What to do with 80 year old tenant paying 1/2 market rate

27 Replies

I am looking to purchase a duplex as our first rental property. One of the units is currently rented by an 80 year old woman that has lived there almost 40 years. She's currently paying less than half the market rate. I would welcome any advice on how to handle the situation if we bought the property. Thanks.

That's a rough situation. With her having been there that long she definitely feel at home there. You're going to have to check the lease she signed you can't do anything till that term is up. Maybe explain the situation to her and see if she can afford to meet you in the middle? Can you afford the reduced cashflow? Do you have another property you could offer to allow her to rent? I think this comes down to the consciousness side of things. I personally don't think that I could evict an 80 year old woman unless she was damaging the property. At the same time I understand that business is business. Maybe use her to negotiate with the seller a lower purchase price? Hey I don't wanna kick Dorris out....  

Medium head icon colorRyan Dossey, Call Porter | http://Callporter.com

I'd definitely sit and talk with her about the situation to let her know where you need the rent to be, how close she can get to that and what other options she has. Who knows she may have a child who is begging her to come live with her and that may make her decide to finally go. If she had no other options and couldn't afford it, well that's when you'd have to make a decision that you'll need to be able to sleep with.

@Dawn Anastasi  beat me to the point (again).

We have inherited long term tenants whose rent, while maybe not half current market was less than 70%.   To make matters more interesting, long term tenants receive special considerations under tenancy law here; the pertinent one to this thread is a restriction on how much rent can be raised.

The long and short of it was, these tenants were very well aware their rent was way below market, but of course weren't going to march up to the landlord and demand to pay more.    We were able to work out a schedule to gradually raise their rent closer to market (it still is 10% below) over 18-24 months.

Medium greenapartmenthires 1024x1024Roy N., Louer Louer Ltd. | 1.506.471.4126

I've bought plenty in this situation.  I typically increase there rent $50-100 at a time every 2-3 months and leave them 10-20% under market.  The house likely needs a full rehab, so you need to see if not doing that rehab is worth less rent to you.   

I know you are a landlord and not a social worker BUT... if she can not afford market rent and is not already receiving section 8 perhaps you could point her to section 8 and work with her on the rent until she is qualified and Section 8 starts paying you. sometimes an eviction notice can help a tenant move up my local waiting list a little faster. 

Originally posted by @Shannon Trivett:

I know you are a landlord and not a social worker BUT... if she can not afford market rent and is not already receiving section 8 perhaps you could point her to section 8 and work with her on the rent until she is qualified and Section 8 starts paying you. sometimes an eviction notice can help a tenant move up my local waiting list a little faster. 

In our town the Section 8 wait list is closed to new applicants. Those who already applied prior to the close of the wait list are waiting several years for their turn to come up. So, depending on the locale and the way the PHA administers the S8 program, this may or may not be an option for this tenant.

Marcia Maynard, Fischer Properties | Podcast Guest on Show #83

First you need to evaluate what your options even are.

Is there a lease and how long is the term?  You'll have to honor any existing lease.

Can you raise the rent? Is there any type of rent control in the city that would restrict increases?

If you can raise the rent can the tenant afford to pay more, even if not the full market value?  Often somewhere in the middle is the best value for everyone.  The tenant doesn't want to leave and the landlord doesn't want to spend the money on a big rehab that would probably be required on a property that has been tenant occupied for the last 40 years.  

Look at all your options and decide how the numbers work for you.  I picked up a short sale a few years back with a long term tenant paying below market rate.  She had been there for 27 years and her only income was from social security.  The rent was $600 and she really couldn't afford more than that.   I got the property at a price that made the numbers work for me at the current rent and kept it the same for her.  She plans to live there until she dies and at that point I'll have to do some major updates to get market rent for the place but until then I'll let her stay and enjoy the 0% vacancy and the tenant that takes care of the property like she owns it because she considers it to be her home.  

That's a tough one.  I don't think I will be able to evict an 80 year old who had lived in a place for 40 years either however I would still have a conversation with her to find out if there are other resources available to her.  She would not have lasted 40 years if she is a bad tenant or one of those that tears things up.

 If section 8 is not an option for now, I would still advise her to get on the waiting list and in the meantime research other available social services that will assist to augment her rent.  There are several ones out there depending on the funding available in your area.  The Department for the Elderly may be a good place to start.  

The good thing here is that you are not yet committed to the property, therefore, my advise is that you factor the reduced rent into your calculations upfront to determine if the deal will work for you.  Even if you are able get an eviction of some sort, be mindful that it may not happen overnight.  

Patrick L., you offered some good advice with the situation Jeffrey has.  If he can get the numbers that work for him, good.

The seller created the problem, let him fix it. He can sell it based on the actual income price or get rid of her before you close, or he can make up the rent difference for ten years out of his pocket.  I personally would sit down with her and and the seller find out her situation.  I once got one of these and then found out the tenant was worth twice what I was which was why she stayed there, the rent was very good. But the landlord thought wrong that she would end up homeless if they raised rents. because the only income she ever mentioned was a small social security check, and they had got her along with the property.

When you buy the property, could it be considered discrimination if you are giving her a huge break due in rent due to her age, but not anyone else?

@Kimberly H.  

No, as the low rent actually benefits an inherited protected class

@Jeffrey Bailey  

 I think that @Patrick L.  has some sound advice. If the numbers work for you, take solace in the fact that it decreases your vacancy rate. If you need to raise the rate, do it over the next few years that helps both parties.

But make sure you have all lease documents prior to closing so you know what is going on. Once the place is yours, make an appointment and talk to her about the situation. Make your decision based upon you findings but be good to yourself and your ideals as you are the one (not us) that has to deal with the consequences of your decision.

Medium tetra homes update 50Bill Pohl, Tetra Homes, Inc. | [email protected] | 513.988.3700 | http://www.tetrahomes.com

Bill P. 

 So, any protected class can live there for half the rent?

In my HUD training its explained that we have to use the same rules for everyone, regardless of if they are in a protected class or not.

Pay for the property based on the current cash flow, which would sound like 25% below market since the rent is essentially 25% below market for the property and make those numbers work...or have the seller get rid of the tenant before taking ownership and bring in your own tenant, if the tenant is on a fixed income you will not get blood from that particular stone...best of luck.

@Kimberly H.  

 No, what I am saying is that it isn't discrimination simply because an inherited tenant is paying half-rent. Since the lowered rent is to her benefit, it doesn't discriminate against her. And since the woman was inherited at this rate, there is no law dictating an increase simply because owners change. Other tenants can't claim discrimination either as her rent was set by a prior owner and does not become comparative for other future tenants.

Medium tetra homes update 50Bill Pohl, Tetra Homes, Inc. | [email protected] | 513.988.3700 | http://www.tetrahomes.com

Bill P. 

For simplicity, take the fact she is an inherited tenant and that ownership is changing out of the equation, just put that detail aside.

 A landlord has one tenant in a protected class paying half the rent of everyone else.  Couldn't that be considered discrimination against all the other tenants? Or at least against other protected class tenants? If not why not? My interpretation of fair housing laws that everyone must be treat everyone equally and no one gets special treatment.

You do not buy properties based on it being a winner if XYZ happens. It needs to make sense going in and then if the other items happen then great. If not you still have a solid asset throwing off cash flow.

Never let a seller sell you on buying something at a higher price based on future events happening.

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

@Kimberly H.  

 Okay, but for clarification, my response was for the facts as they were presented.

But in your hypothetical situation, rents can't discriminate against a protected class. Fair housing laws dictate that housing must be made to everyone in a fair basis with no exclusions to protected classes. If a protected class gets favorable treatment, that is not necessarily discrimination. As stated in ANIMAL HOUSE, "all animals are equal but some animals are more equal than others."

To carry things further, if a white male, single of age 38 is charged a higher price than a black male, single of age 38; that probably wouldn't stand up in court as white people, under age 45 and single are not a protected class. However, if the black male received the higher rent for the same unit, he is a protected class and that would be different.

While fair housing laws are on the surface meant to treat EVERYONE fairly, it is a misnomer to believe that is true for every situation. Look at the wording of the law;

The Fair Housing Act prohibits discrimination in housing on the basis of:

  • Race or color
  • National origin
  • Religion
  • Sex
  • Familial status (families with children)
  • Disability

Under the Fair Housing Act, the following activities are illegal:

  • Refuse to rent or sell housing
  • Refuse to negotiate for housing
  • Make housing unavailable
  • Set different terms, conditions, or privileges for sale or rental
  • Provide different housing services or facilities
  • Falsely deny that housing is available for inspection, sale or rental
  • For profit, persuade owners to sell or rent (blockbusting)
  • Deny any access to or membership in a facility or service (such as a multiple listing service) related to the sale of housing
  • Refuse to make reasonable accommodations in rules or services if necessary for a disabled person to use the housing
  • Refuse to allow a disabled person to make reasonable accommodations to his/her dwelling
  • Threaten or interfere with anyone making a fair housing complaint
  • Refuse to provide municipal services, property insurance or hazard insurance for dwellings, or providing such services or insurance differently

Look at some current cases:

In Maryland, three African men were evicted when their landlord terminated the leases of black tenants and replaced them with white tenants. In California, a disabled white woman who uses a guide animal was refused a rental unit in an apartment with a "no-pets" policy. In Ohio, a Hispanic woman was denied housing because of an unlawful "no kids" policy.

Notice that the discriminated person was a member of a protected class. Fairness is not a word that is in reality fair. Just my honest and humble opinion.

Medium tetra homes update 50Bill Pohl, Tetra Homes, Inc. | [email protected] | 513.988.3700 | http://www.tetrahomes.com

Originally posted by @Bill Pohl:

@Kimberly H. 

Under the Fair Housing Act, the following activities are illegal:

  • Set different terms, conditions, or privileges for sale or rental

 IMHO I would think charging someone half the rent is exactly this.

Originally posted by @Kimberly H.:

Bill P.

For simplicity, take the fact she is an inherited tenant and that ownership is changing out of the equation, just put that detail aside.

A landlord has one tenant in a protected class paying half the rent of everyone else. Couldn't that be considered discrimination against all the other tenants? Or at least against other protected class tenants? If not why not? My interpretation of fair housing laws that everyone must be treat everyone equally and no one gets special treatment.

I'm going to slightly disagree here. There has been reference to her being a protected class, and Bill P. said "white people, under age 45 and single are not a protected class." In reality everyone is a protected class, I'm a male, white, single, a father, straight, Christian and young(27). Each one of those defines me with regards to the protected classes, and everyone of those is protected for me and everyone else. Now obviously common sense says that certain definitions within the classes (young vs old, black vs white...) will potentially experience different amounts of discrimination which will vary based on other factors like local demographics, geography, political makeup....the list goes on. All that to say it doesn't matter that she is elderly, everyone in this world is a protected class.

So then what does the act itself say:

    (f) "Discriminatory housing practice" means an act that is unlawful under section 804, 805, 806, or 818 of this title.

First renting below market rent is not to my knowledge unlawful, though we can see if the act defines it as such later. Section 805 talks about "transaction"basically defining them, 806 is "brokerage" which is pretty self explanatory, and 818 deals with coercion and intimidation which I think we all would say is wrong. That leaves 804:

      (a) To refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.
      (b) To discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, familial status, or national origin.
      (c) To make, print, or publish, or cause to be made, printed, or published any notice, statement, or advertisement, with respect to the sale or rental of a dwelling that indicates any preference, limitation, or discrimination based on race, color, religion, sex, handicap, familial status, or national origin, or an intention to make any such preference, limitation, or discrimination.
      (d) To represent to any person because of race, color, religion, sex, handicap, familial status, or national origin that any dwelling is not available for inspection, sale, or rental when such dwelling is in fact so available.
      (e) For profit, to induce or attempt to induce any person to sell or rent any dwelling by representations regarding the entry or prospective entry into the neighborhood of a person or persons of a particular race, color, religion, sex, handicap, familial status, or national origin. 

    (a) It requires a denial no one is being denied anything in this case, and denial must be due to one of the protected classes.

    (b) it requires that discrimination to be based on the 6 classes. A simple case for her preference being due to length of tenancy can easily be made and does not in any way involve the 6 protected classes.

    (c) N/A for this discussion.

    (d) it isn't available so no one is being subject to discrimination in that regard.

    (e) Going back to (b) the case being made has nothing to do with a protected class.

    So that would be my reasoning why this is not an issue, and I would be willing to argue that in front of the judge. Also while every person must be treated the same, not every property is the same and neither is every individual the same. You do not have to give every tenant the same rental rate, nor do you have to offer them identical properties you just need to be able to justify the difference. My $750/mo rental has different screening criteria than my $975/mo rental less than 1/4 mile away because they are in slightly different areas and attract a different quality of tenant. 

    This property is this property, this tenant is this tenant. A very reasonable case can easily be made that this property in the unimproved condition is worth a rate that differs from other properties that are in a newer condition. Also this tenant by way of her having stayed in the unit for an extended time has been afforded a "term (b)" that is different than the other tenants because she has met a criteria the other tenants have not which is staying for a very long time. The legal discrimination here has nothing to do with one of the defined protected classes it has to do with the unprotected class of length of tenancy.

Originally posted by @Kimberly H. :
Originally posted by @Bill Pohl:

@Kimberly H. 

Under the Fair Housing Act, the following activities are illegal:

  • Set different terms, conditions, or privileges for sale or rental

 IMHO I would think charging someone half the rent is exactly this.

 That might be true if you posted an ad saying the rent is half price for anyone 75 years old or older.  In this case it's an existing tenant and the rate is lower because of the length of tenancy and lack of rent increases to keep pace with the market.  

Originally posted by @Kimberly H.:

When you buy the property, could it be considered discrimination if you are giving her a huge break due in rent due to her age, but not anyone else?

 No.