I am in the process of buying my first real estate investment property and I am hoping to gain some insight into a particular situation that I have found myself in today.
A little information about the property. It is a three family building all units with 3 bedrooms, 1 bathroom, 1 eat in kitchen and a living room and I would say the units are approximately 1050 sq ft each.
As of now all tenants are TAW. I just received the schedule of leases and tenancy agreements and I was surprised to find out that the units are occupied by 6 (1 adult and 5 under 18) on the 1st floor, 9 on the second (2 adults and 7 under 18) and 6 on the third floor (3 adults and 3 children).
We are planning to manage the property ourselves because we want to get the full experience before we start using a management company so we will have to address any issues ourselves. My question is obviously about the amount of occupants living in the building, in particular the 2nd floor which has 9 occupants.
I guess I am looking for a "what would you do if you were in my shoes" kind of answer. We are going to purchase the property and we are very excited about it but we want to have a clear idea as to how we are going to handle the transfer of tenants and what will be the best course of action.
As a side note I call the water department for the town and I was told the building has an average water bill of $200 a month, yes that is $2,400 annually. I can assume this has something to do with the 21 occupants who are all bathing, flushing the toilet etc.
Any insight will be greatly appreciated
Property should be vacant at closing or walk on the account of thew water bill (due diligence).
I will assume your tenants are not paying for utilities.
What you should do is find out from your buildings department what the allowable number of indivulaes is in regards to the second floor unit and if they are over the code give them notice to cure or quit. If not then terminate when legally allowed.
In most cases inherited tenants will either vacate or be evicted so with luck you will be able to find more suitable tenants for all three units. You will also be able to pass on the utility costs to new tenants. Utility costs can be expensive which is why it is best to avoid investing in properties that are not separately metered.
This post has been removed.
This post has been removed.
@Mark Bookhagen I do not want to walk on the account of the water bill because I have reason to believe that issue can rectified with more suitable tenants. I am guessing what you are getting at is remove the current tenants ASAP? I could contact the agent and have at least the one unit with 9 occupants be vacant at closing.
@Thomas S. The only utility bill not paid by the tenants is the water bill. I will give a call to the buildings department first thing Monday morning and inquire about occupant limitations. I have a feeling they are not in compliance. Having the tenants pay for water is not common practice in the area I am looking. That does not mean I can't meter them out but that might affect my ability to find tenants.
This is directly from the MA tenant law
"in a dwelling unit, every room occupied for sleeping purposes by one occupant shall contain at least 70 square feet of floor space; every room occupied for sleeping purposes by more than one occupant shall contain at least 50 square feet of floor space for each occupant"
Based on that info each of the bedrooms would need to be 150 sqft and I am pretty certain that is not the case.
Before you get involved with this property too deep, you need to read up on federal fair housing guidelines. Just because you think there are too many people (in this case children) living there, doesn't mean that removing/evicting them is legal. This is discrimination based on familial status and is subject to enormous fines levied by HUD.
With that said, last I checked HUD guidelines allow two adults per bedroom, so it sounds like they're well within compliance with federal laws. You can check with local code compliance to see if there are any local limitations on occupancy. You can also select other reasons to evict them, but they can still file a complaint.
Also (don't quote me on this), I believe that landlords with three or less units are exempt from the HUD requirements and you may be able to skirt this issue, however, you should create a firm set of rules to run your business and I do not recommend starting off in this fashion, even if it may be allowable. My guess is they could still cause you a lot of trouble.
I agree with @Mark Bookhagen - take the property vacant at closing. If not, be willing to wait the tenants out and do not renew their lease. In the future, screen your own tenants. Don't allow situations like this to develop, but don't address them from an illegal viewpoint.
Suggest you have seller to serve them xxx days (local custom) to get them out as condition of making the offer. There is a limit how many can occupy. So you have 15 cars outside? Conflict with neighbors often occur with over crowded situation.
@Alexander Wardell - You want to be cognizant of fair housing laws. You cannot say, "...too many kids so they have to leave."
So are you saying a minor does not count as an occupant? or counts less than an adult? I did not see any distinction between adults or children when someone is considered as an occupant (other than 12 months or younger) they don't count, or at least here in MA.
If I cannot get the unit(s) delivered vacant I will just do the other option you had mentioned and wait them out, that is if they are actually in compliance at the moment. They are on a month to month lease so it would be fairly easy to not renew the lease.
To be clear I would never allow this situation to happen but I don't want to let it deter me from a great cash flowing property just because of a tenant issue. Inherited tenant issues seem to be common.
From what I gather there are only 6 adults in the property that are of driving age. There is also three off street parking spots available behind the property but yes I see what you are saying. Once the older children become of driving age they might pick up a car causing more crowed streets.
I would never say they have too many kids but is there something wrong with saying there are too many occupants? If the rooms, based on square footage, cannot support the amount of occupants according to local tenant law then I have a legitimate reason for not renewing the lease. Please correct me if I am wrong.
@Alexander Wardell You're correct. NY (my state) laws are a bit different than what someone quoted above. MA law seems much more reasonable. I just try to avoid these situations by making the seller deal with the issue so I don't have to.
The answer to your question is yes....and no.
If I remember correctly, HUD states that two persons per room, as a general rule, is acceptable. I think we can all agree that if you have five adults living in a two bedroom apartment, they are over the limit.
The problem with the HUD position is the 'general rule' part and it doesnt clearly define the ratio of 'children' to 'people'. They may find more than two people acceptable based on the age of the children, size of the bedrooms, layout of the residence, and who knows what else. For example, if you have a one bedroom unit which is occupied by an infant, the mother, and the father, there are three occupants. If you evicted them based on this, you would be in a world of hurt. Now, lets say that its a single mother with two kids that sleep in the living room? Is this ok? I have no idea.
My wife and I own a mid sized apartment complex and the advice that our lawyer gave us was pretty simple - two adults per bedroom, ignore the kids. This interpretation of the HUD rule gives us the least legal liability and we really haven't had any issues with it. We've had several occasions where we had a mother and four kids or two parents with three in a two bedroom without any issue. The problem is usually the quality of tenant, not the number of occupants.
In your case, given they are month to month, no-cause ending their leases is defenately the easy way out.
I don't know if this was asked and answered. But how long has floor two been living at the property? If it's several year, they have a good track record of paying on time, AND the apartment is in good condition is it something you even want to worry about. Just because you have too many people in one space does not means they will be bad tenants (just more likely) and the reverse is certainly true. If maybe they are pushing the envelope with expenses then renegotiate that.
I will do my best to have the current owner resolve the issue before closing but if that is not possible I guess I can take on the responsibly and chalk it up as a learning experience. I know moving forward I will not let a unit that I fill turn out like the one in question. Sounds like I need to make a few phone calls on Monday morning. Thank you for you input!
I just read a Federal Register article about the Department of Housing and Urban Development and that instance was mentioned. Having two parents and an infant living in a 1 bedroom apartment should be within acceptable standards but having two parents and a now teenager living in that same 1 bedroom apartment should allow grounds for denial of tenancy. I can understand ignoring the kids to make sure you air on the side of caution but where should the breaking point be?
In this particular instance, based in what the previous agreement between the current landlord and tenant, which I remember reading in @Brandon Turner's book on managing rental properties, that you should never ask the age of the occupants only the amount of occupants under and over 18 years of age but that is besides the point, there are two parents and a young child >12 months old which should use 1 of the three bedrooms. Then there are 6 other occupants 17, 12, 11, 9, 4, and 3 utilizing the other two bedrooms (all of which are less than 150 sq ft). I just don't see how this complies with occupancy standards.
Floor two has been living there since May of 2018, so not very long. I am not sure about what kind of tenant they are but from what I saw in the unit they keep it well kept. I just don't want to be caught up with having too many occupants living in one of my units according to local law. They might be great tenants who pay on time but that still doesn't change the amount of occupants residing in the unit.
I am not an expert and am going off comments in the section I read, but it seems like with children occupying the space the laws are not super clear. I would say just reevaluate when the lease comes up. Their lease ends in 6 months, so you can just choose not to resign them. It's unlikely you're going to have a problem with the law between when you buy it and the lease ends.
All three unit are on a month to month lease and are TAW. I have noticed that laws regarding children occupying the units is unclear like you said, but I am just going off the requirements for sq ft per occupant. I am by no means an expert either and to be honest I had no idea what options I had when I first noticed this earlier today. Should be interesting.
Seems like an easy fix. Because the don't have a lease, just find new tenants. Probably not a great idea to ask these tenants to "comply" with the laws, if they could have less people in the apartments they probably would've done that already.
I just had the chance to read through your post and that is very unfortunate. I would have never thought having both means of egress located on the same side of the home being an issue but now that I think about it, it makes sense. If there is a fire causing one means of egress to be blocked it is more than likely the area is impacted creating a very difficult situation in case of fire.
This particular property has one stair case in the front of the house and the back, both of which reach all 3 floors. If I call on Monday and it turns out that having that many occupants in the unit is a serious violation, I will have the owner deliver the unit vacant. If that is not a possibility they are TAW on a month to month lease so solving the should be fairly easy. Key word should be but we shall see.
I hope you are able to resolve your issue. I know building new fire escapes can cost upwards of 17k and take about 2 months from start to finish, at least from what I have seen. Good luck and keep us posted. I am interested to see how it all plays out.
Perhaps you could make the tenants responsible for water moving forward with submetering or RUBs ?
check the code. some cities go as far as saying X unrelated people allowed. etc.
are those "kids" just a bunch of unrelated teenagers rooming?
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing