The excuse to never buy a rental property is the pain of dealing with tenants.  The movie Pacific Heights put fear in every movie goer of the worst possible tenant ever!  If you’re planning on purchasing a rental property, you can either skip this film so as not to add extra butterflies in your stomach.  Or watch it as a lesson on what not to do as a land lord.

Pacific Heights is a 1990 American psychological thriller film starring Melanie GriffithMatthew Modine, and Michael Keaton.  In San Francisco, unmarried couple Drake Goodman and Patty Palmer purchase an expensive 19th-century polychrome house in the exclusive Pacific Heights neighborhood. They rent one apartment to Hayes who drives an expensive 1977 Porche and carries large amounts of cash on his person, but is reluctant to undergo a credit check. He convinces Drake to waive the credit check in exchange for a list of references and an upfront payment of the first six months’ rent, to be paid by wire transfer.

At the beginning of the pandemic prices for rentals dropped.  Government moratoriums made it even more difficult to be a rental property owner.  I myself had a tenant move away, but my property manager found someone who was willing to pay for a full year up front.  The reason was to ensure that someone wouldn’t rent the place and turn around a month later and put a moratorium claim in to stop paying rent.  Brilliant!

However, Pacific Heights made me pause.  The upfront payment of the entire year seemed too similar to the Michael Keaton character.  However, if I didn’t do it, then I run the risk of government intervention creating a moral hazard of dead beat squatters or desperate people who had been let go from their job because the government forced them out of work.

Here’s what helps me sleep at night.  I have good property managers.  Many people manage their own property and do in fact have the “headache” of dealing with tenants.  Property management is a very low cost service in exchange for removing that headache.  They are experts in the area for negotiating price, showing the property to prospective renters, are there to hire maintenance to fix the property (although watch these fees carefully), they even represent you in court if there is a dispute over something.  Always factor in the cost of a property manager when determining the ROI on a property.  Its roughly 6-10% of the rent and half to a full moths rent for brand new renters.

If only the San Francisco couple had hired a property manager to deal with the headache.  They would have avoided the greed of taking an all cash payment when it wasn’t necessary and the manager would have insisted on a credit check.  They are experienced where as this couple was taking a lot of risk dealing with all of this themselves in order to save a few dollars.  Look how much it cost them by doing it themselves!

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