Displacing Good Tenants if I Sell

Buying & Selling Real Estate
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Displacing Good Tenants if I Sell

Brenda Whittaker
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.

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John Chapman
Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
6y

@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.

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  • Brenda Whittaker
    OP
    Investor · Cottonwood, AZ · Member since 2015 · 287 posts · 57 votes
    6y

    What is missing from that business formula is compassion.  This world is all wrong.  It's so ruled by oppression it's mindblowing.  People can so easily be controlled and brainwashed for profit that way, supply and demand, such as when supply is squeezed to a minimum simply to create a higher price.  A giant evil corporation can hire an unscrupulous ad agency to brainwash people into wanting something then jack up the cost of it because it's wanted.  What kind of evil is this?  Why does everyone allow this to happen?  Mid 20th century saw a cigarette company hire a marketing demon that convinced the women of that time that smoking cigarettes made them independent and glamorous, doubling their profits.  Bad enough with things people don't need but if people are in need of some basic life sustaining substance such as food or shelter and the supply is restricted just so some businessman can live in a bigger mansion, you have an extremely evil greed system.  People are out in the cold where I live because of demand, and that will never be ok.  The 80's brought about the horrible self serving ME FIRST mentality, we are supposed to be growing, learning, helping humanity and realizing by now that life is most meaningful and purposeful when we cooperate, not compete, when we assist others, not oppress them for profit.  It's wrong.  Just because thats the way it works doesn't make it right.  Everyone needs to wake up, good people are suffering and no one cares beyond their own pricey possessions. 

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  • Brenda Whittaker
    OP
    Investor · Cottonwood, AZ · Member since 2015 · 287 posts · 57 votes
    6y

    UPDATE - So I told my tenants I would have to raise rent $200 in order to not lose money any more and that I would not do that but may have to sell and that I needed them to let a broker inside for a BPO.  They gave me their 30 day notice.  Anyone know a great handyman in north Texas!!??

    1Reply
  • Jon A.
    Asheville, NC · Member since 2017 · 385 posts · 274 votes
    6y

    @Brenda Whittaker, it sounds like you already did a great service to your tenant by allowing them to stay at below market rents when you could have raised them all along. 

    0Reply
  • Brenda Whittaker
    OP
    Investor · Cottonwood, AZ · Member since 2015 · 287 posts · 57 votes
    6y

    @Jon A. thank you.  Now the huge challenge of travelling to renovate for a sale.  It is extremely difficult to travel and the last renovations I did took 6 weeks to complete.  If anyone here has suggestions on hiring help from afar, for a place that is a little Mayberry town with lots of incompetence and cheaters, let me know. 

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Brenda Whittaker:

    UPDATE - So I told my tenants I would have to raise rent $200 in order to not lose money any more and that I would not do that but may have to sell and that I needed them to let a broker inside for a BPO.  They gave me their 30 day notice.  Anyone know a great handyman in north Texas!!??

     What town do you need a handyman in?

    0Reply
  • Brenda Whittaker
    OP
    Investor · Cottonwood, AZ · Member since 2015 · 287 posts · 57 votes
    6y

    Bonham TX 20 miles east of Sherman. Thanks so much. I will be looking at what FHA compliances are such as heat/ac unit, roof, and whatever else might help an end buyer obtain financing, plus flooring and paint of course. I like Home Depot but will need someone for details and to help watch over the place. I also need a shed install, and general clean up. December - January.

    0Reply
  • Anthony R.
    Property Manager · Lakewood, OH · Member since 2015 · 250 posts · 258 votes
    6y

    I empathize with our tenants. Our business model has always been and always will be, take care of our tenants first, and the bottom line will follow. That said, it IS A BUSINESS. The needs of an individual tenant do not outweigh the needs of the business as a whole to survive.

    If I can help a tenant here or there with a late fee, fixing something that's not really in my scope or going the extra mile to make someone happy, then I tend to. I would never sacrifice the integrity of the business though by not keeping the rent up with the market value. Our rents usually fall just a little (maybe 5-10%) under market value so that we ensure we're always rented and that the tenants know they're getting a great deal and want to stay. 


    That said, we always keep raising them if we need to.


    My recommendation to you would be to either let the tenants know that when their lease expires, you're raising the rent to close to market value and let them decide if they want to stay or not, or sell.

    0Reply
  • Steven Ko
    Sunnyvale, CA · Member since 2018 · 191 posts · 178 votes
    6y

    As I always tell my fiancé, you can’t fix everything with emotions.

    You make yourself seem like a saint helping out this family. When you explained the situation to them, they seemed to drop you like a sack of potatoes. And now it seems you don’t care they’re leaving. Why were you caring so hard for these tenants? Just because they were old, you assumed they couldn’t do anything? You thought they had no other options? They couldn’t survive without your rental?

    You say business is bad. Maybe your just bad at business. You can have a business with lots of compassion. You conditioned yourself to think that Apple, Amazon, Facebook are the definition of business. My first rental is currently way below market rates and I only plan to raise rents 1-3% a year to keep up with inflation while the market rent is going up around 6-8%+.

    I just moved to across the country to Pennsylvania where houses are “dirt cheap” compared to the SF Bay Area where I live. I bought the nicest house on the block and I’m very well aware that my neighborhood is changing. I plan to grow a real estate portfolio here and I do have “affordable housing” as part of my BUSINESS plan. It’s fine if you don’t want to raise rents and be Mr. nice guy but don’t stick your head in the sand to everything that’s going on around you. Be aware that it’s going to come at a cost, probably out of your pocket. Plan accordingly.

    You seem to have very good intentions so I do hope that you become successful in life to share you heart of gold. It’s not an easy road but keep on chugging along!!

    0Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    6y

    @Brenda Whittaker it seems to me that your answer is to give your tenants a 2 year lease at a bit of an increased rent, then list the place for sale on the open market (use an agent) 


    this will help your tenants, help you and also ensure you get a fair, but not inflated price for the home.  
    I urge you to NOT sell to a wholesaler. Just do as above and everyone wins as best is possible. 

    0Reply
  • Account Closed
    Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    @Brenda Whittaker

    I used to live in Sherman. I reached out to a friend of mine who still lives there to see if he can recommend anyone. I'll PM you if I find someone.

    0Reply
  • Brenda Whittaker
    OP
    Investor · Cottonwood, AZ · Member since 2015 · 287 posts · 57 votes
    6y

    @Anthony R. That was SO WELL SAID.  You are absolutely right.  It's a business and I have given way too much away, compromising the whole reason for doing this in the first place.  The tenants have already decided to go, and were on a month to month so it is quite sudden for me.  Not prepared to rehab.  It wont' need a whole lot I hope, but I have another job at home to deal with too and the last two I did took a solid 6 weeks to fix up.  I have to sell.  I don't want to do this anymore.  I'm ready to move on to other things, that I might actually be good at.  Haven''t found them yet though, ha ha ha ha ha.  Now I have to put together a rehab project.  And I don't want to. I know I can do as-is but those offers are too low.

    1Reply
  • Brenda Whittaker
    OP
    Investor · Cottonwood, AZ · Member since 2015 · 287 posts · 57 votes
    6y

    @Account Closed Thank you SO much!  HUGE appreciation!  

    0Reply
  • Brenda Whittaker
    OP
    Investor · Cottonwood, AZ · Member since 2015 · 287 posts · 57 votes
    6y

    @Steven Ko I am not so ego driven as to do anything for the sake of appearing to be saintly.  That is absurd.  Nor have I implied the tenants "couldn't survive without" me. It's like you're making it all dramatic.  It's not. I also cannot fathom how it could possibly appear that I don't care they are moving.  I can't make sense of that, I care more about this than anything in my life right now.  Further, why would you have to say I am bad at business when this has clearly already been establish, and admitted.  I get it.  That's the reason I'm getting out.  This thread has shifted to my finding contractors and such, and that's what I will reply to, I don't need to go back to why I have done this horrible thing of not raising a basic need cost high enough to compete with everyone else, and how bad I am at what I really wanted to do.

    0Reply
  • Brenda Whittaker
    OP
    Investor · Cottonwood, AZ · Member since 2015 · 287 posts · 57 votes
    6y

    @Mary M.  Thank you!  As you can see they are leaving in 30, however it;s ok because I figure the longer I hang on the more it's going to need when it finally is time to sell.  So I do agree except that things have sped up a bit.  Even though I could rent it for 2 years to someone entirely different for market rent.  2 years at that rate might pay for the renovations.  Hey....  hmmm.  Thanks for the heads up about wholesaling.  

    0Reply
  • Robert Nelson
    Member since 2019 · 43 posts · 20 votes
    6y

    @Brenda Whittaker

    You might try contacting a savvy lender who will see if they can qualify for a loan. If they can qualify for an FHA loan, it is possible for the seller to contribute towards the buyer's closing costs. In that way, they don't actually need the cash down payment. Also, it is possible to make a deal with a real estate agent to take care of the paperwork for a relatively small amount of money. An agent would know how to do all this. It's actually pretty simple. The savings you make by not selling the house on the open market, relocating the current tenants, rehabbing, etc is worth a lot. The tenants benefit because they already know the house and they don't have to move. It is basically just a bunch of paperwork.

    I have done this a couple times and it can be a win-win for all involved.

    0Reply
  • Anthony Rosa
    Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
    6y

    @Brenda Whittaker - It sounds like you're a good person and being a good person does pay off in different ways.  Be happy knowing that your home increased in value and that is Not typical in a market where the majority of homeowners are OOS investors.  Since you don't like the rental business, feel bad about your tenants situation and your home increased in value why not sell the home and give your tenants some money from the sale so they can relocate. You can pay for their moving costs and cover 1-3 months rent for them. To me, that's a win win for everyone.

    0Reply
  • Brenda Whittaker
    OP
    Investor · Cottonwood, AZ · Member since 2015 · 287 posts · 57 votes
    6y

    @Robert Nelson Thank you, excellent idea. I didnt know a FHA would accept anything less than 10% cash down from any buyer. @Anthony Rosa thank you too, great idea about helping them with relocating costs.  So many options opening up here, I appreciate all of you and your input.  I will practice going with the win win flow, try not to force an answer and see where the current takes the situation.  I'll update often, this could be interesting. 

    0Reply
  • Brenda Whittaker
    OP
    Investor · Cottonwood, AZ · Member since 2015 · 287 posts · 57 votes
    6y

    Since Im not quite ready to rehab for a sale I kind of like the idea of renting at a $300 increase.  Yes that is actually how far below market the rent was.  Perhaps a rent-to-own which is one thing I have never done and know the least about.  Does it seem feasible to find someone who qualifies but maybe is short on a down payment and I could take a premium rent setting part of it aside for their down payment for say, 2 years?  Is that how rent to own works?  Market rent is around $1000 or just under for that house, value I think is around $85K tops as is. Then how much to renovate or not, for new tenants instead of an end buyer.  

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    6y

    Rent to own for a period of greater then 180 days in Texas while not illegal, has requirements so onerous that even an expert would not attempt.  My guess is if your ultimate plan is to sell in the next 1-2 years, removing paying tenants to make an extra $300 will not be profitable after you incur renovation expenses and lost rent

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