Smoking Tenants Cost More Than You Think, and What You Can Do About It

Your Smoking Tenants Are Costing You More Than You Think

In a happy world a tenant signs a lease with you, puts down a deposit, pays their rent and at the end of the lease you’re able to cover any damages with the deposit and return the difference to the tenant. In the real world a significant number of tenants do catastrophic damages to the rental unit, usually rationalizing to themselves that its not that bad. These are the ones who kill your businesses cash flow, and anything that can be done to avoid them can save you thousands. Obviously pets and smoking are two of the high risk areas of focus. It’s far cheaper to fix a hole in the drywall that have to replace the carpet and paint because of nicotine or pet stains.

When I say “catastrophic” I mean so severe they can turn cash flow negative in normal circumstances which should be positive. For example, with a typical mortgage (70% LTV), after taxes, insurance, vacancies, maintenance, etc. if you rent a unit for $600 a month very often you are clearing about $100 of that (if you really consider all the expenses). If a tenant stays 24 months and does $2,500 of damage, you have actually had negative cash flow. That doesn’t take into account the deposit, but when they trash the place you usually need a month (or more) to rehab it, so you lose a month of marketing which largely negates the deposit. That lost marketing time is the great hidden cost of property management. The tendency is to think of it as vacancy, but it’s actually a loss better associated with the damages caused by the tenant. A vacant unit you can market and rent, a trashed unit can’t be marketed until fixed up. Good marketing and salesmanship can reduce your vacancy time, but can do nothing about down time for catastrophic repairs.

Nicotine staining is a nightmare, forcing labor intensive tasks like replacing electrical outlets and hand scrubbing surfaces you never thought about like light fixtures, knobs on stoves and the insides of cabinets and drawers. It’s very difficult to remove, requiring deep and hard scrubbing over a long time. Ceiling fans almost always have to be replaced, and sometimes the damage to appliances is so bad they have to be replaced.

Because landlords seldom go after former tenants with civil suits to recover these damages, tenants who cause catastrophic damage are simply happy to move on to their next victim when your unit gets too nasty for them to stand. It would help if more landlords did pursue these types legally, but it takes time and money, and collecting the judgment is often difficult.

Over the years we’ve tried various approaches to the damage problems such as extra pet deposits, no-smoking clauses, etc. After doing the expenses for our latest catastrophic smoker damage I did a little research since I’ve got years of data on numerous rentals. Understand this is still a small sample, essentially anecdotal. Most of our rentals are 700-1000 square feet, but a few are 1400-1600 square feet and there are a few differences in those ranges. Here’s what I found:

80% of renters are smokers

Even in Kentucky, this is stunning. Kentucky has one of the worst smoking rates in the country (about 30%), but years ago when we realized smokers were causing so much damage we started keeping track. Maybe people are lying when they do the surveys to arrive at the 30%, because we’re having a hard time finding the 70% of non-smokers to rent to. The less educated tend to smoke more, and earn less (so more likely to rent rather than own), but 80%? This is truly those who can afford it least spending the most on a deadly habit. For a while several years ago we tried going non-smoking with our rentals. The smokers simply lied. It did not decrease our actual percentage of smoking tenants at all and detecting the smoking habit before it did damage was difficult.

More Pet Damages Come From Smokers

Compounding the smoking damages, smoking tenants with pets are more likely to inflict significant pet damages on your property. I can’t explain the psychology – perhaps just if they don’t care enough about themselves and their home to quit smoking they don’t care about the damage their pets do either. This correlation didn’t jump right out at me, since 80% of tenants smoke anyway, but looking back over the years it’s clear that while pets cause a lot of damage in general, the tenants who do have pets and keep the damages low are overwhelmingly non-smokers, while our worst catastrophes with pet damage occur primarily with smokers. Also, smokers are about 25% more likely to have a pet in the first place, making the overall numbers even worse.

Damages by Smokers Exceed $120 Per Month

This just floored me. It’s especially interesting that the length of stay seems to have little effect on this number. For example, a smoking tenant staying for 20 months will tend to do more than $2,000 damages. If they stay 30 months, it will be more like $3,500 or more of damages. The rehab we just completed on a smoking tenant is a perfect example. The tenant was there for 31 months and the total damages to the unit were $3,900. There has to be a ceiling to this “law”; a point at which everything is damaged and has to be replaced and the tenant can’t damage it further, but I’ve observed it to be true consistently up to 6 years. I just don’t have enough tenants who have stayed longer than that to test it further. Sometimes the damage can be much more. Last year we had smoking tenants do $4000 of damages in only 9 months. Occasionally we get a smoker who restricts most of their smoking to outside and keeps the damages down, but these are rare.

Further, on a per-square foot basis the larger units have more damage per square foot. My theory is simply there is more that can be damaged. A 1,400 square foot home may be 40% larger than a 1,000 square foot home, but it has two (larger) baths instead of one and a larger kitchen (these are higher cost-per-square foot areas to rehab than say bedrooms) along with more and better fixtures (lighting, doors) which cost more to replace. There may be decks and garages with the larger house which aren’t counted in the square footage but can be damaged as well.

When looked at as a monthly expense, the catastrophic damages by smokers are our largest expense after the mortgage – more than taxes, insurance, maintenance or vacancies.

Even Smokers Won’t Rent Where There Has Been a Smoking Tenant

Another hidden cost of smoking tenants is that non-smoking prospects will usually pass you by if they can detect smoke in the unit. If you don’t repair the damage then you’re certainly in a vicious cycle where you’re stuck with only smoking tenants. At one point we tried an experiment: if the unit had a smoking tenant but the damage wasn’t overwhelming we didn’t go to the extremes which are necessary to eliminate the smoke smell and damage (or just take care of the extreme damage) and would try marketing it as is. When people would comment on the smoke we would ask them if they themselves were smokers. Sure enough about 80% of these people were smokers. They themselves would have the apartment in the very same condition within months, yet they expected us to make it pristine for them. In nearly every case, after marketing for a month or so as-is, we had to rehab the unit anyway to find a renter. Only occasionally would a smoker settle for a unit which was smoked in, never would a non-smoker.

What To Do About It?

There is no easy solution, but there are a few things you can try:

Sue for Damages. In the extreme cases like this it will make you feel better to at least try to make a few of these rascals pay for the damage they do, and if you’ve screened your tenants well to make sure they have steady income you should be able to collect some.

Go No-Smoking. But be prepared to police this closely and to evict the tenant if they breach this. When we tried going non-smoking before there wasn’t a way to detect the smoking before it did enough damage there was smell and stains. Technology might be about to provide a solution (see below).

Go Dual Rates. Advertise a market rent rate (or just below) for non-smokers and something significantly higher (think $50 a month or more) for smokers. It makes the non-smokers feel appreciated, but probably smokers would find the price difference unacceptable – despite it being less than the actual damage they are costing. Perhaps an honest smoker here and there will understand the damages and be willing to pay extra (but are probably very heavy smokers). You could word the lease to where when you find a smoker lying their rent goes up to the smoking rate. Again be prepared to enforce this strictly.

Only Allow Pets for Non-Smokers. I haven’t tried this yet (with 80% smokers, not much point), but it might help a little. If non-smokers can keep their pets from damaging, marketing to non-smoking pet owners might be a good niche.

Higher Deposits. This is only a partial help, of course, as most states limit severely what kind of deposit you can get for residential rentals. What I’ve found is that people will pay an extra pet deposit, but resist the idea of an extra deposit for smoking. It’s still worth considering, though.

We’re moving to a dual rate system, but not emphasize the smoking rate option, with heavy policing. If we find someone smoking we’ll give them the option of getting kicked out or paying the higher rate we advertised for smokers. It’s a real pain to do inspections (we do them two or three times a year anyway to check HVAC filters and smoke alarms), but well worth the cost if it can really cut down on the catastrophic damages. What I expect to happen is that largely the smokers will just lie again and we’ll have to come down hard. However our culture is moving more and more towards smoking being unacceptable at all indoors, so perhaps we’ll find the smokers willing to do that.

How Do You Enforce a No-Smoking Rental Policy?

Until now the only way was to smell smoke or wipe surfaces for nicotine when you inspect – meaning it’s too late the damage is done. In that case your choices are to kick the tenant out and you still have to undo the damage or let the tenant stay to save you that money for the time being. Too often in the past I’ve let them stay because of the cost. Tenants know this, so advantage goes to smoking tenants, even in non-smoking rental agreements. However a couple of detection devices are on the horizon from FreshAir . One in particular plugs into a regular outlet, but is difficult to remove (special tool required). As I write this it is Spring of 2015 and this is due to be available this Summer, and no pricing information is available yet. The unit can connect to wifi and send you an email alert immediately if smoking is detected. In most cases though we’re not providing wifi. However, it also keeps a data record of all instances where it detects smoke and can transmit via bluetooth. So pair it with your smart phone, for example, and when you do an inspection you just download the data. When a new tenant moves in, after a couple of weeks give them notice that you’re coming over to inspect filters, plumbing, smoke alarms, etc. When there, download this data and see if they truly are the non-smokers they claim to be. Of course, you have to be prepared to enforce the lease and give them notice to leave. Just talking to them about it will have about the same effect as just talking to them about any other serious breach – they won’t stop until they know you’re serious. Since these are new tenants will assume they can just lie about being non-smokers. It will take a while for word to get around that landlords can actually enforce no-smoking clauses.

I’m sure the FreshAir Sensor will not be cheap, but even if in the $150-$250 range, compare that to the costs we’ve seen historically of tenants costing well over $100 a month in smoking damages and that starts to look pretty reasonable! I plan on testing them out when available, and will update the results here.

Category: Property Management