Ok, to give a little background info I am considering purchasing 2 unit building in Washington, DC which consist of 2br/1b. These individual units have not seen any type of cosmetic renovation in probably the last 20 years, everything is outdated. Tenants have occupied both of these units for the last 10 years. As that may sound good to some, the owner has not upped the rents to reflect the current rental market and he has not made any of these tenants sign any type of lease. Both units are being rented for $350 a month. Lastly he is selling the property for 180k, if my math is correct I would have to up the rents by at least 53% to receive any type of cash flow. I do plan on leveraging repairs in the negotiation, but my main concern are these tenants that has been here for years with no documented lease. I would need to up rents immediately and if they refuse to pay I think I would be pretty much screwed because there is no lease. Is this a deal I should even pursue give the details surrounding the property ???? PLEASE HELP
P.S. Sorry if I was longwinded
Gotta be better deals in DC. What's market rent for duplex? How much deferred maintenance? Other expenses like taxes and insurance etc.? Will seller finance wit a payment under the true NOI?
What is market rent for a similar condition apartments? Any rent control? Are they elderly or disabled? You can offer a month to month agreement when you purchase. budget for vacancy or rent being lower at first. Put it in the purchase agreement something along the lines that no rental agreement can be offered prior to sale to the tenants without your approval. You would still need to give a 30-60 day notice of an increase and the reality is they may give you a problem. I don't know your local laws but you should get familiar with them.
In this situation I think no lease is probably better. What class of neighborhood and what kind of employment do the tenants have? Will they be able to absorb the increase? If not that is where you will have issues.
Be sure you know the law for Washington DC regarding tenant's rights - they are very pro-tenant inside the district. Since there is no lease agreement, there may be some sort of squatters' rights in play. See if you can have the current owner put a lease in place before he/she sells to you. Put the onus on the current landlord to do some of the heavy lifting with regard to this property. It does not have to be 100% perfect when you buy but in this way, you can see which way the pendulum will swing and put stipulations in any written agreement you make with the current owner that certain benchmarks will be met before you buy (such as putting a lease into place with the current tenants or, in the event they won't sigh, evicting them).
At $350 a month are they Section 8 renters?
If you are gung ho about this property I'd speak to a RE attorney (or an experienced property manager in the District) regarding your options for raising rents or removing the tenants. DC is very, very, very, oh so very tenant friendly. I do believe there is something saying you can't just raise the rent by 50% or even less. There is a cap but I don't know if off the top of my head. Also you'd have to make sure that the tenants were offered the chance to buy the building. Yes, the District is tenant friendly.
Let me give you an example, Google "Museum Square Apartments" DC. Large apartment building in a very expensive section of downtown DC filled with Section 8 and elderly Chinese tenants, lotta drama, and the city council got involved. You can attempt to do cash for keys, I'd suggest passing on this.
Okay let me try to back this up with something from the DC.gov site
Regarding rent increases
When your lease expires:
To increase your rent, your landlord must file a notice
with the RACD. Any increase must meet certain legal
requirements. (See the section on Rent Control for
details regarding rent increases.)
elsewhere on the DC.gov site
The landlord may evict a tenant for only one of ten specific statutory reasons:
- Nonpayment of rent;
- Violation of an obligation of tenancy, of which the tenant failed to correct after notice;
- Tenant performed an illegal act within the rental unit;
- Landlord seeks in good faith to occupy the rental unit for personal use and occupancy;
- Landlord sells rental unit to a party who seeks in good faith to occupy the rental unit for personal use and occupancy;
- Landlord seeks to renovate rental unit in a manner in which tenant cannot safely occupy;
- Landlord seeks to demolish rental unit;
- Landlord seeks to substantially rehabilitate rental unit;
- Landlord seeks to discontinue rental unit for housing and occupancy; or
- Landlord seeks to convert rental unit to a condominium or cooperative after securing governmental approval
You may have to evict because you want to substantially rehab the place.
Whatever you do it will be long and complex.
Move on to the next deal
Thanks for all your input guys. I will move on to another deal. However I will keep my eye on these properties.
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