently going through this chain called Home Outlet. I don’t know if you’ve ever heard of them.
Ashley:
No, I haven’t. What’s that?
Chelsea:
So also a recommendation from Riley, he said they were a lot better than Home Depot, but they have some of the bigger, higher quality cabinet brands, but less cost and Home Depot and I would say just all around a better brand of cabinet. So we’ve been buying cabinets through them. Yeah,
Ashley:
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’s a tip.
Chelsea:
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.
Ashley:
And they’re also investors too, so I think finding a contractor that also has rental properties can be a huge benefit into the fact they know that there’s certain materials or certain things that you want to do to a rental property compared to your primary residence Also too.
Chelsea:
Yeah, I think one of the things that set us off on the right foot with ’em is the first job we had them do, it was 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 it was being held up by 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 both. 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, 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.
Ashley:
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?
Chelsea:
It’s in our backyard, so I think that’s probably the first thing. It’s easy to check up on them right now 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 have 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 ENT entry is a lot higher.
Ashley:
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. Welcome back to the show. And we have Chelsea here who told us her horror story, what happened 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?
Chelsea:
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 three to one 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 get out over a month of vacancy, like this one 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 skipped trace to the actual owner of the property, found their number, called them up, and they’re like, yeah, do not rent 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.
Ashley:
I love that piece of verifying the information and not just trusting exactly what they say on the application. So I’ve heard of people going, and I’ve done this before too, is looking up who actually owns the property and contacting those people or seeing if the name matches up, but great ideas skip tracing instead of trying to find white pages, find their name, things like that too. Just pay the 10 cents to trips or skip trays that one address and verify if the phone numbers match and if that’s actually 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 friend. I don’t think I’ve ever, maybe in the very beginning when I started property managing, I would call on those, but why would anybody put somebody anyways that’s going to say something bad about them for a personal reference too.
Chelsea:
I mean, I’ve even had, I remember this is the classic story where we had this one applicant and she seemed promising. She rolls up in the most expensive Audi SUV and it’s like a car that I would never buy. It’s very expensive and flashy, and she walks into the fully remodeled apartment. This is the place that we did a full rehab on, and she said, I deserve to have a nice place like this. I’m going to 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? You
Ashley:
Can’t imagine what her interest rate is on that SUV to be able to get it over 10 years.
Chelsea:
Yeah, yeah, exactly. Financed over 10 years. But that’s one of those situations. I don’t put everything into 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 right out of college and you’ve never had a credit card in your life, that’s the bare minimum. So certainly you want to be looking for a hundred percent on-time payments for sure on the credit report.
Ashley:
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 wrecked up all these medical bills, but everything else is perfect paid on time, I would approve them for that because I don’t take that medical debt into account or student loans if it’s not affecting their debt to income too much. So those are 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 Credit Karma or things like other websites like that where it’s free to, 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.
Chelsea:
Yeah, 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 were saying about some of the factors. 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 by 20 points.
Ashley:
You’re supposed to say from 1% to 30% that 30% utilization or whatever your credit cards to be. Perfect. It’s like a game, the credit, 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?
Chelsea:
So we actually do most of our screening through Zillow, 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 mothers 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.
Ashley:
And last question on the tenant screening part. Would you ever rent to a family friend or someone again after this experience?
Chelsea:
Well, I kind of did. We did.
Ashley:
Is that what at least going better?
Chelsea:
Yes, it is going much better. I don’t know, maybe I wouldn’t make an exception again after this, but this one’s going fine. We actually, so we house hack right now in North Buffalo, which 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 going to have to go back to having strangers as neighbors again. But it’s worked out great.
Ashley:
Well, that is a great point too, is wanting somebody live next to you too, which can be a huge benefit. Yeah.
Chelsea:
I will say though, we still had him sign the lease, no exceptions. He still has a 10 and cloud portal that he has to pay rent through and everything like that. So we try to make it official
Ashley:
And that is the best way to do it is to have it very formal businesslike. Okay. Chelsea, before we wrap up here, I understand that you have an insurance tip for everyone as to something they should get added onto their insurance policy?
Chelsea:
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 renter’s 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 costs, 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 big 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 home owners because this is such a prevalent problem. So a lot of people end up spending $600 a year to have this more 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.
Ashley:
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 in the 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.
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