After recently losing his renters, Colorado-based lawyer Douglas Hsiao is resuming his occasional column on his quest to find another tenant for his Dupont Circle condo.
Unexpectedly, I am again looking for new tenants and staring at another year of losses.
As readers of past columns know, I own a Dupont Circle condominium that I have rented out for nearly 20 years.
Despite having a very low cost basis of ownership and the ever-increasing popularity of Washington as a place to live, I can’t seem to profit reliably from it, even with two-bedroom rents exceeding $3,000 per month in the neighborhood.
As I admitted before, I’ve refinanced the property several times, so much of the cash flow problem is my own fault; I’ve used the condo as a bank once too often, and thus I have a fairly substantial mortgage on it. But more than that, the growth in expenses has outstripped rents for several years now, and I rent it out with nearly no cash flow.
And that scant cash flow can easily go negative and run red. This past year is a good example of how the cost of owning a rental property can sneak up on a landlord and waylay your plans.
First off, when the new tenants came on board last year, we were a little slow in getting them signed up and into the property. My property manager, as a general rule, keeps the apartment empty for a minimum of two weeks in order to show to new tenants, paint, and get ready for the next occupants. But that two week vacancy is essentially a loss of rent to the landlord.
Even if I’m lucky enough to get the vacancy filled quickly, the first month’s rent is spent before I ever see it. That’s because the property manager takes it as a commission for leasing the property out.
And finally when one might expect to see some cash, the bills for fixing up the apartment come in and have to be paid. The cost of painting, cleaning and maintenance — perhaps a new refrigerator or carpet — can easily consume a few thousand dollars as it did with this tenancy. So right off the bat, I did not receive any money from the apartment for two months into the new tenancy and had to pay the mortgage and condominium fees out of my own pocket.
Rising D.C. property taxes and condominium association fees, both of which went up around $50 per month, worsened my losses. While this may not sound like much, they add up, and easily factor into why rents inexorably go up in this city.
On top of all this, I had the misfortune of having all three HVAC units in the apartment expire at the same time last year. They were all nearly 15 years old, so it wasn’t a complete surprise. But the fact that they died within weeks of each other is one of those costly coincidences that landlords have to be prepared for and have the cash to cover. I spent more than $6,000 replacing them — the equivalent of another two months of rent.
So for those who really believe that landlords in D.C. make money in their sleep, I lay out this stark fact: I was $12,000 in the hole before the tenants ever set foot in the apartment. Since rent for the new tenants was set only $100 above my monthly expenses, it would take me the better part of five years to recoup the cost of the HVAC units. I held out no hope of making any income from the first year with these tenants.
One can see why, therefore, that getting my tenants to renew this year was not only desirable, but an outright necessity if I was going to get back into the black on this real estate investment. But it was not to be.
As some may recall, I chose a couple who were moving from Denver to Washington, and they turned out to be the “responsible, clean, quiet, long-term, reliable, uncomplaining” dream tenants I was hoping for. I received hopeful signs throughout this past year that they would renew their lease; they e-mailed me that they loved the apartment, the Dupont Circle neighborhood and the residents. They even had the property manager prepare the renewal papers.
Just when every indication I was getting seemed to suggest that they would renew, they were lured away. And not by a real estate agent waving a luxury downtown high rise or a house in Chevy Chase in front of them but by an apartment in my own building!
They pulled a “Victor Kiam” — the Remington shaver spokesman whose famous line was: “I liked the shaver so much, I bought the company.” They loved the apartment building so much, they bought a unit in it. The apartment down the hall from mine was for sale, and they made a last-minute offer on it. I suspect that the math of buying versus renting an apartment was greatly improved by the historically low interest rates at the beginning of the summer and proved too hard for my tenants to resist. So just days after they had previously told my property manager that they were going to renew for another year, they were packing their belongings and moving down the hall.
That leaves me, once again, bereft of tenants. I have little time to fix up the apartment, put it on the market and get new tenants in place. Returning to writing this column, however, provides some consolation. I found it a useful outlet for expressing the joys, frustrations and ups-and-downs of being a landlord in Washington. Let’s hope this return engagement is just as fruitful.
Hsiao can be reached via Twitter at @doughsiao.