Buying a property with bad tenants

[Jennifer Fernéz]

Im looking at properties to buy, and saw a tenant in a 4-unit property I like paid $1,000 in late fees.    They are also smokers and their unit is horrid.  They are month to month.  What are common practices to remove them?   Another tenant in the same property pays $750 a month and should be paying more around $1100.   What is the best way to increase her rent?

[Mike Dymski]

For month to month, simply send non renewal notice.  For raising rents, provide written notice for the increase and option for them to provide notice to move out if they are not interested.  Communicate, treat everyone with respect, and provide ample time.

[Theresa Harris]

I agree with Mike.  If you don't want to deal with the first tenant, you can do a really large deposit and try to get it delivered vacant, but it is a big risk for the current owner in case you back out of the deal.

[Matthew Paul]

I had a unit and the tenant was gross , filthy and disgusting , but he paid the rent every month . I let him stay , Sounds a bit crazy , but he was there for 4 more years before he died . I collected rent (with increases ) for those 4 years . If I kicked him out earlier I had to do a renovation right then , I collected 4 more years of rent , the renovation was paid for with 1 years rent and the deposit . The unit was 20 years old and most of what was replaced was at the end of its life cycle anyway .

[Jennifer Fernéz]

Quote from @Mike Dymski:

For month to month, simply send non renewal notice.  For raising rents, provide written notice for the increase and option for them to provide notice to move out if they are not interested.  Communicate, treat everyone with respect, and provide ample time.

I have autism and struggle with relationships.   Do you have a template of some sort so I can make a flow chart?

[Gino Barbaro]

@Jennifer Fernéz

This is one of the hardest parts of the business. With month to month, you can issue a non renewal (look into you local laws). When we take over a property, and the rents are $400 less than what market is, as in your case, there' usually no way that resident can pay. The best way to handle it is to issue non renewal, and you take over the unit to renovate. Of course, you should give the resident the time to find another place to live.

You can always increase the rent in increments, possibly from $750 to $900, but you should do something for the increase. And then, from 900 to 1050 in year 2.

Smoking is a pain when taking over a unit to turn. What you can do, going forward, put in the lease no smoking in the unit. Many companies are going this route, and a lot of the residents who don't smoke, actually appreciate it. It's costly, time consuming to try to get the smell out.

Good luck

Gino

[Justin Moy]

For MTM non renewal just like others said, and set aside a good budget to turn that unit when they leave. For raising rents, you can do it gradually and possibly keep the tenant, or you can do it all at once and at that price increase you'll likely lose them. 

Either is up to you, just plan on when you'd want to raise it to balance other vacancies since it sounds like you'll have at least 1 with the non renewal

[Drago Stanimirovic]

Hey Jennifer,

Sounds like you're uncovering some juicy details in your property hunt! Tenant issues can be a headache, but here are some creative ways to handle them:

1. Evicting the Smoky Late-Payer

This tenant sounds like they’re giving you more ash than cash. Since they’re on a month-to-month, you’ve got options:

• The Polite Kick-Out: Send them a polite “non-renewal” notice—basically saying, “Thanks, but no thanks!” Check your local laws, but 30-60 days' notice should do the trick.
• Cash for Keys: Offer them some cash to move out faster (I know, paying them to leave seems backward, but it works). Sometimes a little incentive can make them leave peacefully.
• Raise the Roof (Rent, that is): If local laws allow, crank up the rent to make them consider greener pastures. Smokers tend not to stick around when things get too expensive!

Just make sure to stay within the law so you don’t get stuck in a sticky situation.

2. Bringing the $750 Tenant to the Real World

As for your tenant enjoying their $750-a-month sweet deal, it's time for a gentle reality check. You could go with:

• Step-by-Step Increase: Let them know the rent will be going up gradually, maybe $100 every 6 months, until they’re paying fair market value. This way, it’s not a shock, and they’re more likely to stick around.
• Market Update: Let them know the neighborhood is changing, and so is the rent (to $1,100). Give them proper notice, keep it friendly, and explain it’s all about fairness to match market rates.

A little empathy goes a long way—help them understand the rising costs, and they might just thank you for it (okay, maybe not thank you, but they’ll get it!).

Best of luck, and here’s hoping you turn that property into a smooth-running investment!

Cheers,
Drago

[Michael K Gallagher]

might be somewhat basic but when we inherit a building we take it as a chance to literally go visit and speak to eat tenant.  if you are noticing they are late all the time, maybe there is a reason, but at the end of the day if they can't afford the rent, working with them to get time to leave works, but there are minimum notices in each market you'd need to follow, but 60days is a good guideline usually.  

As for general rent increases, if tenants can pay and are just low on rent then we generally come in and offer a lease at near if not just about average market rent for the unit in the area maybe a smidge under market the idea being if they stay they are getting a deal and don't have to move and I don't need to redo the unit but the rent is essentially up to market.  

My personal goal would be to keep the tenant even if the unit was in rough shape, and just get to the bottom of the late rent thing

[Evan Polaski]

@Jennifer Fernéz, owning property with tenants is very much a relationship business, like it or not.  Yes, there are contracts, there is written communication behind every agreement, but in my 14 yrs as a landlord, and 17 yrs working in commercial real estate, talking with people (tenants, brokers, contractors, etc) is always best.

That being said, if you are serious about buying any property and you struggle with the likely tenant/landlord relationship, I would begin interviewing property management teams, to take the direct tenant relationships off your plate.  They will likely also help you in discussing options with your tenant base.

As other noted, you have options and they all have trade offs.  Kicking out a smoker will leave you, likely, with extensive remediation costs and vacancy during that period.  But keeping them means below market rents and potentially further remediation costs in the future.

One thing that others didn't seem to directly hit on, that you should consider, is having the smoker in the building impacting other units.  Maybe the current tenants don't care, but if they are also below market rents and you start bumping their rents, will it be opening the door for more complaints or increased likelihood of them leaving because they are being impacted by the smoker.  This could be their units smell like smoke too, or they can't open their windows because of the smoker, or cigarette butts in common areas outside because of the smoker...

[Sean McKee]

Quote from @Jennifer Fernéz:

Im looking at properties to buy, and saw a tenant in a 4-unit property I like paid $1,000 in late fees.    They are also smokers and their unit is horrid.  They are month to month.  What are common practices to remove them?   Another tenant in the same property pays $750 a month and should be paying more around $1100.   What is the best way to increase her rent?

I just bought a two flat with a similar situation except they have 10 animals .  I would focus on a few things:

-What is the discount you are getting for dealing with the situation.  There's money to be made with dealing with problem properties and tenants. Just make sure it's worth your while. Hopefully your getting at least a 20% or higher discount on the deal. This is by far the most important factor in my opinion.


-Are the tenants generally agreeable and willing to work with you? In my case the tenants already agreed to pay an additional $300 a month in rent.

-However if they seem like they are going to cause trouble, how hard will it be to get rid of them?

-Are you in a landlord or tenant friendly state? Going in guns blazing in tenant friendly state (like mine) could see end up with months and months of lost rent.


It is a people business, so you will have to use some discretion. Talking with them ahead of time before you purchase the property can reveal a lot about the situation. 

[Henry T.]

Tenant rights across the country vary widely. It would help if you could post what the tenant rights are in your area. I believe PA is a tenant friendly state. You should know your local laws pertaining to tenant removal. Otherwise any advice here could be wrong or for nothing. More info would be helpful for us in other states.

[Drew Sygit]

@Jennifer Fernéz be careful!

You do NOT want to buy someone else's probems - unless:

1) You know how to fix them

2) You get a discount for taking their problems on

You can make a lot of money if you know what you are doing:)