Would kicking out my tenant be unwarranted?

Question

Good afternoon everybody!  I could use some advice on my Sacramento California duplex.  I am moving out to the next property and will be renting out my previous residence.  The property was originally three buildings (two duplexes and a 4 car garage) but has been subdivided.  I own one duplex and half of the 4 car garage.  We are one of a very few rentals in the area...it's in a desirable area with primarily owner occupied single family homes nearby.

The tenant next door came with the property and has lived there for about 8 years (I bought in 2014).  He's not a bad guy, but I would not have rented to him if I screened him.  He's in his 60's and lives paycheck to paycheck.  He has 3 indoor cats (disclosed 2), 3 outdoor cats (ie feeding strays), the previous property manager did not ask for a security deposit, he works on his two junky cars and dirt bike in the driveway (huge oil stains in front of his garage) and he keeps equally mediocre company (not felons...just drinking, smoking...low class stuff).  The neighborhood has gotten a lot nicer in the last few years and I'm worried keeping this tenant will scare off better prospects.   I don't have significant problems with him as a tenant, but he's paying $1,150 after two rent increases where I'll be collecting $1,400 per month plus possible pet rent and deposit from a new tenant.  The agreement he signed up under was very informal too so I can't enforce better behavior to the best of my knowledge.  His unit is trashed (not vandalism, just him living in there with cats and being a slob) so if I did kick him out I'd need to shell out some cash to flip the unit.  Last thing to consider is the other duplex...the owner is a bit of an absentee landlord so it's run down and one of the tenants is worse than my current guy (and they're friends so they feed on each other's bad behavior).  I'm wondering if I should give him the required 60 day notice to vacate and start fresh or is this not worth the effort?

*Cliffsnotes version:

Possible pros to replacing my current tenant;

-Higher rent

-Better lease agreement to control tenant behavior

-Get a security deposit

-Start fresh

Cons to replacing current tenant;

-It may not go smoothly (ie they won't leave, eviction, etc)

-I'll need to replace all the flooring and update the 1960's kitchen at great cost

-I don't think I can do anything about the run down duplex/bad tenants next door

Pat G. · Answer

My experience has taught me that you will not change the behavior of other people. It sounds like the previous landlord didn't make the tough decisions so you as the new owner have to. If you let this guy stay and continue with the way he has been doing "his life" then the only other type of tenant you will attract is ones just like him. Then you will have 2 slobs to deal with. First talk to a real estate attorney, one who has rentals himself and get good legal advice. Second follow that advice and start making his behavior not welcome in your property. If you don't tackle this right now, you will start to make excuses not to go to the property and then you will think "Real Estate doesn't work". It works and people make a lot of money doing it. Another idea is to hire a 3rd party property manager and have them do what you are unwilling to do. NOT that I am saying you are unwilling.
Good luck.

Walt Dockery · Answer

A little off topic but do you think the neighboring absentee landlord would be willing to sell and would you be interested in buying?

Personally if the numbers work I'd find it highly desireable to own both duplexes - giving the full garage and control over tenants and general maintenance / curb appeal of the whole property.

Arthur Kraamwinkel · Answer

Consider the long term gain of increased rent and pet rent and less wear and tear with a better tenant and the immediate costs of rehabbing and eviction and you may be better of with a new tenant. Doing the math on this one can help you making the decision. Perhaps you can buy the other duplex and replace the tenants there as well.

Andrew Jones · Answer

@Arthur Kraamwinkel, I thought about that...it would be a minimum of $3,000 per year plus interest on the security deposit.  I'm just worried I'm going to wind up spending $20k to do it, but these updates will need to happen eventually.  If I flip his unit now I should be done with the property, excluding unexpected repairs, for at least a decade.

@Walt Dockery, not off topic at all.  The thought has crossed my mind.  I'm going to write a letter to the property owner letting them know my new mailing address (PO box this time), what colors I used on the house and throw the idea of buying it from her.  She just bought it 18 months ago so I'm not sure if she'd be interested, but it needs work which she has not made an effort to do nor is she willing to control her bad tenant.  I have had to call the police on them for noise, fighting in the shared driveway, etc over the years and we have some bad blood...I want to make sure if I did buy the property that it's a solid investment, not satisfying a vendetta.

Derek Daun · Answer

There is also the option of what most of landlords are doing around here. Raise the rent to 1400. If he stays, then you get the benefit of the new rates while deferring the capital improvements. If he leaves, problem solved. I don't necessarily advocate that though.

Pat G. · Answer

@Andrew Jones It is going to be hard to change the tenants' behavior at this point, you could try but it will be an uphill battle. Talk to a real estate lawyer and see how you can get rid of him legally. Good luck

Andrew Jones · Answer

@Pat Gage, I think that's what I'm most worried about.  With people fleeing the SF bay area for Sacramento county it is very much a landlord's market right now.  I don't think it will be this way forever so I want to take advantage of the opportunity I have to change the culture here.  Are you suggesting that I try to rehab my current tenant or move on to a new one?  Either way I should get a good real estate attorney in my rolodex.  It's easier to shop for one when you don't need them.

Would kicking out my tenant be unwarranted?

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