First Rental property (Need to move tenant out)

6 Replies

I’ve got a dilemma and could use some suggestions.

I am closing on a 4 unit at the end of August which is fully occupied on MTM leases. However with my financing I have to live in one of the units (house hack), so I will have to end the lease with one tenant.

Unit 1 4yrs. pays 825 with 4 people living there and one medium-large dog. They are a little messy but seem friendly.

Unit 2 5yrs. pays 800 with one person living there and smells like candles were used to cover marijuana scent. Not very messy and friendly.

Unit 3 8yrs. pays 750 I have not met the tenant, but it’s a mom with two kids. Kitchen was kinda dirty.

Unit 4 33yrs pays 700/month and probably has the largest unit but keeps it the cleanest. It’s a lady in her 70s (not sure her financial picture) but her son visits fairly frequently I am told.

All tenants are fairly long term and paying under market rent ~850. Units 1-3 are friends/family so slight concern that they will all move out if I end lease with one of them but they are all a lower quality tenant than the 4th unit. Tips or suggestions for approaching each unit and bringing up increasing rent to 850 as well as pushing water bill onto tenants? TIA.

@Zack Rosenbaum

I actually had to do this for a 3-family I bought but I ended up clearing everyone out within the first 6 months to renovate and raise rents. Have you discussed cash for keys? Maybe make the same offer to all and tell them the first person who takes it, gets it. Maybe give them $500 cash and a $500 credit for moving - all cash once the unit is "broom clean".

So I have two single family houses side by side, nearly identical except one has a pool. The tenant in the pool house pays $2,200 a month. The tenant in the non-pool house pays $2,500. What? That’s doesn’t make sense, you say!!!

Here's my version of the truth: Pool house tenant is long term; Pool house tenant keeps the house CLEANER than I did myself when I lived there. Pool house tenant is the BEST tenant a landlord could ever ask for. For me, having a tenant care for the home like it was his/hers, long-term, and always pay on time, is worth keeping their rent below market as they give me peace of mind. Also, the tenant KNOWS they have a GREAT deal and doesn't do anything to jeopardize their current deal - it's a win-win.

All of that to say this: I know some will say that $700 lady has to go, but I say she would be the last on my list. 

The other three are a toss-up. See who is paying under-market rent and try to raise their rent to current market value. From there, some will say okay but I bet one will weed itself out and then you have your answer. 

@Zack Rosenbaum ,

     What do you think about moving tenants around and adjusting all the prices? Seems odd to me that the unit with 4 people is in a smaller unit and paying too little - though I do realize that happens over time, not the previous owner’s fault. I wonder if they’d consider taking the larger unit for $900 a month, moving the older lady into a smaller unit and adjusting to $725-$750 (or keep it the same). I think it’s great to have tenants who want to stay longterm but it has to make you money. A longterm tenant providing almost no profit is probably worse than a few shorter-term tenants all which make a profit. Just my thoughts. 

Have you discussed with tenants if any of them are planning on leaving soon?  Also, Unit 4 is likely fixed income, others may be at max rent they can afford, so notice of rent raise and change of terms adding water bill might have more than one giving notice, anyway.  I'd choose it based on which unit gets you the most rise in rent after upgrades, move into that one, fix it up, then rent it out (possibly to existing tenants who want to upgrade for higher rent), then repeat until all are upgraded, you've met your occupancy requirement, and then all can be rented at full market.    

@Zack Rosenbaum ,

    Haha. I should have known that'd be an issue! My grandmother always kept a ton of stuff she'd never need. We had to buy a shed at our house when I was a kid just to keep her stuff... Maybe she'd consider it and working it out. Or maybe it'll make sense to her son and he'll convince her. Sure it'll work out for you. It's good you're seeking advice before just jumping on it and moving them out or raising rent.