Why 'Nice Guy' Landlords Finish Last
Friday, October 9, 2009 | Ethan RobertsRating:
The late Leo Durocher (1905-'91), a Hall of Fame baseball player and manager, was often credited with a famous remark that "Nice guys finish last." This originated with a 1946 interview in which he commented that ball players who were nice to their teammates and got along well together, did not necessarily create a winning ball club.
Durocher was referring to the San Francisco Giants, who had reputations for being great guys. Despite this, they would nevertheless go on to finish last in the National League that year.
'No More Mr. Nice Guy'
Leo, who wasn't much of a ballplayer, made the Hall of Fame because of his 2,009 career victories as a manager. But he was mostly known for his tendency to argue with umpires, and was in fact ejected 95 times during his managerial career.
No nice guy there!
The meaning of Leo Durocher's famous quote has been erroneously modified over the years to say that, if you are nice, you WILL AUTOMATICALLY do poorly -- as opposed to Durocher's meaning that, despite being nice, they WOULD STILL do poorly.
Leo 'The Lip' Durocher
Well, wrong meaning or not, today I want to relate Leo Durocher's famous quote to a topic that several readers have asked me about recently -- how to be a better landlord and succeed with one's tenants.
The Landlord's Golden Rules
A few months ago, I wrote an article in The Tycoon Report in which I said that landlords should never rent to friends, family members or co-workers, because it becomes too difficult to take the necessary actions if rents are not paid, or the property is damaged in some way.
Similarly, one should never become friends with their tenants, for the same reason. How are you going to evict the same guy you watch football with every Sunday, or just played poker with last night?!
'I don't care if you have four kings; you owe me $500 for the rent!'
When it comes to being a landlord, nice guys definitely finish last! A landlord should always be fair, yet firm with his tenants.
If you think you are being mean by adhering to the stipulations of the lease, then you may not be cut out to be a landlord. And if you are too "wimpy" to have to give non-paying tenants an ultimatum, then maybe you need to have your spouse or professional property managers handle your rental properties.
Tenants' Teenage-Type Rebellion
Some tenants may assume their landlords are extremely wealthy, and an irresponsible tenant will rationalize that skipping out on rent is justified because "the landlord can afford it." Other tenants may either be jealous or resentful of the landlord's "wealth," and so they don't mind "sticking it to him."
I have found that a significant percentage of tenants sometimes behave like children, in a way that psychologically replicates the parent-child relationship with their landlord. This is done by acting out (e.g., not paying rent, damaging the home), or they will test the landlord's "parental" authority by being late with rent or making only partial payments.
Therefore, the landlord needs to be the "good parent," by being firm and assertive (but not aggressive) with his tenants. Landlords who are meek, afraid of confrontation, or lacking in their own confidence are like parents who let their children do whatever they want without parental controls or behavioral limits set.
Psychology aside, the biggest mistake that a landlord can make is failing to treat their rental properties like a business. Real estate is unique in that, although one buys real estate as an investment, being a landlord is actually a business just like many other businesses.
Imagine that you are the owner of a clothing store. One day a woman walks in, tries on a few dresses, then approaches you at the counter, and says, "Hello Mrs. Smith. I have some bad news. I was laid off last month, but I really need these dresses to interview for another job. So I'll just take them anyway, but without paying this time, OK? Thanks, have a nice day!"
Would you allow this to happen?
Well, tenants who fail to pay rent on the home or apartment that you own and lease to them, are stealing from you, just the same as someone who would shoplift from your store!
If you think you are being mean by adhering to the stipulations of the lease, then you may not be cut out to be a landlord. And if you are too "wimpy" to have to give non-paying tenants an ultimatum, then maybe you need to have your spouse or professional property managers handle your rental properties.
Tenants' Teenage-Type Rebellion
Some tenants may assume their landlords are extremely wealthy, and an irresponsible tenant will rationalize that skipping out on rent is justified because "the landlord can afford it." Other tenants may either be jealous or resentful of the landlord's "wealth," and so they don't mind "sticking it to him."
I have found that a significant percentage of tenants sometimes behave like children, in a way that psychologically replicates the parent-child relationship with their landlord. This is done by acting out (e.g., not paying rent, damaging the home), or they will test the landlord's "parental" authority by being late with rent or making only partial payments.
Therefore, the landlord needs to be the "good parent," by being firm and assertive (but not aggressive) with his tenants. Landlords who are meek, afraid of confrontation, or lacking in their own confidence are like parents who let their children do whatever they want without parental controls or behavioral limits set.
Psychology aside, the biggest mistake that a landlord can make is failing to treat their rental properties like a business. Real estate is unique in that, although one buys real estate as an investment, being a landlord is actually a business just like many other businesses.
Imagine that you are the owner of a clothing store. One day a woman walks in, tries on a few dresses, then approaches you at the counter, and says, "Hello Mrs. Smith. I have some bad news. I was laid off last month, but I really need these dresses to interview for another job. So I'll just take them anyway, but without paying this time, OK? Thanks, have a nice day!"
Would you allow this to happen?
Well, tenants who fail to pay rent on the home or apartment that you own and lease to them, are stealing from you, just the same as someone who would shoplift from your store!
These women are not likely to pay their rent, either...
When a landlord "allows" a tenant to get away with non-payment of rent, it is really no different than allowing them to steal from you. But why would a landlord do this? Well, it may be for the following reasons:
- He feels sorry for the tenant, or the tenant's recent difficulty.
- He believes the tenant who swears they will make it up in the next week or two.
- He mistakenly believes that it will be easier or cheaper to wait for the money, rather than evict the tenant and get someone new into the home.
- He is trying to be the "nice guy," and doesn't want to evict someone who is having difficulties.
A Typical Story
Let me tell you a story about an inexperienced landlord I know, who recently went through some of what I just detailed above. Let's call her "Sally" (not her real name).
Sally owns a rental property in Central Florida. She has a tenant couple who paid $800 a month, and for a while they were quite regular with their payments.
However, a few months ago, the tenants missed a rent payment, and the husband told Sally that he had lost his job, and he and his wife couldn't afford to pay that much rent anymore. The tenants' lease with Sally had recently expired, and they were now renting month-to-month.
Sally had a decision to make. With no current lease in place, and with one month's missed payment, she could simply give written notice that they would have to move out, or else she could try to work something out with them.
She chose the latter option, and verbally informed them that she would discount the rent to $400 for a while.
For the next two months, the tenants paid the $400 rent, but then this month were again late, and Sally's attempts to contact the husband were unsuccessful.
A few days later, the wife called her, and told Sally that the husband did not return her calls because, supposedly, he has the swine flu.
Sally told the wife that she had to have the rent money immediately.
The husband finally called Sally the other day. He said that they still want to stay in the home (why wouldn't they?), and asked how much rent will he have to pay. Sally said that with the mortgage she pays, she cannot afford to continue charging him only $400 a month.
A local realtor had told Sally that the going area rent for her property was more like $600 than $800, so Sally told the tenant that she was willing to meet him in the middle at $600 a month.
She also said that he will need to make additional payments until he catches up for the month that he missed.
As of this writing, they are still negotiating the various terms.
Learning From Mistakes
Sally made several classic mistakes that new landlords often make.
First, she might have been better off asking the tenant to leave, rather than discounting his rent by 50%.
Second, she failed to put the new terms in writing, and left it vague by saying he could have this discount "for a while."
Third, any new discounted rent agreement should have been made contingent upon the tenant paying Sally the $800 back rent that he owed her from the prior month.
Second, she failed to put the new terms in writing, and left it vague by saying he could have this discount "for a while."
Third, any new discounted rent agreement should have been made contingent upon the tenant paying Sally the $800 back rent that he owed her from the prior month.
Mistakes like the ones that Sally made often lead novice landlords to become frustrated by their tenants, and to prematurely give up real estate investing as a result.
Rather than looking at what they could have done differently to prevent many of the problems from occurring, it is much easier to blame real estate investing as being the culprit.
This is similar to people with no a priori knowledge, who impulsively begin playing the stock market with penny stocks or volatile, low-priced issues. Then, after losing their money, they decide never to buy stocks again because "you can't win with stocks."
What makes it worse is that these novice landlords then tell other people they know about their negative experience with the "nightmare tenants," which then foolishly turns off those people to ever try real estate investing for themselves.
Rules of the Real Estate Investing Road
The fact is that with real estate investing, just like with stocks, one needs to do the educational research FIRST, before getting one's feet wet.
The people who lost their shirts by buying overpriced real estate in 2006, failed to do enough research to see that the economic conditions could not sustain the parabolic price increases that were rampant. They were no different than the persons who started buying high-flying tech stocks near the market peak in the year 2000!
Look, I urge people to invest in real estate, because I have seen firsthand that it can be an extremely profitable mode of investing when done correctly. But before you begin to invest, you must learn as much as possible about how to do it the right way.
To that end, I will continue to provide the education one needs, right here through The Tycoon Report.
I would also love to hear from readers who (past or present) have encountered difficulties, as well as successes from being a landlord.
One will, of course, learn and grow as they gain experience. I have made my share of mistakes, but you will have the benefit of learning from these articles, so that you can avoid many of those mistakes.
So remember -- with your spouse, your family and your friends, it's wonderful to be a nice guy! But when it comes to being a landlord,
See you next week!
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Ethan Roberts
Contributing Editor
The Tycoon Report
