Being a Landlord is Not Easy

FINALLY, SUCCESS : Dulce de la Cruz is now happy to be a landlord, but she initially struggled to pay bills and often had to go to court to get rent money from tenants in her Brooklyn building. (Robert Stolarik for The New York Times)

New York Times
September 11, 2005
By DENNIS HEVESI

THOUSANDS of fledgling landlords are scooping up small multiple-unit dwellings throughout the New York area - pristine two-families in the Rockaways, for instance, or vintage buildings along Manhattan side streets or in Brooklyn's brownstone enclaves - but some of them do not quite know what they are getting into.

Being a landlord means dealing with multiple challenges: choosing the right tenants, planning for a panoply of legal, financial and maintenance obligations, navigating the bureaucratic maze and understanding that for the small landlord there are no economies of scale - no discount on the low-volume fuel bill; top dollar to the tradesman called in because there is no plumber on staff; in fact, probably, no staff. So just who does take out the garbage?

But many buyers do not know about those responsibilities, at least not in the beginning. "You're talking about amateur landlords," said Vincent S. Castellano, who from 1994 to 1999 was host of "Real Estate Nightmares," a radio talk show that is no longer on the air. "These people buy the two-family so the rental will help pay the mortgage. They think it's easy because this class of housing seems familiar, but they're completely unaware of the pitfalls."

Fifteen years ago, Dulce de la Cruz was one of those novice landlords, dreaming of gathering her family into the six-unit building she bought on Lincoln Road in Flatbush for $160,000. "I have brothers and sisters and I wanted us to live together," said Ms. de la Cruz, who works as a nursing assistant. So far, with most of her tenants remaining and only her daughter moving in, Ms. de la Cruz's image of the future hasn't quite panned out.

For one thing, the previous owner wasn't quite up front about the difficulties she would face with some of the tenants - drug sales in the hallways, nonpaying tenants, code violations caused by tenants, the woman with 10 grandchildren, three other adults and a dog in one apartment. "He didn't tell me those things," she said. "He fooled me."

Keeping the building afloat was rough. "I used to work seven days a week to pay for this building," Ms. de la Cruz said. "The mortgage was $1,400, plus gas, light, insurance, taxes, water and lawyer's fees, because I had to go to court to get rent money from the tenants."

It was never easy, getting that money.

"When you ring the bell," she said, "they'd go, 'What do you want?' and slam the door."

The troublemakers have since been evicted, but not before Ms. de la Cruz learned to take photographs, with dates displayed, to show Housing Court judges that she had repaired the damage caused by some tenants.

Then, four years ago, the big turnaround came: a $330,000, low-interest construction loan arranged by Neighborhood Housing Services of New York City through the Department of Housing Preservation and Development, allowing for a complete building renovation. "I never got the money in my hand," Ms. de la Cruz said. "It goes right to the contractor that H.P.D. hired to do the work."

Now, with the work done, Ms. de la Cruz has larger debt payments, but she has been able to slowly raise rents to about $800 for four of the apartments. "And my daughter took over an apartment for $700," she said. "Believe me, this is a piece of cake today compared to what I had."

To those who have dealt over the years with small landlords, the major pitfall is obvious. "If you get a tenant from hell and it takes eight months to evict this person," said Mr. Castellano, owner of Picture Properties, a real estate brokerage firm in the Rockaways, "how are you going to carry the mortgage on your own?"

In today's bullish real estate market, with its low interest rates and aggressive mortgage marketing, it is also true that home seekers are often pushed to buy "as much house" as they can afford, under the assumption that their incomes will increase. "That's why they're vulnerable, because the first couple of years they're counting nickels to pay their bills," Mr. Castellano said.

And for first-time landlords - so often double-income couples buying a two- or three-family home - that recalcitrant renter is just one land mine. "What if one of them gets laid off or injured or pregnant, and their income goes down?" Mr. Castellano said. "Sometimes the cushion is wide enough to manage one negative impact. But two negative impacts and you're in foreclosure."

It hasn't quite come to that for Lloyd Noel and his mother, who took possession of a four-story, eight-unit building on New York Avenue in Crown Heights, Brooklyn, after her divorce in 2000.

"It was something we didn't know anything about, becoming a landlord," Mr. Noel said. "My mother took the building because it was her only source of income."

Unlike the one nonpaying tenant out of 200 in a large apartment complex, the lone contentious tenant in an eight-unit building can cause considerable strain on a small landlord's income. And that is true even if, as in Helen Noel's case, the elderly woman in Apartment 2L who still pays $95 a month for a rent-controlled apartment had some justification for all those Housing Court claims.

Mr. Noel, 36, said his father had owned the building since 1976. The family did not live on the premises, but Mr. Noel now rents an apartment for $800 a month.

The other rents are $1,200, $1,100, $953, $930, $853, $763 and $95 - bringing the total rental income to $6,694 a month. But with mortgage payments of $3,300 and other monthly expenses, including $900 for gas and $500 for insurance, the Noels tiptoe along a slim profit margin, especially with that low of $95 from the woman in 2L.

"My father and her used to battle it out in court," Mr. Noel said. "Her apartment was in the worst condition in the building: holes in the floor, windows broken, doors missing. She'd show pictures that it was never repaired and she would get a decrease." After the last reduction, in 1992, Mr. Noel said: "My father felt it was a waste of time to take her to court. He refused to fix her apartment, and because he refused he left the rent alone."

Mr. Noel and his mother spent $23,000 to renovate Apartment 2L: new windows, kitchen cabinets, floor tiles, a paint job. "Knowing we had a ton of violations on that apartment, we haven't raised her rent," Mr. Noel said. Now they are waiting for the city to verify that the violations have been cleared, "and after that we can raise her rent to $750," he said.

Advocating the safety of a "belt-and-suspenders budgeting approach," Sarah Gerecke, chief executive of Neighborhood Housing Services, said that small landlords should underestimate their monthly rental income by about 10 percent, in case an apartment is unexpectedly vacated, while creating a contingency fund equal to three months of operating expenses.

The linchpin for a smooth operation is, however, good landlord-tenant relations.

Ms. Gerecke said a course given by her agency teaches landlords how to verify an applicant's credit history, income, rent-payment history and references. Or, if there are difficult tenants already in place, whether it is worth the risk to buy the building in the first place.

"It can be a successful marriage or a dysfunctional divorce," she said, pointing out that in two- and three-family home situations, where a tenant is often a relative, things can get particularly sticky. "You may need to learn to resolve conflicts in a different way," she said. "Yes, we're relatives, but this is business."

Relative or not, new tenant or old, the relationship must be based on "communication of clear expectations," Ms. Gerecke said. Among the matters that should be discussed in advance, she said, are pets, smoking, parking, garbage removal, even who changes the light bulbs and, of course, noise. "Maybe headphones should come with the lease," she said. "Is the upstairs apartment carpeted?" A videotaped walk-through with the tenant is recommended.

Sherwin Belkin, a real estate lawyer, leads new landlords through the intricacies of the process in Manhattan. "Too often, I find that first-time landlords look only at the building's location, value, structural soundness and the ability to obtain clean title," he said. "They should also thoroughly investigate who their current tenants are," particularly whether they are rent-regulated.

"The new landlord steps into the shoes of the prior owners," Mr. Belkin said, and needs to determine whether tenants are habitually delinquent in paying rent, or are litigious. At the same time, he said, "an owner who buys a rent-stabilized property becomes liable for any rent overcharges during the previous four years, even though the monies were paid to the prior landlord."

If a new landlord plans to take over all or several apartments for personal use, it is necessary to determine whether any rent-stabilized tenants are 62 or older or are disabled, "because he will be obligated to provide those people with a comparable relocation apartment," Mr. Belkin added.

And the new owner needs to know if any tenants have lived in rent-controlled apartments for more than 20 years, because they are immune from owner-occupancy proceedings. "I had a client who came to me after he purchased an Upper West Side town house with the intention of vacating several floors to create a large family residence," Mr. Belkin said. The new owner did not realize that a tenant had lived in a rent-controlled apartment for more than 20 years, right in the middle of the planned family residence. "Although we were ultimately able to vacate the unit, it was only by purchasing a small condominium apartment on the West Side where we could move the tenant," Mr. Belkin said.

Still, there are plenty of benefits to becoming a landlord, and many people enjoy it. In February, Nelly Anderson bought a house on Maple Parkway in the Mariners Harbor section of northern Staten Island "and is glad to be a landlord," according to her son Elvis Byrd, 42, who lives in the house.

Mrs. Anderson, a home attendant who is 64 and nearing retirement, is enjoying both the comfort of living with kin and the benefits of rental income.

Mr. Byrd, who pays his mother $1,000 a month in rent and brings the skills of a home-improvement worker to the equation, lives upstairs in a four-bedroom with his wife, Sheriee, and their three children. The woman who lives in the adjoining unit with her three children pays $1,300 a month. "They've been living here for four years," Mr. Byrd said. When Mrs. Anderson bought the house, she continued to rent to them.

Mrs. Anderson bought the 1907 three-family house with cedar shingles and aluminum siding for $350,000, made a down payment of $35,000 and pays $2,040 a month on the mortgage - more than covered by the rental income. "You couldn't go wrong with buying a three-family home because you have someone helping pay the mortgage," Mr. Byrd said.

Dina Calhoun is also a novice landlord and describes her experiences as "so far, so good." Six months ago, Ms. Calhoun, a clerk for Verizon Communications, paid $225,000 for a two-family on 109th Street in Jamaica, Queens, and moved into the upstairs three-bedroom.

She joined a local church, "and I met them there," Ms. Calhoun said of her tenants. The couple and their 9-year-old son moved in in May, and are paying less than the $1,500 to $1,600 a month that most three-bedrooms in the neighborhood currently rent for.

"We had a long discussion on my expectations, and they shared what they wanted," Ms. Calhoun said. "My conditions were to maintain the condition of the apartment. If they want a barbecue in the backyard, let me know in advance. I agreed to let them park in my driveway."

Her tenants have become friends. "We help each other with stuff," Ms. Calhoun said. "My son plays with their son. I'm keeping my fingers crossed, and praying."