Removing Long Term Older Inherited Tenants

47 Replies

@Tyler Tacy Let's pretend this 65-year-old woman could find a comparable apartment for $800 a month. Do you think Anish and Dawn are willing to pay $125 a month each to help subsidize her income and ensure she could afford to continue paying only $550 a month? Of course not! They want to demand you sacrifice your income to help her out, but they won't do the same which is clear proof they don't really believe what they're saying. It's like a politician; always generous with other people's money.

Run your business like a business. I encourage everyone to use their investments to give to charity, but that doesn't mean you give your product away for pennies on the dollar. A thriving business enables you to be more generous towards those in need.

@Tyler Tacy My investment strategy has been value-add small multifamily over the past 6 years (since graduating from house-hacking and flipping), so I feel your pain. I like how you’re approaching this like a human being as well as a business person. Yes the property is your "product", but it's also someone's home, so it's not just some random widget or package of bacon we're talking about here. What has worked very well for me over the years in terms of being plenty profitable as well as sleeping nicely at night is to simply have an open conversation immediately post sale informing tenants of my long term goals for what I want the units to rent for. I also let them know that I’m planning to make improvements to justify those rents, and that I have no desire to kick anyone out in the street (unless they fail to pay rent, violate the lease or damage my property of course). 

Some tenants leave immediately and others are happy to stay and pay market rent in exchange for improvements done to the property. I’ve had to evict a few times too, which is part of the business of course, but I only do that when tenants don’t pay rent, violate the lease, lie to me, don’t take care of the property, etc... 99% of the time I’ve been able to work with tenants, negotiate a win-win with them and get rents up to market rate within a year, which is what I budget for.

There’s nothing unprofessional about working with tenants and being understanding of their situation. This is a people business at the end of the day. However I’ve never had a tenant who had been in the property 30 years before! That’s quite some time. I actually passed on a property like this once after speaking to the tenants because there didn’t seem to be an amicable path forward. Also they had been living like slobs that whole time and the place was completely trashed.

In your situation, I would simply let the existing tenants know about your goals for the property, as kindly as possible, and see where the conversation goes. Perhaps they have plans to leave anyway, can afford the rent increase and have been wondering why the old landlord never raised the rent (fairly common actually in my experience), or will qualify for government assistance/ section 8 which pays market rent. Most tenants understand that expenses increase over time: taxes and insurance go up, property maintenance costs increase, the snow removal guy and the handyman all need to be paid more, etc. If you're not raising rent at least 3%/year, you're not even keeping up with inflation. You shouldn't need to explain this to tenants, but it certainly doesn't hurt to do so. 

Taking a flexible approach has worked out very well for me personally. The last thing I want is several units going vacant at the same time, so it actually benefits me to work the tenants timeline a bit anyway. I’ve even had tenants tell me during that initial conversation that they’re ready to buy a home, who have then used me as their agent to purchase a property so that worked out extremely well (the commission was greater than 20 years worth of cash flow in fact). You never know what will happen in that initial conversation. I’d recommend having it sooner rather than later, being as kind about it as the situation demands, and negotiating a win-win however possible. 

Good on you for asking this question by the way. I can see why the hard-nosed commenters in this thread take the approach that they do as well. It can be a hard business and sometimes you will have to be hard as a landlord. I can tell from your replies that you’ll catch more flies with honey than vinegar for the most part however and there’s nothing wrong with that in this business either. Keep in mind that your building will go way up in value once you get those rents up to market rate, and you'll get there eventually. My goal has always been to be able to budget properly in order to be able to afford to treat people well in addition to making money. I find that kindness comes back around and I bet it will for you as well. Good luck!

@Tyler Tacy ,

Without knowing any of the details of the rehab, I HIGHLY doubt you can move her out paying $550 and quickly just put someone in there paying $900.      Figure out how much each unit would cost? 

If I were in your shoes, figure out what the FMV of a non-renovated house, say it's $800 and tell them-- every 6-months, it's going up $50. The theory is slow and steady, they won't move for $50, maybe they'll get use to it, and then they'll get to the point it's not worth it and will absolutely talk to family members and move out by themselves. I don't know your state, but in my state, evictions are a minimum of 2-3 months, that's if it's quick/easy, some can be 6 months or even a year. Tell them your renovation plans, sorry-- this may be a construction zone, it's your choice to stay/go, have them on a M2M so the door is open.

If you really wanna kick one out,  do it--it won't be any easier next month.    If you can't, hire someone who can.   It's just like not-renewing a single mom with 6 kids knowing she has no where to go--it's not pretty, but it's just kind of a fact of life in this business, it's not all pretty. 

 Plenty of charities out there, you don't have to be one of them, but you can be strategic.   

Honestly, this is precisely the conundrum we face every day as entrepreneurs or landlords: the balance of being human and business rationality

Believe it or not, I have the same exact situation right, just one lady though, however, we have property management between us, as owners, and the tenant. 

That said, the bank requires that the mortgage be paid (on time and at current interest rates), the contractors who work on the property like to be paid at current market rents, and your investors (if you have any) want a return based on today's expectations. 

At the end of the day, I don't think anyone here is saying lose your soul and kick the ladies out to the curb but I think a letter explaining your plan would definitely suffice and you would be pleasantly surprised that they might be able to pay the current rates. 

Obviously, if you wanted to provide affordable housing you would (or should) go down that route, which is also profitable actually! 

It all boils down to emotional intelligence and treating people with dignity, traits I can sense from you. 

@Tyler Tacy . You don’t know if they can afford it until you talk to them about it. If they’re using walkers and have oxygen tanks they’re probably not able to live independently much longer and they’re probably older than 65. I know at 23 you probably think 65 is ancient but it’s really not.

Some things you can talk to them about, some not. I’m not an expert on that so do your own homework. I think you can ask who their emergency contact is and if they have senior service providers who visit to bring groceries, medications, etc. what you want to find out is if a senior services organization and/or family member is engaged to help evaluate if they’re safe. If so, then there’s an exit strategy. If not they may be hanging on as long as possible whether they’re safety is at risk or not. If they have no family support and no exit plan for life beyond living on their own, that’s a tougher situation.

Some people would say forget all that, you’re running a business. But these are people’s lives. You can be compassionate and a good investor.

I think there are a few questions to answer before getting to the end issue you have right now. 1) Are these tenants month to month or in a signed lease? You wont be able to evict unless the lease is up or they are month to month. 2) I am not sure of your local laws, but in MN we cannot evict right now unless there are unlawful reasons and they are a danger to others (this at least was the last I heard for our laws). 

If both of those check out, the first thing I would ask myself is, do I have the cash on hand right now to renovate both units and still have a good reserve? If so and you want to make the move to get the market rents up, then could you add a contingency to closing that the seller will have the property vacant by the closing date? That would put the current owner responsible to remove the tenants instead of you being the bad guy. 


I just went through this same scenario - with a family though and not older individuals. We are house hacking the duplex and talked to the tenants about the increase in rent. As others have said - talking in person will not help much as the tenant will not see the previous landlord as the bad guy for letting them think the unit is priced fairly..you are just charging a fair market rent for what you have paid for the home, but to the tenant you are just looking to make money off of them. 

What we did was we pulled comparable rents for their units in the area to provide evidence to them of the increases in the rent, and how they were well below the rate (note that we always charge a little below market anyway so it would show them we still would be a better deal).

Long story short the tenant did not want to have their rates increased - we checked their rent roll before closing day and were confident they could pay the rent they were at now. So what we did is have them sign a 6 month lease (they were month to month at the time) to give us time for our first property to build up its own reserves, and build our liquidity to build up for updates to their unit.

We just sent them the renewal agreement which increases their rent to market rate. We are expecting they will not stay as they do not want to pay that amount. What this did though is let us build reserves while they had six months to understand that we were going to push the rent up in a few months. 

I hope you are able to find a good solution to this issue, but just remember that if they do not want to pay market rates now, every single time renewal periods come up you will be in this exact same issue. So the question is, do you rip the band aid off now or later after you have foot the bill for the below market rents for an extended period of time?


As a property manager, I have been tasked with this before on a few occasions. Once, I sold a multi-family property to a client, and they asked me about my services. It was tough. This one unit had a lady with 3 kids, one of which was down syndrome. The father was around, but I never met him, maybe because he had always been at work... The unit though was a mess. The mom was clearly overwhelmed and at the end of her rope. The kids had pretty much destroyed it, putting holes in the walls, dropping water everywhere. So the floors, walls, and plumbing needed fixing. If we were living in a warmer climate, the whole place would have to have been fumigated. It was borderline ready to be condemned, so the new owner asked me to kick them out. I said I would need to charge them $1000 for that. I gave the tenants 45 days, and connected them with a case worker at my local Human Resources and section 8. They didn't qualify for section 8, but I did their paperwork for them anyway, with their permission of course. They didn't seem like the kind of people who knew much about the legal and bureaucratic ways in which housing and government assistance works, so I tried my hardest to get them a new place to live. I did get them placed in a better situation through HRDC, closer to the dad's work, and out in the country with a ton of open space. I felt good about it, but, like you, I felt even more grateful for what I have. I will not do that again, as it would be impossible, in my market conditions to place them in new housing in a reasonable time frame, within 45 miles of our town. Back then, there were still places available for a decent price.

If I were you, and it sounds like you are starting out, I would put in a modest rent escalation clause in the new lease, of about $50/calendar year. That may seem like a pittance to you, but after a few years, they may just be ready to find a new place. It will give them a lot of time, and be easy on your conscience. Worst comes to worst, sign up with a PM company and have them do the dirty work, but you will most likely be stuck with them for a year.  Good luck!

@Tyler Tacy you received a lot of really good posts on this subject.  I pretty much agreed with Everybody's opinions but at the end of the day, there really is no right or wrong and instead you need to find your comfort zone.    I agree it is a business and you need to make money and preferably as much as possible.  Its a struggle I have had to deal with when purchasing inherited tenants as well.   To be honest when the rent was too low and I learned there was maybe a long term tenant I have chosen to just pass the opportunity by and move to the next one .  I have also purchased rentals that were substantially below market on the rents and I likely could have raised the rent 25% in one raise and not lost the tenant but I have opted instead to try to spread that out a bit like over a 2 to 3 year period with larger than normal rental raises but something more manageable for the tenant.   To be honest it is one of the harder aspects of owning and self managing rentals if you have any empathy at all for others.   I have made plenty of money, and could have made more likely, but at the same time I can find peace with myself that I tried to find some balance between pure profit and being a caring human being.  During COVID my respect for both chosen and inherited Tenants has paid off.  I have not lost a single dollar in late rents .   Its a business for sure but there certainly is a moralistic component that I wouldn't ignore.   Good Luck!

@Tyler Tacy you need to tell them your plans before you proceed IF you really care about them. Otherwise you are only guessing and feeling good about yourself feeling bad about kicking them out. The fact that one of them said she wishes to be your landlord bc you appear nice is kind of tells you that you are going to betray they expectation if you didn’t disclose your plans. Yes it is business but pretending to be understanding when you exactly know that you need them out is bad karma.

Originally posted by @Nathan G. :
Originally posted by @Anish Tolia:

Its stories like this that give landlords the bad rap and have people with pitchforks coming for us. You can try to make yourself feel as good about yourself as you like. But you know that two elderly women living on a fixed income can't afford much higher rent. You knew that when you bought the building and probably got a good deal on it as a result. Your entire plan for making a killing rests on evicting these women and raising the rent to market rates. You also know that they will be unable to find equivalent housing elsewhere at a similar price. Now none of this is technically your problem but you became responsible when you bought the place. Do whatever lets you sleep at night but I don't think you can come out smelling like roses if you make them leave.

How would any business survive with that mindset? Are you honestly claiming that anyone buying the property should have to honor the price offered 30 years ago until these ladies eventually pass away? If you bought bacon for $2.21 a pound in 1990, should the grocer be required to honor that price today just because you're 65 and on oxygen? No, bacon prices have gone up to $5.62 a pound and you can either accept that or stop eating bacon.

Do you think he's buying this property for the same price it sold for 30 years ago? Do you think taxes and insurance costs are the same as they were 30 years ago? What about the price of replacement appliances? Flooring? Paint? Doorknobs? Lawn care?

For whatever reason, the previous owner failed to raise rents to keep up with the increased cost of living. These women should be grateful for paying so little over the years. Now the rent is going to catch up with reality and they'll have to adjust, just like most renters have adjusted over the past 30 years. That's the fault of the renters and the market, not the young investor trying to make a better life for himself and his family.

OK so lets take your argument to the extreme. Lets say I raise a bunch of money with the explicit business model of buying up properties with under market rents populated mostly by elderly people on fixed income. I get these at a discount (because cap rate is high) and promptly evict all the tenants and raise rents. Legal yes. But does it sound like the best way to make money? There are a lot of other ways to make money that is less predatory. The problem with America is that people believe anything legal and profitable is okay. Hence gun makers, tobacco companies, polluting energy companies all make legal profits at the expense of society, the environment and the general public. I would not invest in any of the above nor would I do predatory investing. You are of course free to make your own decisions about your life and the impact you wish to leave in the world.

 

Originally posted by @Anish Tolia :

OK so lets take your argument to the extreme. Lets say I raise a bunch of money with the explicit business model of buying up properties with under market rents populated mostly by elderly people on fixed income. I get these at a discount (because cap rate is high) and promptly evict all the tenants and raise rents. Legal yes. But does it sound like the best way to make money? There are a lot of other ways to make money that is less predatory. The problem with America is that people believe anything legal and profitable is okay. Hence gun makers, tobacco companies, polluting energy companies all make legal profits at the expense of society, the environment and the general public. I would not invest in any of the above nor would I do predatory investing. You are of course free to make your own decisions about your life and the impact you wish to leave in the world.

This is not a sophisticated investor targeting vulnerable old people and then taking advantage of their weakness. He's a 23-year-old kid buying his first investment, he discovered a situation, and needs to figure out how to legally and ethically move forward.

 

When I buy an underperforming property the inherited tenants all get an introduction letter from me.  In that letter I introduce myself, explain the economics of the building clearly and honestly and I let them know what my expectations are from them and what they can expect from me.  I go into detail what improvements the property will receive and what service I will be providing them as a landlord.  I also let them know what to expect in terms of a rent increase.  I usually let them know what market rent is and that I will be raising their rent to market(within 90-180 days).  Sometimes I promise certain improvements before raising rent sometimes I do not.  I let them know that I hope they can stay but understand if they need to leave due to the rent increase.  

Obviously there is a lot of variables to this depending on the situation, the property, and what the seller has told me about each specific tenant.  99% of the time the tenants know they are way under market and will expect it to be going up after the sale so you probably aren't blindsiding them, they know its coming.  I hope you are able to keep emotions out of it or you need to hire a property manager to handle it for you.  If it makes you feel better inside offer to pay a moving service for them and first month rent at the next place.  Might cost you a few grand but you can make it back quickly with market rents and sleep good at night knowing you made every attempt to be respectable about it.

Tough choices It’s part of being a landlord and you bought yourself another job wether you believe that or not . There will always be winners and losers in life and let’s face it life is not fair. Jesus himself said “ In This life you will have trouble..” and “ the poor will always be with us ..” once you accept these facts it will allow you to make tough choices . Last year I had a smoking deal on a duplex with a new metal roof big 3/2 units nice place nicer price ! I couldn’t buy it because there were tenants paying literally half what they should . It was a grandmother trying her best on social security raising her grandkids . the one grandson about 10 yrs old had brain cancer and they were on a very tight budget with his care . I decided I can’t buy it because I know what that would mean for them . I protected them from me .

==Long term tenants==   Sounds so sad, but might they really be underpaying tenants?  At least that is what the market place might say.   I am sympathetic to areas that get gentrified, and long term tenants find their spaces cost more than they can afford.

I ran into this situation a couple of years ago.  I just kept them there.  

Another tenant, I jacked up the rent, but not to full market value.  The tenant accepted it.

Be as nice as you can. But dot you i's and cross your t's. There's still an eviction moratorium and people can just stop paying rent entirely and not go anywhere for who knows how long. Prepare yourself financially so as to be able to withstand 2 years of lower- to no rent.

@Tyler Tacy I have had the exact same situation in multiple buildings. Tenants at 500 something when current rents are anywhere from 750 to 925. Fortunately I was able to prioritise renovations to allow the older tenants to move more slowly. One of them passed away a few weeks ago and was grateful to not have to move. Another is moving of his own free will. There is another that I will have to be more forceful in encouraging to move along but they've gotten nasty so it's not difficult. Just know I feel your pain and it's difficult. I was patient and that was the best route in my situation. If at all possible prioritise. While you are renovating the other units the noise and the improvement in the building will make it obvious to them that they need to move on. Talk with them frankly about the numbers. Offering to help them move can get tricky. Only offer to help with the large items if you have to. Offering to help them move can get tricky. Only offer to help with the large items if you have to. If they belong to a local church that's where they get their best help. Odds are you will help them move and next year though be sending you a Christmas card thanking you.

Couple more practical suggestions @Tyler Tacy

1. See if the local or federal government programs (section 8 for example) exist that help elderly and low income family with rent money. There is very high chance that there is. This is the best option IMO. You will be doing all the work in helping them qualify etc. but at the same time you are helping yourself - best of both worlds.

2. Help them move to senior care where they get additional help and probably for less with subsidies etc. With Covid and vaccine, this might be bit more complicated but doable.

Also if I may suggest... these kinds of topics are rather controversial so I would also refrain from posting open questions like these in public forums. Ask people to private message you with ideas. Next time I will do the same but had to post it for the first time.