"Mr. Beaver, my parents — both in their 80s — have substantial lifetime pensions, no debt and a lot of money in savings accounts, so they do not need any additional income source. Recently, they attended a seminar aimed at older people, where a real estate broker talked up the advantages of becoming landlords.
"Brochures downplayed the age-related risks and made a big point of saying they wouldn't need to hire a property manager and that tenants would be required by the lease to be responsible for all maintenance. As the landlord, all they would have to do was collect the rent.
"I know this is nonsense. Plus, regardless of age, my parents are not emotionally suited for the challenges of being landlords. I can picture them frozen with fear and inaction if something happened to the property that required immediate action, as I have seen a decline in their health and ability to deal with stress.
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"I'll bet there are a lot of older people who are getting the same pitch and could get themselves in legal hot water if they drink the Kool-Aid. My parents love your column, and I'm sure your advice would cause them to think this over seriously. Thanks, 'Darren.'"
The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.
'A loud cracking sound, and the house shook'
Darren's fears about his parents becoming "frozen with inaction" was faced by two longtime readers, Cynthia and Mike, who phoned our office, upset with their landlord.
"Early this morning," Cynthia said, "we were awoken by a loud cracking sound, and the house shook when a huge oak tree in our backyard came down on this house that we have been renting from Abe for over 10 years. He is in his mid-80s.
"We immediately notified him of what had happened, but instead of reacting like someone who was concerned, he emotionlessly said, 'Well, I'll see if I can reach my son in Alaska and ask him for help.'
"We replied, 'No, you need to call your insurance company now and report this. We might need someplace to stay while the tree is removed and damage to the house, if any, is repaired.'
"It seemed that he did not understand the urgency. Abe has always been a thoughtful, caring, 'hands-on' landlord, but age and infirmity have impaired his ability to do everything himself, and he rejected our suggestion of hiring a property manager as 'too expensive.'
"Can you help us?"
I phoned Abe, asked him for the phone numbers of his son and insurance agent and got them together on a conference call. The agent immediately took charge and saw to it that a claim was started with the carrier.
For some older adults, becoming a landlord is a bad idea
Over the decades that I have practiced law, anytime there was a significant landlord/tenant problem, often the owner's age, a strong sense of moral right and wrong combined with a lack of knowing their legal obligations and a refusal to retain a property manager — costing about 10% of the monthly rent — became a toxic cocktail.
Sometimes it came down to real cognitive challenges, but just as often, an older property owner frustrated with tenants who were months behind on the rent refused to hire an attorney — "oh, that costs money!" I heard repeatedly.
They would resort to turning off the water or electricity and wind up being sued by their tenants.
I ran these issues by Jon Anthony Dolan of Los Angeles-based Dolan & Knight Property Management. He has been a friend of this column for years and is always a source of good, common-sense advice.
I asked Dolan, "In your experience, are there more risks for older adults in becoming landlords?"
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"Yes, there are," he replied. "Not just because of age itself, as many older adults are good landlords, but it is so important — especially for older people — to have objective help in evaluating the downside risk of acquiring rental property."
He said they should consider:
- Their financial situation. Do they need to invest in a rental at their age?
- Their ability to handle the myriad day-to-day tasks involved, such as rent collection, maintenance and legal responsibilities.
- Their capacity to deal with difficult tenants. Sometimes behavior can border on elder abuse.
- Their cognitive impairment and health challenges can drive up the cost of rental ownership.
- Their physical limitations. While a young person might be able to handle minor repairs or maintenance, impaired balance and mobility issues can make it impossible for an older person to personally tackle the things that come up with any home.
Additional realities to consider
Dolan pointed out factors that, if overlooked, can prove costly:
- Liquidity. If unexpected financial needs arise, needing to sell quickly could mean a large loss.
- Decision-making. Even with a property manager, there are decisions that must be made. Do they have that cognitive ability?
- Time. Real estate is usually a long-term investment, so a person's life expectancy can be a real issue.
Dolan concluded our interview with this cautionary remark: "The older we are, the more cautious we should be, especially with our money."
Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.
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