How Buying Rental Properties in the Wrong Area Can Be a Nightmare

I own one rental property out of my area in Cleveland Ohio and we just got that tenant out after she did not pay rent for three years! All of my other rentals are in Colorado and I usually have no problems with evictions or getting tenants out, yes even during the Covid year. However, I learned that some cities and states can be a nightmare and do everything they can to make life difficult for landlords, especially out-of-state landlords. If you are going to invest in real estate in other areas make sure you do your due diligence!

Why did it take so long for me to get a non-paying tenant out of my rental?

I bought this turn-key rental in 2015 in my IRA. I have many other rentals in Colorado that I bought in a more traditional way but this house was sold to me by a friend, or so I thought, for $45k. It was supposed to be rented and managed but that’s another story. The rental was fine until COVID came along and the city started to pay rent for tenants. My tenant stopped paying rent and when the City of Cleveland stopped paying landlords the tenant never paid rent again.

I had a property management company that was mostly worthless and incompetent. I won’t mention their name, actually, I will, Monument Real Estate. I told Monument to evict and months went by with nothing happening. At first, Monument said I could not evict because the property needed to be certified lead-based paint-free which the City of Cleveland requires on all rentals built prior to 1978. However, my property was exempt because it was built in 2005. I told Monument this for months before they understood.

After we got that figured out, Monument said I could not evict because my IRA needed to be registered in Ohio for the Cleveland courts to hear the eviction case. The company that I used said they would not register in Ohio. I talked to multiple lawyers and they all said I was pretty much screwed because an IRA is not a corporation and you can’t register it. This went on for months more and eventually I had some help from commenters on my YouTube videos. They told me to try different lawyers and one told me to try a property management company that had helped them in difficult situations.

After the tenant not paying rent during COVID, the months the property management company argued with me over lead-based paint, and trying to figure out the registering my IRA, it had been close to three years, and the tenant never paid a dime.

How was I able to finally get the tenant out?

While this was happening I asked the property management companies to offer cash for keys. Cash for keys is when you pay someone to leave a house. The tenant never responded to any notes or calls. I switched property management companies and the new one also tried cash for keys with no success. The new property management company did help me get my IRA registered. They told me to register as a corporation with the Secretary of State (SOS) in Ohio. I told them the lawyers said that wouldn’t work but they told me to try anyway.

I tried to register as a corporation and it didn’t work. The SOS said an IRA is not a corporation and can’t be registered as one, but they were very helpful and worked with me to find a solution. Eventually, the SOS helped me to register the IRA name as an entity doing business in Ohio. It took some time but we got it done and with that registration, the courts agreed to hear the case!

At the first hearing, nothing was done except to schedule another hearing. The tenant was given a free attorney by Cleveland to help fight the eviction. My property manager told me we should offer cash for keys in court because the judge will see we are trying and the tenant has to respond. I agreed to offer $2,000. The rent on the property was less than $800.

While all of this was happening the property management company said the tenant was suing them for $35k! I could not believe it until I got a package in the mail from the tenant and they wanted $35,000 from me as well! They said they needed $10,000 for cash for keys to move out and $25,000 for emotional distress from the notes and calls my property management companies made trying to offer cash for keys.

I was not hopeful she would accept the cash for keys in court, but she did! She had to move out in about 30 days and if she did not we could file for an immediate eviction. The tenant moved out and I have my house back.

The YouTube video below goes over the story and shows the house

How could I have avoided this nightmare rental?

I take full blame for this situation as I should have known better. I made a few mistakes:

• I trusted someone too much: I trusted someone who said they knew the area and that this was a good deal. None of that was true and if I had had a third party check out the property I would have known never to buy it.
• I trusted the property management company given to me: That person also recommended a property management company that stopped doing rentals and then they recommended Monument and I never checked them out myself. I should have done way more due diligence.
• I didn’t fire a bad property management company as soon as I knew there were issues: I knew Monument was bad since they messed up my accounting before, and kept making mistakes, not communicating, and were flat-out rude. I was lazy and waited too long to hire a new one.

How to buy out-of-state rentals the right way.

Conclusion

If I were to buy out of my area again, I would do way more due diligence and most likely not use a turn-key company. I would find an agent, and property manager and use them to find a great deal wherever I wanted to invest. I would have a third party checking things out and not trust people as much as I did. I can handle the nightmare this became because my other rentals have done very well but a new investor without other investments could have huge problems in the same situation.