Keep Tenant or Get Him Out

Member since 2019 · 144 posts · 46 votes

I have a MFU in Austell, GA which is managed by a PM. One tenant is paying $400 below market rent, he is often late for rent, and has returned checks. He is paying the least amount of all of the tenants. His lease is up for renewal and I was thinking to raise it $400 to reflect market value and he will leave and I can get in a new tenant. However, the PM is saying that it is better to only raise his rent $250 (he still may leave) so we can keep him in there and not have to remodel and have a vacancy. This is all new to me so I'd love to hear your opinions as you all are much more experienced. TIA

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Justin Hammerle

Realtor · Providence, RI · Member since 2022 · 404 posts · 262 votes

My vote is to raise it to market by $400 if you think you can get it. That's a lot of lost income, and for a tenant that has a bad record likely better to get a more qualified tenant in there anyway. how much to remodel the unit? Is the $400/mo increase contingent on the remodel?

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Justin Hammerle
Realtor · Providence, RI · Member since 2022 · 404 posts · 262 votes
3y
My vote is to raise it to market by $400 if you think you can get it. That's a lot of lost income, and for a tenant that has a bad record likely better to get a more qualified tenant in there anyway. how much to remodel the unit? Is the $400/mo increase contingent on the remodel?
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Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
3y
I mean even if you weren’t going to raise the rent I would get him out and get someone reliable with no bad rent paying habits in there. What’s the upside to keeping him? Don’t see it
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Michael Dumler
Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
3y
@Michele Velazquez, it's one thing of consideration if the tenant cooperates and pays on time, but if he's been late on rent, it makes zero sense to renew his lease, especially if you are intending to increase rent. The PM is trying not to upset the tenant and avoid causing a commotion, but this is only hurting your business. Do not renew the lease. Once the tenant vacates, turn the unit over and increase rent to market value respectively.
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Robert T.
Member since 2021 · 26 posts · 31 votes
3y
Get him out.

He isn't paying on time with the $400 discount he's getting, what makes you think he would be on time or any more reliable?
I also don't understand why your PM (I manage all of my own) would want to raise it roughly half the amount to keep him. That makes zero sense and I question the competency of your PM. I also don't understand the need for remodeling just because he leaves. If it's clean and the market value in it's current state can get you another $400 why bother?
His lease is up for renewal, do not renew it and get someone new who will pay what you want and will be more reliable.
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Michele Velazquez
OP
Member since 2019 · 144 posts · 46 votes
3y
Quote from @Justin Hammerle:

My vote is to raise it to market by $400 if you think you can get it. That's a lot of lost income, and for a tenant that has a bad record likely better to get a more qualified tenant in there anyway. how much to remodel the unit? Is the $400/mo increase contingent on the remodel?

I will ask my PM. I am not local and rely on them but wondering why they are wanting him to stay
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Michele Velazquez
OP
Member since 2019 · 144 posts · 46 votes
3y
Quote from @Jonathan R McLaughlin:

I mean even if you weren’t going to raise the rent I would get him out and get someone reliable with no bad rent paying habits in there. What’s the upside to keeping him? Don’t see it

Agreed. I just don't get why the PM is trying to sway me to do that. It sucks because I am not local and rely on them so much.
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Michele Velazquez
OP
Member since 2019 · 144 posts · 46 votes
3y
Quote from @Michael Dumler:

@Michele Velazquez, it's one thing of consideration if the tenant cooperates and pays on time, but if he's been late on rent, it makes zero sense to renew his lease, especially if you are intending to increase rent. The PM is trying not to upset the tenant and avoid causing a commotion, but this is only hurting your business. Do not renew the lease. Once the tenant vacates, turn the unit over and increase rent to market value respectively.

Agreed. I just don't get why the PM is trying to sway me to do that. It sucks because I am not local and rely on them so much.
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Taylor DaschBusiness Member
Real Estate Agent · Temple, TX · Member since 2022 · 1k+ posts · 700 votes
3y
If they are late for rent once and dont let me know at least two weeks prior, I will typically not renew the lease - The reason for this is that I try and go slightly below market value in order to have plenty of options when picking a tenant. Its more important to me to know that my tenant is paying rent on time and I can count on them to pay it when it is due.
Typically, property managers would rather place a new tenant as they get paid more when they get the new tenant in there. I would do some more research and express your concerns to your PM.
I'd get a new tenant though.
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Michael Dumler
Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
3y
@Michele Velazquez, they're trying to sway you because they don't want to deal with the process of acquiring a new tenant. Even though that's their job, it's much easier/less of a hassle for them to manage the existing tenant. As unfortunate as it sounds, this is why many investors claim that you have to manage your property manager.
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Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
3y
agreed with @Taylor Dasch not sure why the PM feels that way--we don't know the makeup of your tenant pool so maybe this guy has some virtues compared to the rest? Certainly possible...is this a turnkey kind of thing? and are you really $400 under? That's a big number and almost certainly a different type of tenant. If you are that low I would definitely remodel and reposition.
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Michele Velazquez
OP
Member since 2019 · 144 posts · 46 votes
3y
Quote from @Michael Dumler:

@Michele Velazquez, they're trying to sway you because they don't want to deal with the process of acquiring a new tenant. Even though that's their job, it's much easier/less of a hassle for them to manage the existing tenant. As unfortunate as it sounds, this is why many investors claim that you have to manage your property manager.

That makes sense. I am so grateful to have you all to get advice from because that is what we were thinking but wasn't sure what their motive was. I am scared they won't even do their job good and find a tenant.
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Mohammed Rahman
Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes
3y
Hey @Michele Velazquez - if you have to ask whether or not it's a good idea to evict a tenant, it usually is.
Based on what you've described, if the tenant currently isn't paying on time - do you think even raising rent by $250 would encourage them to be more punctual with their payments?
Yes there is a risk of the apartment going vacant for a short while before finding another tenant... but what headache do you prefer? Dealing with a bad tenant for another year, or having a vacancy for a short period and possibly finding a superb tenant to place?
I would err on the side of the latter, as it's much less headache for me now, and in the future. The vacancy won't break my psyche as much as knowing that I have to play a game of cat & mouse everytime the rent is due.
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Steve K.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
3y
What is the estimate on the rehab? Who is getting the late fees, you or the PM? You could look at this from a strictly math perspective: keeping him there with $400 discounted rent is costing you $4,800/yr (assuming he actually pays each month), if you raise the rent $250 (a $150/month discount) that will cost you $1,800/yr. Now compare that to the cost for the unit rehab, vacancy time period and cost per acquisition of a new tenant and see how long it will take to make up the difference. I'd be inclined to non-renew a tenant who is chronically late and has returned checks however, regardless of the math. I wouldn't raise the rent and see if he leaves, I'd just not renew the lease. I would also want to be involved in the process of finding a new tenant. I'd ask the PM to review any applications and work closely with them on tenant placement. In general I like to keep vacancy down and turnover low, but not if it means paying thousands a year to keep a tenant who pays late (especially if late fees go to the PM). If the unit is dated you'll need to bite the bullet and remodel it at some point in time anyway, might as well do it now and start getting more rent, which also increases the value of the building. A nicely remodeled unit also has the benefit of attracting better tenants who stay longer and pay rent on time. Good luck!
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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
Get that tenants out, they're not even paying the current rent on time. What makes you think they will pay when you increase?
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
Quote from @Michele Velazquez:

$400 a month is $5,000 a year which will easily cover the cost of cleaning the place up. The PM is asking you to throw away $1800 in income ($150/month) and keep a tenant that is problematic?
A smart PM would realize that increased rent income means they increase their income. Having a good tenant in place reduces their workload.
I would get this tenant out ASAP, clean the place up, and raise the rent to market value.
I would also consider finding a new PM that understands money and the value of good renters.

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John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
3y
@Michele Velazquez
Non renewal for this guy. If he was a good tenant, I’d increase it by $150. But this guy is a pain.
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Michele Velazquez:

Quote from @Justin Hammerle:

My vote is to raise it to market by $400 if you think you can get it. That's a lot of lost income, and for a tenant that has a bad record likely better to get a more qualified tenant in there anyway. how much to remodel the unit? Is the $400/mo increase contingent on the remodel?

I will ask my PM. I am not local and rely on them but wondering why they are wanting him to stay

They want him to stay because it's easier for them.... you are their secondary concern.
I'd get rid of this tenant, like they^ said, how is he going to pay a higher rent on time when he can't pay the current rent?
I personally wouldn't worry about losing a month or two of rent while you remodel and get a new tenant....it's not only about ROI and how long it takes to recoup the loss of a couple months rent, you'll have an upgraded property and an upgraded tenant base....and higher rents down the road.
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James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
@Michele Velazquez I am going to be the contrarian here and lend a different perspective it appears.

It was mentioned an issue of the unit needing rehab. So it's very possible that this unit would not get $400 more in market rents, due to condition, what if market rents for it as-is is only $100 more?

And if you don't have $ in hand and vendors to do that reno at move out, well now were talking extended vacancy with $0 rents, the costs of reno, to get too that $400 added rents. While it appears most on here are quick to assume and judge, I say there is missing data here to make an informed decision.

If tenant has paid late but in end always get's it paid, well that's not ideal but it's actually a bit positive because tenant does get things paid up, not all tenants do that.

If reno funds are readily available, and the vendors are readily available, and the size of reno makes sense to make a $150 raise in rents (you wanted $400, PM says $250 as-is, that's NOT a $400 difference from changing tenant, it's $150) then I'd say pull that trigger and get-r-done.

BUT, if let's say reno is $10k, and/or don't have any vendors readily available, don't have the reno funds, I'd say work with PM, go with that $250 BUT get something in there of a more substantial impact from any late rent payment. There is a few ways to do this, personally if your local laws allow I'd go with a sizable late fee and a interest rate on unpaid balance, to maximum local laws allow. And than use the time to build up those reno funds and contacts to be ready next time around to jump on the reno.

Point is, there is nuances many seem to be missing with there knee-jerk anti-PM sentiment. I'd rather assume PM has a reason for there advisory actions vs there a horrible service provider, until there is some evidence of there deficiency. I didn't hear any other complaint from you on PM other then your not sure why they advised this. Did you ask them that question? You should.
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James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
Quote from @Bruce Woodruff:

Quote from @Michele Velazquez:

Quote from @Justin Hammerle:

My vote is to raise it to market by $400 if you think you can get it. That's a lot of lost income, and for a tenant that has a bad record likely better to get a more qualified tenant in there anyway. how much to remodel the unit? Is the $400/mo increase contingent on the remodel?

I will ask my PM. I am not local and rely on them but wondering why they are wanting him to stay

They want him to stay because it's easier for them.... you are their secondary concern.
I'd get rid of this tenant, like they^ said, how is he going to pay a higher rent on time when he can't pay the current rent?
I personally wouldn't worry about losing a month or two of rent while you remodel and get a new tenant....it's not only about ROI and how long it takes to recoup the loss of a couple months rent, you'll have an upgraded property and an upgraded tenant base....and higher rents down the road.

Bruce, we really don't know any of this. We don't know condition of the property, and my spidy-sense say's that's going to make all the difference in this. OP is very disconnected from the property, what if it's an "80's special"?, and that $400 mnth more is for near-new units in the area? It's not getting $400 more in rents. Hell, it could step down vs up. We know condition matters big time, and too many ignore that fact.

We need to know condition, if OP has reno funds. No funds, no point in considering reno right.

OP should have asked PM why, notice there is no other complaint on PM then this advisory action that is not understood. It's possible there just lazy PM's but also possible they know something we don't.

We need more info.
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Rick Albert
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
3y
I'm not sure the value of keeping a tenant that is difficult. With that said, here are a couple of questions to consider:
1. What is the active tenant pool right now? Is it worse? For example in Los Angeles I would rather have a tenant that pays late than tenants who scam and stop paying.
2. What is the cost of turnover? Factor in remodeling, showing the unit, extra charges from the property manager, and carrying costs. If the average tenant stays for two years, then you need to justify if making $9,600 more is worth it. It might cost you more than the $9,600 to acquire a new tenant. Versus you keeping the tenant, not have to do anything, and you make $6,000 and stay the course.
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Michael BraddockBusiness Member
Realtor · Jacksonville, FL · Member since 2021 · 6 posts · 6 votes
3y
In my experience, once a problem tenant always a problem tenant. Best to go with your gut and get him out. I would issue a notice of nonrenewal and hope for a better tenant. If I were the PM here I would have recommended that to you right away. It sounds like the PM is trying to make things easy on themselves by avoiding conflict as opposed to doing what's best for the owner.
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Rick Albert:

2. What is the cost of turnover? Factor in remodeling, showing the unit, extra charges from the property manager, and carrying costs. If the average tenant stays for two years, then you need to justify if making $9,600 more is worth it. It might cost you more than the $9,600 to acquire a new tenant. Versus you keeping the tenant, not have to do anything, and you make $6,000 and stay the course.

Of course I would agree if it's just a numbers thing. But I might be weird, I find value in the other aspects that most people don't think of, like a better property, better quality tenants, calmer mind, better sleep, etc..... :-)
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Rick Albert
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
3y
I would agree. I don't think there is enough info such as current state of the property. You could also argue that you are now setting a new standard of living, which could command higher rents in the long run.
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Phillip AustinPro Member
Property Manager · Denver, CO · Member since 2023 · 236 posts · 204 votes
3y
@Michele Velazquez You and your PM need to be on the exact same page when it comes to deciding whether this tenant is worth keeping or not. There's clearly a difference of opinion.
I deal with this sort of predicament very often. As the PM, we know your tenant a lot better than you do and we see bad tenants ALL THE TIME. It sounds like your PM doesn't think your tenant is worth a non-renewal. You need to ask why.
If your tenant is legitimately late on a consistent basis, then yes, you need to get him out.
If he was late once or twice but otherwise has been an outstanding tenant who takes care of your property, I would follow the advice of your PM with a smaller increase.
All that to say, if you think it's severely under market value, your PM needs to have an open and honest conversation with the tenant letting them know so he can expect a large increase at time of renewal.
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Carlos Valencia
Lender · 92703 · Member since 2022 · 326 posts · 538 votes
3y
I would also say kick the tenant out as it costing you more headache and potential extra earnings. I would raise rent $400 if I believe I can get that rent in that market. I would remodel as well. I believe its better return on your investment.

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