What is a good tenant worth?

8 Replies

I looked a duplex about a month ago, and have been meaning to ask this question since.  This is an up/down duplex.  Each unit is 3 bedroom, 1 bathroom.  Already 100% rented.

The top unit rents for $575, could probably be raised to $600.  Nothing really not note, it was a nice unit.  The downstairs is nicer, and has a very long term tenant, he pays $465.  His unit is certainly worth $600 a month.  Let's say I'm wrong though, and it's only worth $575.  That's $110 less or "loss".  Before one screams raise the rent, here me out....

1.  He's been there for 5+ years and doesn't want to leave.  He's probably 60, and pending some catastrophic event, from what I can tell he wants to stay there till he dies.

2.  He mows the yard with his own mower, which is a value of $500-$550 a year.

3.  He takes immaculate care of the place, he tends a nice garden, planted rose bushes, a peach tree, all sorts of stuff.  This house is in a C neighborhood, and it has the nicest yard on the street because of his efforts.

4.  He loves the place and was there the entire time I saw his unit, talking about the whole thing.  Really proud of his home.

5.  On #4, he is a bit of a character.  Type of guy that will talk your ear off.  I'd have a property manager so it's not a huge deal to me, but just fyi.

So if I bought this, and lost $1320 in rent, got $500 back in value from lawn care, we're now talking $820.  So what's a good tenant worth?  Raise the rent to $575-600 (he'd likely leave as he's on partial housing assistance), raise partway and hope he stays, or leave as is and have a "good tenant"?

I say raise it $25 a year!  More if you think its a year he passes.  People just dont like dealing with properties that are haunted or a death has taken place.

I would raise $65 per month = $780 per year

And you do nothing to look for a new Tenant

With proper screening good tenants are a dime a dozen. You do not make money in business by supplementing your tenants rent, that is charity.

I would raise his rent to $575 which allows him a payment of $25/month for maintenance and he will most likely stay. It's a business decision which may or may not result in him leaving. 

I would continue to raise his rent annually maintaining it $25 below market.

@Pat Jackson

Do your numbers work based on the current rents? Looking from a different angle, what does a bad tenant cost? Headaches, nit-picking repairs, slow rents, damage, lawn care, decline in upkeep and appearance, etc. You say the guy loves the place, takes immaculate care for it, mows the lawn (I suppose it's not a requirement), gardens, etc.  Are his current upkeep efforts a contributing factor to the purchase price? You say it's the best place in the neighborhood.  Is it because of him or the current owner?

Using your analysis of a net $820 loss of annual income, is it worth a possible month vacancy, expense of turnover cleaning, and management expense to place new tenant? If the numbers work going into the deal, I would leave the guy in place, but let him know a modest increase will occur at next lease renewal. If he's on fixed income, it will cost him more to move than pay another $10 - $20 per month. Good luck.

Suggest you defer your ambitious task until after it starts melts next spring.  I doubt people want to move out or in at year end.

Much appreciated, very different opinions!

I would keep him. Since you are using a property manager they will likely charge you a lot of fees to place a new tenant. You may also lose a month or two of rent. And if the tenant is replaced with someone whom will not want to stay for long, these fees and costs could be more often. Your tenant also has value with taking good care of the property which would cost you money to pay someone to cut the grass. This tenant also is adding value in that if the house is in great condition because of him then you could likely attract a higher quality tenant for your other unit.

Perhaps raise it $25 when his lease expires but I would not suggest going higher since the tenant is on a limited income.

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