Negative $800 cash flow/month to help family friend?

91 Replies

What’s up BP fam. I have a situation on my hands and am looking forward to getting your input. So my girlfriend owns a condo she recently moved out of. The condo is located in the city of Orange, California. She purchased it for $358k on a 5% down program in may of 2017. The payment is $2500/month (w/pmi +HOA). She is now somewhere around 15% equity as the property is worth around 400k. She is looking into refinance options but she needs to rent it out immediately. The floors need to be replaced so I have gotten a few quotes and we will most likely replace the old carpet floors with laminate for about $1800. There is a condo literally identical to hers in the same complex listed for rent on trulia for $1950/month (on market 4 days). Now her sisters boyfriends mom reached out and said her niece is moving here from Hawaii and needs somewhere to live immediately. They are in a hotel and can’t find a rental property due to their poor credit. They moved here due to family issues. They also have two kids and they want to be in a home for Christmas. I’ll give you a minute to wipe away the tears.... Where was I?...oh right so my gf’s sisters boyfriends mom said they can only afford $1700/month and no deposit. She said she will co-sign for her niece to give her peace of mind. Now my girlfriends initial response was Yes I would love to help out. She told me and I pumped the brakes and told her how this doesn’t make sense and what not. Her perspective is hey I want to help people I don’t want to squeeze every penny out of things if I can help I want to. My side of the story is due to your monthly payment...Whatever discount they are getting from you, it comes out of your pocket. That’s an extra $250/month you could be spending on gas or whatever and if the sisters boyfriends mom really wanted to help she would make up that difference not ask you to. Now I stressed her out and she doesn’t know what to do. Would love to get some new perspective on this. Am I being a greedy by being this way? I mean there are better way to help. I feel she is getting taken advantage of and this doesn’t make sense on her end but is a great deal for the other family. How can I explain this in the nicest most humanitarian way possible?

Who is paying for utilities?

Put together a lease and make it about business, not just helping out someone.

At $1700 vs $1950, it is fine. Do not replace the carpet floors to save yourself the money. At $1700 you are losing $3k a year. Until you can rent it for more money and the profit can justify the replacement.

@Patrick Fraire Look at it from an upside risk to downside risk. 

How much does putting the family in there now save? The cost of replacing the floors (if they have to be replaced to rent the place) plus the mortgage payment for the number of months it will take to get it rented. 

Worst case downside risk is lost rent ($250/month for however long you think they'll stay) and the time/expense of evicting them if things go south. Add on the soft cost of your gf having to evict her bf's cousin and the associated fallout from that situation. 

If the hard costs come out to around each other I'd say no due to the soft cost of renting to family, but that is just me.

Emotions have no place in being a landlord . 

It is her property and her money. You should not be getting in the middle of it as you will get blamed if things go south. 

Family is family and if aunt will co sign perfect! Do that!  have tenant pay all utilities.  

If there is no vested interest, I will let someone solve her problem.

Originally posted by @Matthew Paul :

Emotions have no place in being a landlord . 

 Sure they do.  Just depends on how and why they are used. 

So sad

But you say these folks are moving from another state, have bad credit and can't afford a  deposit.  And need an aunt to co-sign.

This all means they can't afford the unit.

The monthly loss = $800/mo (2500-1700).  Your GF would be supplementing her sister's boyfriend's cousin to the tune of $9600/yr. What?

Wanting to be helpful is great.  Giving away almost 10k is excessive.  And what happens if her sis and Beau breakup? Or the boyfriend's mom doesn't come through when cousin decides to do Disney rather than pay rent?

This seems easy.

Don't rent to family and family of friends - who can't afford the unit starting out - unless you just want to give $ away, want to break the family ties or the friendships.

Good luck.

1.  NEVER rent to friends and family because no matter what you give them it will never be enough and in the end they will not be friends .

2.  If your girlfriend decides to rent to them anyway, go through the normal rental process.  Do they have a job?  Income 3X rent, even the lower rent?  Co-signer have funds to afford 2 rents--her home and the co-signed rental?  Are you willing to loose that relationship when things blow up?  No deposit means any thing ruined will be at your expense.  How does their old house look?  And references for it?  Domestic issues can make a lot of holes in walls!  Check out their credit and criminal background.  Do they meet your rental standard?

3.. Then if you are still considering going ahead, can the co-signing relative provide the deposit?  If they are such good folks, someone else should be able to vouch that they will paid their rent, not destroy the house, leave it clean when they leave.  They will get the $ back when they leave...with a clean house.

4.  Rent, now, do they already have jobs, or are they getting them?  Co-signer know that money is required each month and willing to pay it?  Are they living off savings? You need to ensure that rent will be coming in. Then maybe say you will rent for the lower price for 3 months to let them get settled in, then the rent goes up to $2000 and they should get a part time job, recycle bottles, whatever to earn the increased amount.

5.  DO NOT DO A LEASE--put it month to month so you can dump them when it does not work any longer.

6 Review number 1 above.

BTW, make sure you change the home's insurance to rental, not owner occupied.

I have nothing productive to add but for the benefit of the thread, a sister's boyfriend's mom's niece is not family (even in the South where I live and family trees don't branch much).

@Patrick Fraire If I had a property where the going rent isn’t close to the mortgage payment, if there was equity I’d sell it. Making a quick $10-15k or whatever is better than losing $600-950/month. And stay away from the sisters brothers girlfriends aunts cousins step daughter. They obviously can’t afford much, and two months from now they will only have $1200... and so on.

don't mix family with business.  if they have poor credit, there is more to it than meets the eye.  they will be lax with payments 'cause family and your girlfriend will foot the entire mortage.   If they can't afford 1,900 they should be looking at some C class 1,200 small place until they get their act together. 

Tell them you are not renting the condo, it will go up for sale.   Then rent it out to someone else, or sell it.

I wouldn't do it, even if they promised to pay 1,900 because I know they will default down the line.

You can A) let her do it and learn from the experience, or B) do as I saw today, in a Bigger Pockets YouTube video, where Brandon said do not ever rent to family and friends; it NEVER works out well. If you want to see the video, it’s on YouTube and it’s called “Getting Started With Passive Real Estate Investing”. Brandon talks about this at 50:12. Here is a link:
@Karen O. totally agree with you. There are many red flags here, that can be ignored.

If she goes ahead and rents to these losers please keep us informed. Being able to tell her I told you so will be your reward.

Here is my prediction........January rent will be late...excuse - Xmas expenses for kids. February they will stop paying. By March her sister will break up with her boyfriend, the boyfriends mom will be gone with the wind. Good luck trying to evict the dead beats.

Some how she will blame it all on you and expect you to fix it.

Your gf is not cut out to be a landlord.

"No good deed goes unpunished"  You will loose money, sleep and probably a relationship if you do this.   She needs to sell the condo and use the money to help HER FAMILY if she really wants to.  People are creatures of habit.  They have bad credit for a reason and if they can't afford the rent in your city they need to move somewhere they can afford. You are in a no win situation and if you are feeling generous give them some money to help out.   Good luck.

@Patrick Fraire . Definitely don’t rent to family or friends. Also sell this property as it’ll be a money pit long term.
@Patrick Fraire Like many others I would never do this, I would do the following: 1) Educate your girlfriend on the rental property basics so she can make an informed decision herself, she's an adult and her successes and failures are all on her. 2) Point out to her that someone with bad credit and money problems generally are due to poor decisions and bad spending habits. These people are saying they can't afford the market rent, have them move to a market they can afford and stop living beyond their means. Lastly, who moves to another state with no place to go or any housing lined up?
@Patrick Fraire Sell it. Seriously...we’re close to the top of the market. Want a condo like that to hold as a rental forever? Sell this one and buy one like it prices dip down.

@Patrick Fraire

  1. Not knowing the entire family history and why the family is in a situation they are in today it's hard to comment.. but my 2 cents
    1. Your GF can probably still help them by finding an apartment they can afford - I am sure if they look hard enough they will find some place that will allow them with no so good credit - perhaps with slightly higher deposit.
    2. Have the Boyfriend's mom put up for the deposit on the above property if she really cares so much about her niece and is confident to co-sign.

It doesn't seem like a good deal even if your gf rents it at 1950 right? Still cash flow negative. Way cash flow negative. Why would you put new floors in a place you're going to lose monthly in already? I see people responding to your questions about the 1700. I agree with all them. If it was me I'd list it and find a tenant that qualified. One of this girls friends or family should put her up. Good luck 

Your girlfriends sisters boyfriends mothers niece? Don't worry, Christmas wont be ruined if you decide not to rent to them.

@Patrick Fraire I would strongly advise no. It sounds like a great way to strain relationships and hurt yourselves long term. That is a lot of money to toss out each monry. Sure it's for a good cause but the relationship will encounter strain and potentially become very adversarial. It's not worth the risk of hurting everyone as a family. Now, again I strongly advise against not doing this but, If you're really determined to do it, sell the condo and keep the gains, then use some of the proceeds to buy cheap house that you can rent or lease-option to them. Something where theu can afford FULL rent on AND that won't have you bleeding every month. Get a cheap house they can live in for $600 or whatever per month.

Updated 7 months ago

The mobile app doesn't register line breaks, sorry for the lack of paragraphs. Basically, DON'T do this unless you're prepared to both lose money and probably strain relationships as well. This sounds like a bad idea in general even if it wasn't going to lose you money every month (which it is.) The fact that you're losing money every month (and you're not even including repairs and whatnot!) makes this a definite no. Again, if you're determined to "help," then buy a cheap house that you can rent to them for cheap. Don't put your $400k property on the line, sinking thousands into it. Even if they said it would only be for a couple months, they're gonna love living there for free, and problems will arise.

NOPE. NOPE. NOPE.  You've answered your own question with the first 4 words of your post:

Negative $800 Cash flow... 

Family/friends + landlording DO NOT mix.  Take it from the experienced folks answering your post.  We've all been burned or are still on fire.

Good luck + Happy Holidays!

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