How To Avoid A Tenant/Landlord Controversy

The San Diego Union Tribune recently highlighted a controversial landlord and tenant scenario in which the tenants feel duped into renting an unlivable unit. Unfortunately, the owner claims there is nothing they can do to help. Moreover, this isn’t a completely unique problem. Blurry ethics and educational issues can still be a minefield for some real estate investors, rental property owners, and renters. So what is the root cause of these problems? How can all parties avoid being caught up in these nightmare scenarios? And what are best practices for dealing with them, when they do arise?

San Diego Renters at Center of Controversy

In the recent UT San Diego report, a family signed a two year lease on a North Park home, only to discover the adjacent property, and park of their own yard was to become a construction site for a 94 car garage. The tenants have complained that the home is now unlivable. They feel conned into signing a lease and committing money to making a home, which has become a daily nightmare. The landlord lives three thousand miles away on the east coast. She claims that while she knew there were plans for construction, she wasn’t aware it was to start so soon. She says she made the renters an offer to settle the situation, but it wasn’t accepted. Right now, both sides face losing.

Not Alone

There are many similar circumstances which can affect the marketability and enjoyment of a property. Many are legally required to be disclosed. However, these laws and regulations can vary from state to state, and even county to county. Some issues, which may fall under this umbrella, include: deaths in a property, mold, Chinese drywall, meth labs, foreclosure, and more.

Ethics & Education

Some may not feel an obligation to make disclosures beyond their legal obligations. Others have a deeply felt moral obligation to do so. After all, while this may be business, renters are real people. They are parents, sons, and daughters. They deserve to be treated fairly and honestly.

Unfortunately, despite best intentions, many rental property owners are not aware of their obligations. Out of area real estate investors, and even local property owners leasing out their old residences in San Diego, may not even be aware of many of these issues. Most don’t keep up with building plans, new real estate regulations, landlord-tenant laws, and with the murky titles and lack of seller disclosures in the wake of the foreclosure crisis many have no idea what problems may lurk underneath.

So how do tenants and landlords do a better job at avoiding these pitfalls?

Due Diligence for Rental Property Owners

While it can be more than a full time job to keep up with all of the developments in the real estate industry, ignorance isn’t an excuse, or viable legal defense. Fortunately, there are many options at hand to help rental property owners stay on top of these issues. Even signing up for updates from real estate blogs like CT Homes and FortuneBuilders can provide a great advantage. Having a real estate attorney to review documents and contracts, including leases isn’t a bad idea either. Thorough due diligence and transparency when buying, selling and renting property can make a big difference too. This includes home inspections as standard.

For real estate agents referring clients and out of state real estate investors, choosing better partners is essential. With Google, it shouldn’t be that difficult to perform some good research on real estate investment companies, sellers, properties, property management firms, and turnkey real estate investment programs in a matter of minutes.

Due Diligence for Renters

Given what is on the line, tenants will be well served to conduct their own due diligence. This may sound like a lot of work, but it is well worth it. Some common sense research includes: checking out how reputable the landlord or property management company is, double checking title and ownership online, looking for liens, and asking for documentation to determine if the property owner is solvent and up to date on any mortgages on the property.

San Diego: A County Full of Opportunity

San Diego County isn’t just a fantastic place to live and rent, it is one of the nation’s best real estate markets for investing. Behind the headlines proclaiming local property values are soaring, and foreclosures have plummeted, there are still plenty of attractive opportunities for income property investing.

According to DataQuick, banks foreclosed on 141 properties in San Diego County in May 2014. This is actually down slightly from 175 during the same month last year. However, there are still many distressed properties in shadow inventory. DataQuick notes that lenders filed over 400 new notices of default in May 2014. It is no secret that many mortgage lenders have delayed filing, and starting the foreclosure process.

Capital Is No Longer A Hurdle

New and returning mortgage lenders are providing more liquidity and fuel to investors than they have in almost a decade. Now, with rehab loans freely available, even on deeply distressed property, if investors look hard enough, investing and growing rental portfolios is free of the final hurdle which has kept the breaks on a full housing rebound.

However, without solid due diligence, sooner or later buy-and-hold investors will run into issues like those listed above. When they do arise, investors will find taking a softer and more thoughtful approach not just more profitable, but the best practice.