Problem rental

15 Replies

My husband and I have two rentals- my former residence, a condo in the city of Chicago, and his, a SFH in a B/B- western suburb. My condo cash flows $550 per month, we lose about $50 with his. I need your advice on his- he rents to friends of friends, public servants who just had a baby. Current comps in C+ neighborhoods are $1600-$1650 per month. Rent in 2013 was $1050, I convinced him to raise it to $1200 last year. These renters are always late (up to 20 days late) paying rent, were "confused" that a security deposit meant we hold finds (so we have no money in security deposit) and we're a solid $400 per month under market. How would you handle this situation? My thoughts are- 1- dump the 15k under water house, start with a new property I can ensure we use systems to check out tenants. 2- give these tenants 30 days notice (lease ends 8/31). 3- ask for $1300, and explain the late fee we haven't been enforcing from the lease. I think I've learned my lesson letting my extremely kind, but not quite business savvy husband totally take the reins on a property!! Thanks for your advice, Mandy
I would give 30 day notice. Re rent at market rates with a fresh landlord tenant relationship. This doesn't sound like a situation you could salvage with the current tenants, the pattern of behavior is established and it won't change.
In Broadview, on the boarder of North Riverside.

this is why I don't mess with tenants, especially friends of friends. To be honest, you are partly responsible for this situation and the tenants have taken advantage of your so called generosity. Many folks think they saving money by DIY rental management only to find out it bites them in the butt. 

I'd turn the whole thing over to a property manager and let the experts do it. I've done this  and I'm glad to give up some money in order to have peace of mind. It takes skill to find the right tenants and it gets the emotional attachment out of the deal. 

Good luck. 

terminate the lease asap, if they pay late now it would be worse if you raise the rent again.  if it will cash flow for you at market rents keep it if not or if you dont like the property go ahead and sell it and reinvest.  if they are 20 days late on the rent they cannot afford the home.  they need to leave before things go really bad.  also be ready for some major repairs.  odds are they are not keeping things up if they are just struggling to have money each month for their bills.

On one point in your post - I would not try and recoup late fees that you didn't charge at the time. That's water under the bridge.

As everyone else says, give them notice, let this lease end. Get in there and spruce it up a little and rent it out at market rate. You could move it over to a property manager but you seem to have some experience and are doing well on your other rental so that would be up to you in the end if you feel you need it and don't mind doing the job.

Let's say you decide that you want to ask to raise the rent or give 30 days notice.  Will your husband just be OK with you doing so?  Will it cause a rift?

Tough spot to be in for sure, I definitely wouldn't sell the property and I would try to get another renter in there who would pay market rate and pay on time.  If it is a true B area you shouldn't be dealing with issues like late rent or people being confused about basic lease principals.

@Mandy McAllister , you are getting great feedback on the site.

First of all hold on the property as long as you have a low interest rate, as by now, you are probably paying a good amount per month to the principal. The property would cash flow if rented at market rent, which is what you could do. If you decide to take this step and you are given 30 day notice, it means, your unit will be available on the market September 1st. You are starting getting into the fall market, and if you are not going to show it before then, and planning to do some work after the tenants move out, assuming they are moving out in time, your home will actually be available for rent October 1st, which means that you might want to lower the rent a bit from the top market price in order to get someone in asap. In Midwest, the rental market slow down in October. 

Look at your options carefully. Keep the tenants with no late fees until March 1st and rent May 1st at top market rent or give notice now if you feel comfortable!

Good luck with your properties!

It appears you are way under market. Don't feel bad about making that mistake. It happens. Get rid of these problem tenants, do some cosmetics, and go for market rate. Owning rentals is a business and must be run as a business. I made the same mistake being way under market and have been working to correct that as leases expire. You are in good shape with the lease expiring. Now is the perfect time to make changes.

Originally posted by @Mandy McAllister :

3- ask for $1300, and explain the late fee we haven't been enforcing from the lease.

No emotions- Keep the tenant, raise the rent to $1300, collect late fees when they are late.  

@Mandy McAllister,

As some have already mentioned I think the late fee train passed the station so to speak. If I were you I would give 30-day notice when the lease is up. Do some minor upgrades if needed and re-rent.

When my wife & I started out long ago we were bitten like this but we also went the route of hiring a PM manager and were bitten there too. Every month the XYZ pm company would find repairs needed to be done by the XYZ maintenance company or the XYZ gardening service. Funny they all had the same company name. We never got a full monthly check.

It is not that hard learning what it takes to be a PM and we learned quickly. We manage 6 SFH long-term rentals and it is not a hassle or inconvenience. The main mind set you need to take is that it is a business and run it like a business. We also have 1 SFH in Hawaii that is managed by a pm but, in HI it is a state law that vacation rentals be managed by a HI resident.

If you need the tenants to move out early (prior to their lease expiring) you can always bribe them w/ a few hundred dollars. I'm sorry that you guys are in an uncomfortable position, at least it's only $50 a month. 

@Mandy McAllister , Check landlord laws carefully before deciding anything. If you do anything outside the law it can cause major, expensive delays. 

I'd interview a couple of property managers and seek their advice on your legal options. 

Hire one manager, and (if legal) ask them to raise rent to market level w/ the current tenants.  Require them to sign a new lease (if legal) that defines late fees (assuming that's why you haven't been collecting fees). This should also let you collect a deposit. Maybe they'll stay, or will make a counter you can live with, so you won't have to pay to fix it and to cover the vacancy. Do. Not. Waive. The. Deposit.

If they move, clean it up, and get market rates.

You may want to give the tenants a few hundred dollars to help them move, which is only a few months of profit from your new rent--well worth it, if it speeds them happily out the door.

Thanks for the advice, all. I wasn't worried about recouping late fees, those are a sunk cost- I more needed "how to make this the business my other property is without alienating my husband" ideas. Lumi Ispas I hadn't thought of giving them till peak season next year- I think that's the route we'll go! Thanks again everyone!!

@Mandy McAllister

The biggest lesson you should learn from this is to always put your real estate business first. Be strict on your lease, qualifying your tenants with good credit, 3xtimes rent income, no criminal background. 

With the condo just make sure to always raise rents with the market and be sure to keep something in an account for reserve/maintenance.

As for the single family home, first thing you need to do is get those tenants out, just make sure to do it legally. Then up the rents to what the market can bare. 

Since your underwater these are your options for the property.

1.Stay and pay it off

2.Loan Modification

3. Shortsale- make sure to chat with lawyers/tax professional to make sure you don't owe anything for the forgiven debt and your lender relieves you of the deficiency. 

4.Walk away - foreclosure 

5. Bankruptcy

Hope this helps. 

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