Mind Your Utilities

photo_784_20060111Yesterday, I went to settlement to purchase a new rental property. The building is located in a not-so-nice area in Philadelphia, and it needs work. So the purchase price was only a few thousand dollars – $10,000 to be precise.

As we sat down at the closing table and I reviewed the HUD-1, I noticed that the seller was getting almost no money from the sale. This surprised me a little and brought up some confusion. One of the seller’s reasons for unloading the house was to pay off some of his credit card bills. He mentioned it to me while we were negotiating. But from the looks of the settlement sheet, there wouldn’t even be enough money for a nice dinner.

I brought this up to the seller directly. He’d already seen the charges and discussed them with the title company. It turned out that 2 years prior there was a tenant living in the property. The tenant never paid their gas bill. In Philadelphia, landlords are required to sign up for a special program so that they are not held liable if a tenant doesn’t pay. My seller never took the time to enroll. The result was a lien against the property and against him personally.

This sure doesn’t seem fair to me. Unfortunately, that’s the law. And it’s a lesson that every landlord should learn from.

Every municipality is a little bit different. In some areas, all the bills go into the tenant’s name, and the landlord is not liable. But more and more towns and cities are tired of being stuck with a bill from a deadbeat. So they are passing the cost onto us rich, fat-cat landlords (sarcasm implied). Most governments offer regulation that insulates investors to some extent. Usually these regulations require proactive action from the investor in order for the landlord to be protected. So contact the local department of licenses and inspections for the rules and regulations in your neck of the woods.

No one likes surprises when it comes to their money. Find out how to protect yourself and your investment so you never end up on the short end of the check.