A Colorado-based lawyer, Douglas Hsiao has rented out his Dupont Circle condo for 18 years. In his occasional column, he details his search for a new tenant. This is his first installment.
I own a rental apartment in Dupont Circle, and this letter was from the tenants of the apartment for the last three years. It’s the letter that landlords like me always dread.
Given all the accounts that one hears about how difficult it is for renters to find an apartment in the Washington area for a reasonable rent, and how landlords are in the driver’s seat, you might wonder why a landlord would worry at all about having to find new tenants for an apartment in an area like Dupont Circle. After all, with all leverage I supposedly have in the market, shouldn’t I just be sipping martinis by the poolside while waiting for tenant offers to roll in?
But the reality is very different. As a landlord, it is natural to feel insecure. My apartment represents an inordinately large percentage of my family assets. And I worry all the time about it — whether the tenants treat the apartment well, whether the rising expenses will ever abate, whether rental restrictions will be imposed on the apartment, and, most urgently, whether the current tenants will renew their lease. I’ve owned the apartment for almost 20 years, but for me being a landlord has been smooth only in short stretches, and at times it has veered toward disaster.
People come to be landlords in all sorts of ways. While some are corporate building owners, there is a large segment of landlords who, like me, came to it largely by accident. I bought my apartment back in 1992, long before the run-up in D.C. real estate. I bought it to live in, as I had just arrived in Washington with my Duke law degree and a job with a D.C. law firm. I loved the location of the 16-unit, circa 1908 apartment building at 18th and S Streets, right near the Metro and in the middle of the heaving nightlife of Adams Morgan and Dupont Circle. The apartment was spacious, more than 1,000 square feet with high ceilings. Wood floors and exposed brick added historic charm.
But after living there only two years, I married, and my first daughter was on the way. A two-bedroom city condominium with no parking would not be a long-term living solution for my family. So we moved to Chevy Chase and kept the apartment while we figured out what we would do with it.
My first tenants were easy: I just asked around the office, and a colleague and his girlfriend wanted my apartment. Word-of-mouth among the network of young lawyers in my law firm made the place practically rent itself throughout the 1990s; even after I left the law firm, a consistent stream of young lawyer couples kept the apartment occupied, and I always told myself that once it became a hassle, I would sell it.
I have never made a lot of money renting out my apartment. At the start, the rent was $1,500 a month, which covered the monthly $900 mortgage payment, the $300 condominium maintenance charge, and left a few hundred dollars of income. As property taxes and other expenses rose and I refinanced the mortgage multiple times (and took cash out), I was soon losing money on a monthly basis even though rents had risen appreciably in the intervening years. Today, I lose about $200 a month on my rental (though, in full disclosure, at the end of the year I recoup the loss in my tax refund).
So what has kept me hanging on to it? By mid-2000, the D.C. real estate market had taken off, and the value of the apartment had tripled or even quadrupled. Like so many shortsighted property owners, I didn’t see the bursting of the housing bubble coming, and I could not stand the thought of trading away my fastest growing asset. And after the bubble burst, the thought of selling the apartment while the market was down seemed like doubling down on my stupidity. These paper gains and losses clouded my thinking, and I had become a long-term landlord without really ever consciously deciding to do it.
This brings us back to the immediate problem at hand — the letter from the tenants stating their intent to vacate. It started the clock running on my finding a new tenant. In a little more than a month, I have to find someone to live in and take care of my property. Because I rack up expenses for the apartment of a few thousand dollars a month, even a short vacancy can turn the apartment into a losing proposition for the year.
But not just any tenant off the street will do. They must satisfy a whole raft of attributes: responsible, clean, quiet, long-term, reliable, uncomplaining. They have to have to have sufficient income and clean credit records. And they have to pass the watchful eyes of my neighboring condominium owners who, while they have no direct veto power over my tenants, can make it unmistakably clear what they think about the choice.
The tenant who meets most, if not all, of these attributes is desired by landlords. It’s what makes a market: Landlords compete for good tenants just as hard as tenants compete for good apartments. Over the weeks to come, I’m going to embark again on this process of finding a tenant for the apartment.