Multiple Evictions. Time to sell?

28 Replies

Well, I'm in a bit of a jam. I have a 10 unit building in Ohio that I need to make a decision on. I just had one unit busted for dealing drugs, so they were evicted. I've also had 4 other units sent eviction notices for being behind on rent. These were all inherited tenants. So I am possibly being hit with 5 unit turnovers at once, which will probably be around $5-8k each. The units rent for $450-500, but I'm really getting bled dry here. The past due rents are substantial ($5k), but I don't have much hope for collecting. Does it make more sense to -

a. Do the renovations, and try to get better tenants? I have the money, but it's a substantial amount of my savings. 

b. Sell the place and take the loss? I could maybe hope to get what I paid for it, but I'd lose the money I've spent on renovations. I've put in close to $30k on a new boiler, roof work and other renovations.

Yes, I realize that I screwed up in my due diligence, I don't need to be reminded of that ;)

Turning a property over (ie. increasing NOI) is THE way to make money in the rental business. Make your property perform better. This is assuming you bought it at a decent then-current cap rate.

What area of Ohio is this in? What are the market rents? If the market rents are much below 700 it’s probably in a bad area and renovating it may not change your tenant base much.

In my opinion, this is where you really start making money on the property. Yes, you need to rehab the units, but now you get to choose your own tenants (and potentially raise rent?) and increase the property's value. If you have the funds for the rehabs, I think your current misfortune is actually good in the grand scheme of things.

This is only based on the details provided, which doesn't include the class of property/tenant pool.

@Caleb Heimsoth - It's in Dayton. $450 - 500 is pretty average for a one bedroom. If I fix them up and rent them, I could get $500, which would be a decent return. I would say it's in a C area. 

@Mark Bookhagen - I understand your point, but the issue is that renovating is probably not going to increase my income very much, and it's a big expense. I could maybe get $500 for the renovated units, which would increase my gross rent by about $285 a month. Is it worth it?

@Brad L. I have another property in Dayton with really good tenants, and great cash flow. My management has done a great job in the past of finding me good tenants. I guess I'm just freaking out a bit about the expense of the remodeling. 

Those are just such low rents, I’m not sure the tenant base would improve much.  Are you sure it’s a C area?

I own a rental in a C area in Cleveland and that rents for over 800 (it’s a two bedroom).  But at such  low rents you’re going to attract a certain type of tenant 

@Caleb Heimsoth Like I mentioned above, I have another property in Dayton with one bedrooms around $500 and the tenants there have been great. Even in the nicer areas of Dayton, a one bedroom would be maybe $750, so it's just not a super high cost of living area. 

If you can spend $30k in renovations to make $280 more a month you're looking at an 11% return on that money. On top of that, the property NOI has increased the property value as well. AND you have a property manager that has been successful in getting you good tenants in that area? No brainer, fix the property, raise rent, make more money!

Some properties that I take over management have inherited residents.  It sounds like you have you good management in place,  give them a change to improve your client base. See if you do do a little something that better residents will want to be there. Use a two tone color scheme for a start.

Originally posted by @Jason DiClemente :
If you can spend $30k in renovations to make $280 more a month you're looking at an 11% return on that money. On top of that, the property NOI has increased the property value as well. AND you have a property manager that has been successful in getting you good tenants in that area? No brainer, fix the property, raise rent, make more money!

If your goal is to sell, spending the money to rehab and get better tenants will get you a much better exit price.  Have you thought about partnering with someone local?  As in "I'll sell you half of it for X, and I'll contractually agree to use X for rehabbing the property."  

Value add MF is one of THE best ways to make $$.... take a POS and add some value, bump the rent and get better tenants and manage it better. Yes, there is a limit based on the location....you wont make a D area into a B area by making your place really nice..... so you do have to be careful on over improving based on your neighborhood etc

From your basic numbers, seems like its a decent value add opportunity.

Originally posted by @Max McNally :

@Brad L. I have another property in Dayton with really good tenants, and great cash flow. My management has done a great job in the past of finding me good tenants. I guess I'm just freaking out a bit about the expense of the remodeling. 

Totally understandable. It all comes down to your comfort level. You say the rehab would take a substantial amount of your savings...does that mean 40%? 90%? If you don't have the reserves left over in case of emergency, then it's definitely not worth holding on to as a major capex or a couple more evictions would easily sink you. If it just means you have to tighten your budget and live a little uncomfortably, I'd stick with it.

Thanks everyone! Sounds like the consensus is to spend the money, and get better tenants. I will do it, and keep you updated!

Bottom line....run the numbers......if they work, they work.

All the evictions and drug stuff...that's emotional baggage. PITA...hassles..... try and ignore that stuff.

If the $$ numbers work, they work ....don't dump it over emotional stuff unless you have just had enough and the $$ isn't worth it to you

If you’re happy with management I would spend the money and stick with it

I agree with most all the other posts...Spend the $$ if you can and let the management company try to get better tenants in there.  It sucks when there are that many at one time..On the bright side, at least it is spring/summer time and a good time to be renting units.  I took a run down drug infested 23 unit property and added 7 units and changed the renters to a totally new property that stays at or near 100% full now!  Good luck and let us know how it goes.

Keep in mind that renovating will mean you can attract better people. You might not get higher rents, but you should be able to find better tenants who actually pay you. 

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Assuming this is a C property with rents at $500 you are way over renovating if you are spending $5-$8K each.

Max out your renos at 1K per unit and get them re-rented. Your rents are way to low to spend more than that per unit. Tighten some screws, slap on some paint and get them back in service.

Problem 1:  I think one challenge is that you are located out of state, unless you have great boots on the ground.  Problem 2:  Low income, market rate tenants usually have high default rates.  That is why landlords in these areas like section 8 housing vouchers.  These vouchers may be difficult to get since you have one bedroom units.  Problem 3:  Dayton.  The city is nice, but it has been losing population for more than 2 decades.  This creates a scenario where class C apartments are not  competitive (as opposed to California).  And certain areas become blighted.  

You have to turn around this building, so the only way out is to screen your tenants better.  Perhaps the only tenants attracted to your building will be marginal.  So it is the type of building that will require a lot of hands on management to make it successful.  I've been there.  I sold my two troubled buildings that I couldn't fix the recurring eviction problems.  Don't sell your building in a distress situation.  Paint and clean the vacant units, make them presentable, and you will get a higher percentage of your money back.  

@Charlie Price that sounds like a great story, I would love to hear about it. That’s what I do.

Do you have any tips on getting rid of drug dealers, keeping them out and turning a property around?

I would totally master lease option for you. :P

Offer Cash for Keys, 1-$200 to get out in three days and try to make it move in ready as possible might save on those rehab costs.

After that it is finding quality tenants.  Is there any other areas you can value add?  Vending machine? Perhaps convert an aux room into a laundry mat?  

When I took over several properties from a previous landlord I knew I had my work cut out for me.  Almost all tenants were behind on their rent, and property taxes were 3 years behind.  

I terminated each tenant that was bad,  one at a time.  Fixed up the unit after they moved out.  Doubled the rent and within the year I was making a good size profit.   

I developed a great lease agreement, made everyone stick to it, and made this business work like clockwork.  

It's tough to take over somebody's mess, but if you buy cheap and see a potential and know your own mental and financial worth, you can do it.  

The bottom line is that we need to train our tenants to pay rent when it is due and not pay rent anytime they feel like it in a rental month.  That is the first mistake new landlords make.

File that Notice to Quit on the very first day rent is late.  

You see tenants are used to having landlords not adhere to the rental agreement if they have one at all.  By the time we get them, those of us who have everything in place that should be in place, need to train these tenants to understand that a Lease Agreement is an actual legal contract and has an actual DUE DATE !!!.

I think you'll do fine.  Recoup and as said above, you're now able to choose your own tenants.  The first thing you need to do is to make sure they are COLLECTIBLE.  Second, get as many co-signers you can if they are questionable.  That's half the battle.

Nancy Neville

I would fix them up, and go through a real estate agent who can find you qualified renters and do a background check.

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