Looking at an 8-plex and have an issue

11 Replies

I am looking at an 8-plex that could be a pretty great deal, but...  It is filled with elder people on social security.  I don't feel right buying it and booting any of them out and since they are on social security they can't really afford higher rent.  Do I figure out a way to buy and leave as is and then renovate each place as they begin to vacate?  Just wanted to see if anyone has any good creative solutions that have done or seen.

Thanks,

Josh Goldstein

I had this same problem at a multifamily property I purchased in Cincinnati. Two units were occupied by 90+ year old residents and I felt extremely uncomfortable with the prospect of raising their rents or terminating their month to month leases. Eventually, one moved into a retirement community on their own and the other left because we increased the rents.

Ultimately, it depends on what you are comfortable with. But, whatever you decide to do, make sure you account for that in your underwriting. The cash flow achieved by keeping the existing residents will be much lower than the cash flow achieve by renovating every unit and bring in new residents.

@Josh Goldstein Is this your first unit? I would take a few minutes to think about what your vision is. If this is a piece of your big pictures, what does that big picture look like? Do you want to have a portfolio of senior citizens? Is that a niche you can capitalize on? Is the ROI as-is sufficient for you? If it's not, then move on or accept the fact that you'll have to reposition the property to meet YOUR needs.
That being said, are there resources you can link them with to find more appropriate housing or assist with move-out costs? Maybe a local religious or non-profit establishment?

Thanks Theo.  I am analyzing as a buy and hold now vs a BRRRR to see how it looks with the current rents.  I think it should still cashflow decently.  I am going to put an offer in as see what happens.  Plan on renovating all of the exterior with current tenants and then update and raise rents as they vacate.  

Originally posted by @Theo Hicks :

I had this same problem at a multifamily property I purchased in Cincinnati. Two units were occupied by 90+ year old residents and I felt extremely uncomfortable with the prospect of raising their rents or terminating their month to month leases. Eventually, one moved into a retirement community on their own and the other left because we increased the rents.

Ultimately, it depends on what you are comfortable with. But, whatever you decide to do, make sure you account for that in your underwriting. The cash flow achieved by keeping the existing residents will be much lower than the cash flow achieve by renovating every unit and bring in new residents.

Thanks for focusing me on this.  This would be my first property (minus properties I have renovated and lived in).  Ultimately my vision is to improve and rent which would not include senior citizens.  But, as is the cash flow would be pretty good and only improve over time as the tenants vacate.  I will also look into the relocating ideas you mentioned, both sound like solid options.  Maybe I can even factor is my costs some cash for keys to help them get moved, etc...

Originally posted by @Steven Kleppin :

@Josh Goldstein Is this your first unit? I would take a few minutes to think about what your vision is. If this is a piece of your big pictures, what does that big picture look like? Do you want to have a portfolio of senior citizens? Is that a niche you can capitalize on? Is the ROI as-is sufficient for you? If it's not, then move on or accept the fact that you'll have to reposition the property to meet YOUR needs.
That being said, are there resources you can link them with to find more appropriate housing or assist with move-out costs? Maybe a local religious or non-profit establishment?

@Josh Goldstein How much of an increase are we looking at?  If it is nothing huge, maybe they have room for the increase.

I purchased 3 units from a retiring landlord last December. 2 of the 3 came with legacy tenants.  The seller called me up before closing and said his senior tenant who had been there for years wanted to sign a 2 year lease to keep her rent the same.  Her current rent was $700.  Market rent was $750.  She pays on time or slightly early.  I said ok as I was happy to trade lower rent for lower vacancy.  

That makes a lot of sense.  Let me go back to my property manager to see what kind of increase I can get to help make the decision.

Originally posted by @Anna Buffkin :

@Josh Goldstein How much of an increase are we looking at?  If it is nothing huge, maybe they have room for the increase.

I purchased 3 units from a retiring landlord last December. 2 of the 3 came with legacy tenants.  The seller called me up before closing and said his senior tenant who had been there for years wanted to sign a 2 year lease to keep her rent the same.  Her current rent was $700.  Market rent was $750.  She pays on time or slightly early.  I said ok as I was happy to trade lower rent for lower vacancy.  

@Josh Goldstein It may be as simple as bringing on a Property manager, if only for a year, and instructing the manager to immediately raise the rents. This is the best way to insulate yourself from any difficult confrontations/discussions with residents. Just be sure your rents are in line with market. Let the Property Manager be the Sin Eater. 

I plan on having a property manager, but I still have an issue morally even if I'm not the one pulling the trigger.

Originally posted by @Account Closed :

@Josh Goldstein It may be as simple as bringing on a Property manager, if only for a year, and instructing the manager to immediately raise the rents. This is the best way to insulate yourself from any difficult confrontations/discussions with residents. Just be sure your rents are in line with market. Let the Property Manager be the Sin Eater. 

@Josh Goldstein what is the difference in rents here? Are we talking $50? $100? If so, then maybe it's OK to keep the rents the same if the numbers still work. This will allow you to gradually increase them over the next few years without them really feeling a pinch.

However, if the rent disparity in what they are paying versus Market is significant, then that's on the previous owner for not properly managing the residents. It isn't your fault they are in the situation they are in. 

Here's the thing. Let's say you realize you can't do it so you pass - and you feel better about yourself. But then, another investor comes along, buys the units and raises rents immediately. Some tenants stay and pay some move on but in the end everyone is still well and alive - but you lost out! Part of being a landlord is making hard decisions.

I understand the dilemma you perceive yourself to be in, but you have no responsibility towards anyone other than as a landlord and as required by law. Raising rents on tenants who have been paying under market for years, elderly or not, is not immoral. Just be prepared to offer options or referrals to services that may help. 

I have a 12 unit with four retirees (BTW they are younger than me-LOL) they pay close to market rent or market. As  units have become available we polished them up and filled them right away. One thing we do is watch the tenant mix; the oldies like it quiet so we aim to keep it that way. Older tenants may not always qualify on direct income but look at their retirement accounts, pensions etc and you may see quite a different story. All the best!

Got it and it all makes sense.  Waiting to hear back from the property manager to see the difference and then make my decision.  

Originally posted by @Account Closed :

@Josh Goldstein what is the difference in rents here? Are we talking $50? $100? If so, then maybe it's OK to keep the rents the same if the numbers still work. This will allow you to gradually increase them over the next few years without them really feeling a pinch.

However, if the rent disparity in what they are paying versus Market is significant, then that's on the previous owner for not properly managing the residents. It isn't your fault they are in the situation they are in. 

Here's the thing. Let's say you realize you can't do it so you pass - and you feel better about yourself. But then, another investor comes along, buys the units and raises rents immediately. Some tenants stay and pay some move on but in the end everyone is still well and alive - but you lost out! Part of being a landlord is making hard decisions.

I understand the dilemma you perceive yourself to be in, but you have no responsibility towards anyone other than as a landlord and as required by law. Raising rents on tenants who have been paying under market for years, elderly or not, is not immoral. Just be prepared to offer options or referrals to services that may help.