Investor · Cottonwood, AZ · Member since 2015 · 287 posts · 57 votes
Since out of state investors have infected my area and forced up property tax I can no longer afford to keep my rental. The tenants are very decent hard working great people who love the house but cannot, like most hard working middle class, afford to buy their own home due to unreasonable increasing values. They have been there nearly 10 years. The rent is below market value but I cant just raise it hundred of dollars on them, I do not want to create hardship for my tenants. Does anyone have any ideas on how to create a WIN WIN for both myself and the tenants? Something contractual? Financial advice? I am being forced to sell because out of state investors discovered the area and destroyed the affordability, leaving myself and the tenants in very bad positions. A financial advisor specializing in real estate would help, if anyone out there does that. I'm horrified to be faced with this but my taxes DOUBLED in one year!! Having much trouble dealing with inflated markets and the frenzy around real estate that is ruining the business. Any ideas would be very much appreciated.
@Brenda Whittaker, you really have two options: (1) sell; or (2) raise the rent. It's kind of a good problem to have in that it sounds like your house has significantly increased in value. (Higher property taxes generally correlate with higher property values). It also sounds like landlording might not be for you if you are so far below market in terms of rent that you cannot afford the home and cannot bring yourself to raise the rent. Moreover, it sounds like you are empathizing way too much with your tenants; this is a business that should be handled with dignity and compassion but at the end of the day, it's still a business. Given everything you say above, I would probably opt to sell. I'd call your tenants (don't just send a written notice), and explain the situation. If you're kind of on the fence, tell them that the rent needs to go up however much just for you to hang on. Tenants know when they are getting a phenomenal deal and often (in my experience) will just eat the increase because they know there's nowhere else to go as cheap. At the end of the day, this isn't that big of a deal. Just some perspective.
I am so sorry you are dealing with this. And thank you for caring about your tenants.
Have you talked to them? Do they want to stay? Can they afford staying? That is where I would start, then depending on their answers what about selling them the property with owner financing? Or, raise the rent the amount needed to cover the tax increase if they just want to stay as renters?
@Brenda Whittaker, you really have two options: (1) sell; or (2) raise the rent. It's kind of a good problem to have in that it sounds like your house has significantly increased in value. (Higher property taxes generally correlate with higher property values). It also sounds like landlording might not be for you if you are so far below market in terms of rent that you cannot afford the home and cannot bring yourself to raise the rent. Moreover, it sounds like you are empathizing way too much with your tenants; this is a business that should be handled with dignity and compassion but at the end of the day, it's still a business. Given everything you say above, I would probably opt to sell. I'd call your tenants (don't just send a written notice), and explain the situation. If you're kind of on the fence, tell them that the rent needs to go up however much just for you to hang on. Tenants know when they are getting a phenomenal deal and often (in my experience) will just eat the increase because they know there's nowhere else to go as cheap. At the end of the day, this isn't that big of a deal. Just some perspective.
By not running your rentals like a business and raising rents over the years you have priced yourself and your tenants out of the market. Your tenants are now in for rent shock now that you have to sell. As mentioned its best to run your properties as a business and not make the mistake of blaming improving market conditions for your tenant's hardships. The solution would be to sell your property with a six month lease for your current tenants so they will be able to find an affordable rental. Good luck @Brenda Whittaker
@Mary M. Thank you for your reply, yes I have been trying to sell to the tenants for a couple of years now because even before the tax increase I have grown weary of travelling to another state to manage and repair the rental. Problem is they do not believe they quality for a mortgage, they do have good jobs and are stable older people but they have bad credit and zero down payment. They want very much to stay but people are generally defeatists, they refuse to even try for something they think is out of their reach. @John Chapman you are actually totally right. I do empathize way too much, I care about people more than business. I hate business. One of my subconscious beliefs is that business is evil and takes advantage of and hurts people. The rent is $700 in a market of at least $1000. It would be impossible for me to in all good consciousness raise it $300, I just can't, I would rather give up on it. I've been a landlord for 10 years, just sold 2 other rentals in the past few years after a decade of being abused and tortured by everyone from tenants to (especially) contractors, vandals, tax appraisers and scam artists utility companies. They have all left this person with a heart of gold beaten and bloodied and broken, I despise this business, really. Its very sad, because my passion is rehab, I love love love love love to fix up old junkers and turn them into beautiful simple sweet little living spaces for deserving people. I think everyone is entitled to a roof over their head, but the business part of it batters us all and forces labor slavery upon people just in order to have this very basic need. Plus so many rules and regs when you sell, the amount of money that is stolen from a seller, (and a buyer) in legal and title company processes, everyone has their filthy hands in our pockets when all we want to do is put old junk houses back into service. My intentions are too good and noble for business. Business is an evil word, it means harm to me, it is the ultimate epitome of oppression and deception for greedy profit gained by stepping on and squashing every innocent soul in it's path. Business is evil, I detest it and I cannot do it anymore. These tenants are so nice and so integral, they are grandparents raising grandkids, they have nowhere else to go but because of business they will be hurt by being forced out of the home they love and cherish because people got greedy and jacked up prices all over the USA in a disgusting housing market that our general labor force can no longer afford. It is breaking my heart. I think I will try one last time to figure out a way for them to buy the place, maybe if I gave them a year to fix credit and find a down payment or something. If they could stay it would save me from going there to renovate it, I cant leave home right now as I care for many animals and the contractors where the house is have all been horrid. They dont show up, they can't fix anything and they steal my money all the time. If I sell and lose the income I will not have enough income to live off of unless I pay off my own home mortgage which is higher than what I could get for the rental, so it is going to take some fancy planning to get out of this mess. I would ultimately like to see the tenants buy the house and I ultimately need to pay off my own home because the mortgage will outlive me otherwise and my number one life goal is to leave my daughter our home, unencumbered. If you know of any financial planners or someone who can think business like I cannot, who might be willing to help me brainstorm, please let me know and thank you.
@Brenda Whittaker, Based on your post above, you absolutely should sell. You're burned out from rentals and don't like the business. You just need to be done with it, and move on. Delaying the problem or trying to get the tenants to buy the home is quixotic, pointless, and ultimately going to cost you more in terms of stress and money. There's no magical solution to address your issues as this is a pretty simple business. Sorry to be blunt, but you need to hear it.
@Account Closed You are totally correct and that is a great idea, to include a six month lease. The one thing you and everyone else are not correct about is the term "improving" when referring to rising housing prices. I can't understand that at all. How is rising prices on anything an improvement? How is anything, especially a basic need, a good situation when the price goes up? When food or gas or anything we need goes up, people have been conditioned to believe its a "good economy" when in fact all that means is the government gets richer, by collecting more tax. They tax every transaction that is made, every time anyone exchanges anything the demonic government steals a percentage and THAT is the exact reason they want us all to believe in the folly of "good economy". Higher prices mean more slavery, more stress, less people in homes, there is absolutely nothing good about anything going up in price, nothing. Hardship is not good. I wish to God everyone would get out of that mindset, it's the whole reason innocent lives are suffering. You are correct about rent shock and you have a good idea about the six month lease. Please know though that when a basic need gets more and more out of reach, there is no room for the word "improvement". Bottom line is I cant do this evil business, I hate it with all my soul. So I really need to get out. But beyond me, please find it in your heart to realize rising prices is not an improvement, it's a curse. Very sad that I cant fix homes as is my passion, without contributing to the demise of people who just want a roof over their heads. It hurts so much I can feel a physical pain in my actual heart just thinking about it.
@John Chapman I know. I need out. I guess now the question is how to do it as painless as possible. It need minor repair, but it is 3 states away from me and I cant leave home. I found an investor who made a ridiculous insulting lowball offer that I could not sell for. And I know I am forced to hurt the tenants by kicking them out of the only home they have known for nearly 10 years. I know you are correct in that I need to run away, fast, from this horrible oppressive business. Very sad though, as I am an excellent rehabber, not with numbers or business, but with the actual rehab. My favorite thing in the world is my before and after photo albums. I have turned very ugly abused properties into happy beautiful serving homes many times but have not done well with the financial aspect. All I want to do is fix up junkers. Without that I am a bit lost in life as to an occupation. It's all I love to do, renovate. Sad life this is. Business forcing us out of our passions. See how evil business is? It's bad for everyone. Thank you John for your replies. Much appreciated.
@Brenda Whittaker. I think you can totally sell the house to your current tenants. You can carry the mortgage.
As it is if you continue as you are you will be taken advantage of by others who see an opportunity to buy your place cheap, boot the tenants and resell
i totally understand your desire to care for these tenants. Win/win is to offer them owner financing
Put it up on the market and dump it to the highest bidder .let the tenants figure out there own housing and their own problems . Your running it like a charity no wonder your burnt out ! Your not cutout for land lording and sadly you are using your heart instead of your brain in this business . Time to rid of it and go collect sea shells on the beach
@Account Closed I have long considered doing owner finance but that doesnt help me. They would still be paying around what they do now and I would have to do a foreclosure instead of eviction if something went wrong. They have no down payment so all it would do is change paperwork and I'd still have the same income, still be stuck with my own home mortgage that I want to pay off, and I'd have to hope to GOD they cared for it enough so it wasn't trashed if I ever had to foreclose. I don;t see how my financing gives me a win. I'd be no better off except an escape from the property tax. If Im going to sell, I have to cut the cord and be all the way out. Unless there's something Im not seeing.
@Dennis M. You are correct. Ahhh the beach... Yes I do have a bigger heart than brain for business. I love the beach. And hikes and places where there are no people.
@Brenda Whittaker I didn't read all of the posts so this may have been said. Since you are below market rent, then your tenants are going to have an issue anywhere they go.
If you sell, the new owners are obligated to honor any existing lease. However if your tenants are month to month, then you can refuse to renew the lease, or the new owners can refuse to do so.
I'm curious as to how you got into rentals in the first place as it's very apparent it's not a business that you're cut out for. Why not just give them the house? Then you don't have to worry about it and it fits your charitable mindset. The tenants probably wouldn't have money for closing costs so you would have to pay those.
If you choose to not give them the house and sell it, you realize of course that they're not going to find another property for the subsidized rate you were charging them, right? So whether you were to raise the rent or they pay a much higher rent somewhere else, it's all going to be the same end result.
@Jim Cummings Why? Are you insinuating I'm some sort of nutcase because it bothers me that people are having trouble affording housing? This is baffling. Why would you say something so insulting? Was that really necessary?
@John Teachout GIVE the house to the tenants? I need the rent to pay my own mortgage! I would be on the street without the income or the sale. I could not afford to give away the only investment I have. And to answer why I got into real estate is in a lot of the above conversation, I love rehab, not numbers. My passion has always been, even as a child, to fix up run down houses and make them beautiful and useful again. I stop at all of them and look in the windows. I dream of what to do with them, design improvements in my head. I LOVE to renovate homes!!! And when I got started, actually 25 years ago, it was possible because houses were 50K in bad shape where I live, so I happily did business right in my own neighborhood until China took over California and Californians began to invade Arizona, upbidding everything on the market in a buying frenzy and inflating prices so it was no longer possible to find anything worth renovating, (Come on, we ALL know that is what is happening but no one wants to admit it.), so I went to a less expensive state and renovated and rented out 3 more until now the infection of greed has taken over that state as well. I wish I could just fix up houses without the business end of it all. I hate business, I love fixing up houses. I did not get into it because I enjoy spreadsheets and numbers and taxes and percentages and laws and rules and regulations and rip off contractors and greedy tax collectors and rip off agents. Does that make sense as to the why I got involved in the first place? Also I have a very good point about how I may have actually harmed these nice old people by creating an inevitable rent shock. I never thought of that. You are correct in that wherever they now go, they will face a huge increase that they were not prepared for. It's still very sad. Incomes do not go up enough to cover skyrocketing housing costs, like I keep saying, a roof is a basic need and should be affordable to more well deserving people. I can't understand why I seem to be the only one who can clearly see this and who cares.
@John Teachout MISTAKE above, I meant YOU have a very good point about harming tenants with rent shock. Sorry for the typing error. Thank you John for your response.
@Brenda Whittaker I’m calling a little self-indulgence here’. are you perhaps beating yourself up to make yourself feel better about taking the money? By selling to those out of state investors you are raising rent on your tenants, don’t kid yourself.
You could, if you wanted to, sell it to someone at a rate they could make money at the current rent and obligate them to freeze it minus growth in expenses etc. That would more than satisfy your stated concerns at the cost of only a little more work and some of your profit. You could also take a chunk of the profit from your sale and subsidize their rent. Both of these are tangible benefits but would come at a cost to you so they seem to be off the table. Guilty feelings are free.
An honest, good landlord reference is a real benefit, and maybe you should consider actively helping them find a good place? Pay their their first and last so they aren’t burdened by that. Return their security deposit. There you go.
@Jonathan R McLaughlin Bingo! Your last paragraph is what i was looking for, some creativity. That is a great idea about paying for their first month at another place, that's a wonderful idea. I think I will do that. Not sure what you mean by selling to out of state investors? I declined an offer from an investor. So I don't know what you are referring to by "dont' kid yourself." I think the best thing to do for the financial end is unfortunately get the tenants out and fix it up for an end buyer. It needs about $20K if I include a new roof and AC system, flooring and paint. Appraiser has it at $73K even though the market has it at more like $65K which is infuriating because I thought you can protest tax rate when you get the bill but they said it had to be back in April when I supposedly got a value notice and they cut you off at 30 days to protest, for no reason except for exactly what did happen to me, people who dont know any better then get cheated by ridiculous property tax that they are powerless to do anything about. My tax doubled! DOUBLE from just last year!! It's entirely unfair, its a rip off and I don't want to play anymore. I'm sick and tired of being robbed. This is the greediest business on the planet, and I am way too good of a person to be involved in it.
@Brenda Whittaker. Here is what you've said in response to various posts:
"One of my subconscious beliefs is that business is evil and takes advantage of and hurts people."
"I've been a landlord for 10 years, just sold 2 other rentals in the past few years after a decade of being abused and tortured by everyone from tenants to (especially) contractors, vandals, tax appraisers and scam artists utility companies."
They have all left this person with a heart of gold beaten and bloodied and broken, I despise this business, really.
"the business part of it batters us all and forces labor slavery upon people just in order to have this very basic need. Plus, so many rules and regs when you sell, the amount of money that is stolen from a seller, (and a buyer) in legal and title company processes, everyone has their filthy hands in our pockets when all we want to do is put old junk houses back into service."
"Business is an evil word, it means harm to me, it is the ultimate epitome of oppression and deception for greedy profit gained by stepping on and squashing every innocent soul in its path."
Business is evil, I detest it and I cannot do it anymore.
"These people have nowhere else to go but because of business they will be hurt by being forced out of the home they love and cherish because people got greedy and jacked up prices all over the USA in a disgusting housing market that our general labor force can no longer afford. It is breaking my heart. I think I will try one last time to figure out a way for them to buy the place, maybe if I gave them a year to fix credit and find a down payment or something. If they could stay it would save me from going there to renovate it,"
"I can’t leave home right now as I care for many animals and the contractors where the house is have all been horrid. They don’t show up, they can't fix anything and they steal my money all the time. If I sell and lose the income, I will not have enough income to live off of unless I pay off my own home mortgage which is higher than what I could get for the rental, so it is going to take some fancy planning to get out of this mess."
Brenda - I'll retract my statement about Dr Phil. My best advice for you is to sell all of your real estate holdings, and seek a job with an organization like "Habitat For Humanity" or "Carpenters For Christ" where you can solely concentrate on doing a wonderful job of rehab and not have to worry about breaking even or making a profit.
@Brenda Whittaker my question for you is, if being in the real estate business is evil and making money through real estate is evil, then why did you join an online community called “Bigger Pockets” in the first place? The name Bigger Pockets is in reference to collecting RENT, not lint in those pockets.
Having a passion for fixing up houses is great, but who can afford to continue doing this without some reconciliation on the back end in the form of market rent or selling and benefitting from the appreciation?
Be content with the fact that you’ve given a decent housing solution to a nice couple for a decade and then, move on. Find something else that satisfies your creative side without the heartache you’ll continue to get in this line of work.
@Kyle Smith The reason I joined BP was because it's an excellent education resource center and I am still in the business like it or not. I have found lenders and contractors and other much needed tools here. When I joined I had 3 rental properties, and I needed a real estate forum. Ok? Thank you for your response, I do agree I need to find something without the heartache. @Jim Cummings Thank you so much, and yes those are terrific suggestions. I sure appreciate all of you here, thanks for talking to me.
That’s all I’m saying, @Brenda Whittaker. The same law of supply and demand that brought you to BP is at work here with your current situation. You had a need (demand) that was met (supply) here on BP; same as you have a need (demand) that your tenants can’t meet (supply). The fix is SIMPLE but not EASY