Investor · Portland, OR · Member since 2014 · 7 posts · 5 votes
My younger brother and I are co-owners of a duplex that we inherited with a very long term tenant in one unit (18 years).
The market rate for the unit is about $900, and she pays $675. She is a borderline hoarder and I'm sure the place is in need of some serious attention, but due to the fact that she is such a hoarder, there is no way carpet is getting replaced, or even paint.
My opinion is to give the tenant 60 days notice that the rent will be increased to $825, and if that's a deal breaker for her, go in and spruce the place up after she moves out and put it on the market at $900.
You could simply have a discussion with her about what she is paying and what the market is charging. Maybe she can afford to get a bump. Maybe you could increase it by $50 every 6 months to get her up to market.
I know everyone says you have to run it like a business, but remember you are in the people business with real estate, not the real estate business with people.
I had a buddy that would screw people over and say "its just business" all the time. Now no one will do business with him and no one is his buddy.
You could simply have a discussion with her about what she is paying and what the market is charging. Maybe she can afford to get a bump. Maybe you could increase it by $50 every 6 months to get her up to market.
I know everyone says you have to run it like a business, but remember you are in the people business with real estate, not the real estate business with people.
I had a buddy that would screw people over and say "its just business" all the time. Now no one will do business with him and no one is his buddy.
I should add, we have a property manager who runs the property and they aren't keen on incremental increases. That was one of my first thoughts as well.
$225 in increased rent is pretty significant, but what would be your turn around time if she left? 1-2 months to clean the place up and rent? What would be your vacancy rate 5-10%. Right now your vacancy rate is 0% for 18 years!
Me personally, I collect slightly lower than market rents, but this allows me to screen better tenants and the tenants who live in my units realize they have a pretty good deal too. I would gladly take a long term tenant (assuming they don't call you all the time) and lose out on some money. My time is worth a lot more than the extra cash. Good luck.
If I were in your shoes ... I'd have a sit down talk as well. Go over the comps in the current rental area, and explain that you love her as a tenant and wish to see her stay on board, but you must raise the rent to more marketable rates. See what she is "ok" with doing. Whether that's $50 every 3 months, or 6 months, etc... etc... I'd have a new lease spelled out with the new terms drawn up ~ go over them with her, and go from there. If she balks and wants to move out, let her. If she agrees, look at the bright side ~ you've got a long term tenant who has proven she'd like to remain such.
If a long term tenant (18+ years) had 18 year old carpet, never complained about it, and paid rent on time. I could care less about redoing the carpet or paint. Whether she moves out tomorrow or 5 years from now, those items will still need to be done. So whether or not she continues to reside there doesn't make much of a difference.
I could care less about the tenant being a hoarder. And I feel a $150 increase (nearly 25% increase) demanded by the Landlord may fall upon deaf years. See if you can reach common ground and raise it slowly :)
My $.02 cents! Good luck and let us know the outcome!
I have a renal in Portland. Last year I spent $18K on exterior renovations. Roof, siding (including asbestos removal) paint. The tenant has been there for 13 years. My property manager went big, with a $200 increase to $1175. We're still probably 15% below market. I have easily another 10K interior renovations, but the tenant has never been late. It's a balance. The 20% increase the tenant didn't blink, just accepted. Look at your market and assess your situation. I like to be loyal to my tenants, but we are in this for a profit. I'm ok waiting for a bit, but being slightly below market ensures tenant loyalty, but you've got to be making money long term. I've been able to achieve that through appreciation. I dread the turnover and expense, but know I'll be ahead of the game on paper long term. I've not had luck with the $50 increase every six moths.
I should add, we have a property manager who runs the property and they aren't keen on incremental increases. That was one of my first thoughts as well.
Read this after my last post.
At the end of the day, if YOU feel incremental increases are the way to go, YOU may the decision. Your PM is an extension of YOU. You hired them ~ If they fail to comply, start interviewing new PM's.
I would only do the incremental if it was something I wokred out specifically for the needs fo the tenant.
1. If you paid for the property based on the current rent, increasing it is just gravy. If on the other hand, you got suckered into buying it based on a "pro forma" rent, your cards are played and you need to get the rent up.
2. If you have to make any capital improvements to the property I would increase the rent to market for that level of improvements.
Okay so this is what you have to think about. I've been in the rental business for 30 years. Every property I ever purchased got an automatic 10% rental increase and continued that way each year. With property taxes and insurance and upkeep always on the rise it is a must to let the tenants know this is a recurring thing. There has always been an old tenant or a hoarder it seems at every property I ever bought. You have to realize what fire codes they are effecting and you being the owner are liable and responsible for what ever your tenants do. Do you want to be responsible for a death of someone due to a fire on your property? Hoarders bread mice and other bugs, carpenter ants for one. What if the tenant falls due to a item that tripped her or him and breaks a leg. Just think what thier daughter or son will do to you when they find out. Yes be nice but be a responsible owner and explain the fire codes and health risks to them and to the other tenants. Explain that the local salvation army will pick up stuff for free, just call them. As far as raising the rents start with a conversation about thier financial situation and if they are low income there may be rental subsistence from the local county office or state. When I purchase a 50 unit trailer park I rented 3 large dumpster to clean up all the trash around each trailer and charged each tenant for my time but offered them for no charge to clean up them selves. Maybe you can do the same. Also, what I've done in the past for a tenant with very low rent I offered them a new kitchen but the rent has to go up. Some suggestions for you. Thanks
I should add, we have a property manager who runs the property and they aren't keen on incremental increases. That was one of my first thoughts as well.
Your Property Manager works for you, keep that in mind. I self manage a triplex with a similar situation. We are increasing rents while finding other ways to increase values for other tenants in order to en sure we can maximize rents in all areas. For example increased rents, while reducing the below market tenant storage area in order to convert it into a shared laundry room.
You should be able to walk through the property and inspect it at any time. Is the tenant paying on time? Is the only problem the under market rent? Define hoarder also, are we talking a true hoarder that presents living hazards and possible code violations or someone who just has a ton of stuff.
To reiterate what has been stated this is definitely a people business. The former owner set your tenant up for failure and this isn't really their fault. See if you can turn this around and make it a win win. You want to do maintenance, sounds like an opportunity to justify rental increases.
I agree she needs to pay at least $825. But, as you move forward keep in mind that hoarding in a mental disorder and a protected class. Double check you state and local laws. And make sure the health and safety of the other tenant in won't be put in danger because of all the stuff in her unit.
I think there are several different things going on here:
1) Long term tenant paying under market rent
2) Prior owner/manager's reluctance to increase rent and the implications and bad signal this sends to a tenant
3) Excessive storage-turned-hoarding and how it affect other tenants
4) Cost of renovating empty unit and lost rent if you lose a good paying tenant.
Consider hardball vs softball tactics and what's best for your style. Just remember that whoever decision you make will be watched by other tenants, too, so it's not just about one unit at stake.
Do you have a written plan to upgrade?
Suggest you take Fixer Jay Decima's tenants and toilets class and buy Mike Cantu's Rental Property Management course.
I think you are on track by giving plenty of notice and raising rent. While it will be a lot of work when she moves out, there is no reason to put it off when you can get higher rent with someone who hopefully doesn't hoard. We have a philosophy of meeting long term tenants halfway on rent increases. So I would start by raising the rent to $785, and each year raise the rent another 50% of the gap between market and their rent.
The basic loss on this apartment is $2700.00 a year in revenue.
Now is the perfect time to update all your files and leases.
Give her rent increase to market rate, she'll complain no mater if it is partial increase or the market rate at this point, what do you have to loose. With the rent increase notice, let her know you will be inspecting the apartment 2 weeks prior to the lease renewal date. On that notice tell her your inspection will include being be able to see that her apartment will comply with upcoming city inspection, that these items need to be in order, so you can Offer a lease renewal. If her apartment does not meet the criteria you will not be renewing her lease.
1. All trash and clutter removed. 2. Appliances in clean and working order, oven cleaned. 3. Bathroom fixtures in clean and and serviceable condition. 4. Smoke detectors working. 5. Clear access must be available to all windows, doors, and any exits. 6. Heat registers not blocked. 7. Apartment in neat and clean order. (whatever you want done!)
It gives her 2 weeks to clean apartment so it meets expectations, or if she will need to give her notice to move.
Let her know you are planning on painting a room of her choice if she meets the terms.
I had similar issue when I inherited a 5 plex from my parents, the woman had lived in apartment for 19 years on a month to month lease.. She moved. I rented the unit after complete turn work and got lovely tenants at market rate.
I appreciate all the input from you folks. A lot of differing opinions and a lot of valuable insight. I will be discussing it with my brother in more depth.
You are all completely right about the property manager dynamic as well, they do what we tell them, not the other way around.
Hey @Eric Thompson, I'll be interested to hear what you decide to do an how it goes. I have an inherited tenant that is a couple hundred under market rent. I keep putting off raising the rent thinking I'll do it when I get a chunk of time to deal with things if it causes them to move out. But I should probably just raise the rent. Do check on laws. I'm pretty sure in California you can only raise the rent a certain amount at one time.
The final decision we reached was to raise the rent to $825 with the current tenant. It will be done in two $75 steps, the first in August, and second in December.
She responded positively and was grateful for the tiered approach and the chance to adjust.
I'm happy with the compromise. The duplex will be grossing about 15% more income next year than the previous year without any capital contribution or bad feelings with tenants.