Investor · Roselle Park, NJ · Member since 2015 · 27 posts · 13 votes
Hello, I am currently in the process of closing on a 3 family home in Elizabeth NJ. I am financing the home using an FHA owner occupied mortgage. Currently 2 of the units are vacant and the 3 unit is occupied by a tenant who has been living in the unit for 27 years. She currently pays 875 a month which is way below market value and is on a month to month lease. Im not sure if she will be able to afford fair market value and will most likely have to let her know to vacate the property within 2 months. Will the process to evict here be very difficult? Since I am a first time owner-occupied buyer and the tenant is living on a month to month lease.
Real Estate Agent · Falls Church · Member since 2012 · 2k+ posts · 1k+ votes
10y
Is it possible for you to break the increase up over time, so that the impact is not felt as hard. A 27 year history of on time rent payments carries more weight compared to $3900 over a 12 month period.
How much will it cost you to get her evicted, turn the apartment over, and find the next tenant? What if the next tenant has to be evicted as well?
Real Estate Agent · Falls Church · Member since 2012 · 2k+ posts · 1k+ votes
10y
Is it possible for you to break the increase up over time, so that the impact is not felt as hard. A 27 year history of on time rent payments carries more weight compared to $3900 over a 12 month period.
How much will it cost you to get her evicted, turn the apartment over, and find the next tenant? What if the next tenant has to be evicted as well?
Investor · Rowlett, TX · Member since 2015 · 27 posts · 5 votes
10y
Interesting, I would really like to know how this works out. I am approaching the same obstacle on a SF deal. I am awaiting an inspection to determine the expense of the rehab, but it has a tenant that is paying $300/ month and the FMV will be 750 after repairs. The tenant has a verbal month to month agreement. So, I have to determine how to get a written agreement then increase rent, or evict. From brief research the tenant seems to be a good occupant with over 5 years occupancy.
Investor · Roselle Park, NJ · Member since 2015 · 27 posts · 13 votes
10y
Will let you know how it goes @James Bolden. Im thinking of going the route @Brandon L. has suggested. Im going to try to increase rent to 1050 - Year 1. 1150 - Year 2 and then 1200 - Year 3. If I go the route of evicting her I will have to put in about 2000 to make minor cosmetic repairs for the next tenant.
Investor · Rowlett, TX · Member since 2015 · 27 posts · 5 votes
10y
Thanks, I am toying with not considering the eviction plan because I maybe able to extend rehab cost by only completing a few major repairs upfront and gradually do cosmetic upgrades over time as rent increases. But that maybe a better solution for a MF opposed to a SF unit. But it could mean presenting an opportunity to get another deal.
Real Estate Agent · Hamilton, NJ · Member since 2013 · 464 posts · 311 votes
10y
I agree with @Brandon L. Also, I would think that most landlords kill for a good tenant that stays 27 years. Even though $875 might below market rent for the unit, its monthly income that's coming in. If you force her to leave, that will give you 2 vacant units and no income coming in. Just remember, filling vacancies can be a challenging situation especially at first if you have no experience doing it. Since the one unit is rented for $875 and you'll be living in one unit, I would focus on getting the third unit rented. Do all the necessary renovations needed to get top dollar and do proper screening of tenants. Once that is all situated and rented I would work on potentially increasing the rent on the $875 unit. My suggestion though is to make it a gradually raise in rent. Remember, BAD tenants will cost you more money in the long run than a GOOD tenant who pays a little below market rent. If she's a GOOD tenant work with her so this way you don't lose her. Best of luck!
Will let you know how it goes @James Bolden. Im thinking of going the route @Brandon L. has suggested. Im going to try to increase rent to 1050 - Year 1. 1150 - Year 2 and then 1200 - Year 3. If I go the route of evicting her I will have to put in about 2000 to make minor cosmetic repairs for the next tenant.
I would be interested in knowing the outcome of a $175 rent increase, I have a feeling she will walk.
What if you offered to continue a month to month at $1050, a 24 month lease at $925, or a 12 months at $975 or something similar. I have found people respond more favorably when they feel they have choices.
Also I would try to find out why she has stayed for 27 years, and why she has stayed on the month to month for so long. Knowing her situation completely will help provide a solution both parties can live with.
If you back her into a corner with $175 increase her only choices will be to take it or leave, and trying to extract every penny from a tenant usually costs more in the long term.
Investor · Orlando, FL · Member since 2016 · 40 posts · 8 votes
10y
I would raise the rent in small increments. I would also offer as mentioned above a multiyear lease at a fixed discount price. I do this for one of my condos and it works out great.
Washington, PA · Member since 2016 · 36 posts · 10 votes
10y
I like what Brandon L. was saying about giving her options. Worrying about a steadily occupied unit that could result in possibly eviction, vacancy and repairs that is already giving you income. I would worry about filling the already vacant unit and go from there.
Fill the vacancy first, then do a small (say $50) increase in rent. Your $2000 to get that apartment ready probably don't account for marketing costs, the mortgage, insurance, and tax costs as well as that it will probably take you longer than one month to get a new tenant.
Forcing a tenant out after 27 years of on-time payments and being a good tenant seems like madness to me. If she does leave, see if she wants to move to Madison! :)
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
10y
@Neil Patel I am not sure about in NJ but in CT it is very difficult to evict someone for lapse in time. Especially someone who is elderly. At best it will just take you a long time to get them out.
I would exhaust any scenario that involves them staying at or close to market rent before you try and evict. Regardless, build in the cost of having a lengthy eviction process into your numbers.
Investor · Kirkland, WA · Member since 2016 · 4 posts · 0 votes
10y
Neil Patel I'm interested in hearing more details about your FHA loan on a multi family, I'm currently in similar spot. Have a 4-plex under contract, have yet to get it appraised, my loan officer tells me it all hinges on the FMV rent appraisal(passing the self sufficiency test) the current rent is 75% of what the FMV rent is. Did you have any issue with it, if so how did you handle it?
Cincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
10y
@Neil Patel Congrats on your first multi-family! As others mentioned, I would work with the tenant to gradually increase rent. I would show her current market rents, but explain that you value her longevity and give her a bit of a break. Furthermore, since you're living in the building, you want a tenant who can tell you EVERYTHING about it and be a good neighbor. She's vested in the property, it's her home. Maybe there's additional value in that.
Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
10y
not sure why the choice is take the rent or evict. Perhaps she will not take the rent and just leave on her own. In any event in New Jersey, it is not that simple to get rid of a tenant. You basically can only get rid of a tenant if they stop paying rent or if you wish to live in that unit. Other than that, it is known that you have a tenant for life in New Jersey. So choose your tenants and your battles wisely.
not sure why the choice is take the rent or evict. Perhaps she will not take the rent and just leave on her own. In any event in New Jersey, it is not that simple to get rid of a tenant. You basically can only get rid of a tenant if they stop paying rent or if you wish to live in that unit. Other than that, it is known that you have a tenant for life in New Jersey. So choose your tenants and your battles wisely.
I'm also surprised that everyone is saying evict. There's nothing in the post to suggest that this renter will start squatting if rents are raised. Despite what you read in this site, most tenants are not trash that are just looking to pull a fast one, and will just follow the rules.
In my opinion, you should raise rents, but do it over a two-year period, and be honest from the start with the tenant about it, not so much for business reasons, but more for humanitarian reasons. You're potentially taking someone out of the home they've most likely lived in for the majority of their adult life, so give them a bit of a break. It'll give you some time to adjust to the new house and make the changes you need (assuming the tenant doesn't immediately leave), and it'll also make you feel better about what you're doing.
Being a landlord is a hard life, and many people sacrifice their compassion and humanity because it's the easy way out, but I think you'll find that landlording can be rewarding in more ways than just financially if you do it right.
Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
10y
I agree with Jacob Pereira I think you'd be smart to have her long term at 1050. I have a tenant of 22 years that I left at $200 below market rent and it is consistently one of my most profitable properties.
Montvale, NJ · Member since 2016 · 61 posts · 28 votes
10y
I once read that it is ethically wrong to increase a person's living costs just because you can.
A $175/month increase will probably force your only tenant to walk. I know i would. And if she didnt, its a horrible way to begin your landlord-tenant relationship.
Raise it slowly over time. But don't focus on her as the main issues. Its the other two units producing zero.
Investor · Huntsville, AL · Member since 2014 · 108 posts · 50 votes
10y
If she is elderly, she prob could qualify for government rent assistance and you could help her with that process to get the rent up so it would be no additional cost to her. I'd take the trade of not having to do the updates - granted only 2k, but thats just your estimate on your first rehab...once you start peeling the onion, rehabs seem to end up being more money and time than originally anticipated....my free 2 cents worth :)
Agree with others - get the vacant one rented out and see how easily it is to rent before worrying about a 27 year PAYING tenant.
Investor · Roselle Park, NJ · Member since 2015 · 27 posts · 13 votes
10y
Thank you all for responding. I will definitely go the route of trying to negotiate with the tenant. I had an inspection done this wednesday and hopefully will be able to close on th house in the next few weeks.
I have to agree with @Brandon L. about the value of a long term tenant (not even considering the legal expenses, time etc that an eviction would take), and the probability that you're raising the rent too high too fast (assuming you don't have any rent controls in your area to begin with), and you not only risk, but almost guarantee, her leaving.
I also think @Wade Garrett has a very valid point that, even if your tenant ends up staying at this time, you will have definitely tainted the landlord-tenant relationship right from the beginning and 'the place' will no longer be considered her home.