New to Real Estate · Cincinnati, OH · Member since 2019 · 35 posts · 22 votes
Hey guys, I'm 23 and closing in on officially purchasing my first rental property, just finished inspections this week. The property is a 4plex in a great part of my town. Two of the units are currently rented to LONG term tenants 9 and 30 years! They're also paying well below market rent $550 vs $900. I had the opportunity of meeting them while I was following along with inspections and talked a bit.
The 2 tenants are both older women around 65 years old and really nice. Both their husbands passed away in the past few years, I saw O2 tanks and walkers in the units, and overall just a sad situation that makes you feel grateful. I don't know their financial situation but my guess is they can just get by paying the $550 rent. The one women couldn't have been nicer and even told me she hopes I buy the building and become her landlord because I seemed nice and responsible.
My end goal is to remove them so I can rehab their units and get them up to market rent. I know if anyone else buys this building they would just serve them a 30-day notice and move on. I couldn't do that to them right off the bat and would feel horrible doing so. I'm willing to work with them and in my head give them up to a year to move out and even offer to move all their stuff for them. I do understand that this is a business and I'm not getting into it to house people for free but at the end of the day their still people and just want to handle it the best possible way for everyone
I know I just have to have an uncomfortable talk with them but just wanted to see how you guys would handle this.
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
5y
Tyer, you can ignore people like Eric. I wonder if he yells at grocery stores for raising the price of eggs and bacon over the last 30 years instead of keeping things affordable for little old ladies? Or maybe he would like to insult the local car dealer for charging $17,000 for a used sedan when this little lady paid $6,000 for her last one in 1989. Seriously.
You're buying a property that is under-performing. That's part of making a wise investment. Treat it like a business, but don't be an a-hole about it and kick them on the streets with just 30 days notice. Notify both tenants as early as possible. Explain that you are an investor but the investment only works if you rent at market rate. Give them 90 days to find alternative living arrangements and then stick to it, period. That should be sufficient for them to find income-based housing, a family member, or whatever. If they are half-way intelligent, they will look for alternative housing and see that rates have gone up since 1996 and they've been getting off easy for a long, long time.
I personally prefer to keep the notice short, professional, and without justification, excuse, apology, etc. You're running a business and they can either afford your product or not.
New to Real Estate · Cincinnati, OH · Member since 2019 · 35 posts · 22 votes
5y
@Eric Weldon-Schilling I'm just trying to see how other people would handle this and I'm trying to be really good about it. I think anyone else coming into the property would immediately kick them out. My numbers work to where I can have the other 2 units rented have still have them there but my end goal would be to have them transition out of the property on there terms. So what would you do in this situation just keep them at the price where there at or would you ask to increase the rent a little bit?
New to Real Estate · Matsuyama, Japan · Member since 2020 · 24 posts · 17 votes
5y
Hi Tyler, This is definitely a tough situation, you don't want to be the heartless landlord, but it's also important to treat it like a business. Maybe preface the talk by seeing how they like living there, and asking if they may like living somewhere else more. If they want to move closer to family or something, then you can offer to help with the whole process from finding a new place to moving them yourself or hiring a moving company. This is the idea that just immediately came to mind. I hope it helps
New to Real Estate · Cincinnati, OH · Member since 2019 · 35 posts · 22 votes
5y
@Justin Woodard appreciate your ideas! Definitely while this is a tough situation I'm glad I'll be getting this property so I can at least figure out what's best for both of us vs someone else coming in and giving them 30 days right off the bat. Definitely not going to be heartless and might even end up letting them stay with the price their at but offer to help them move if they wanted too
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
5y
Tyer, you can ignore people like Eric. I wonder if he yells at grocery stores for raising the price of eggs and bacon over the last 30 years instead of keeping things affordable for little old ladies? Or maybe he would like to insult the local car dealer for charging $17,000 for a used sedan when this little lady paid $6,000 for her last one in 1989. Seriously.
You're buying a property that is under-performing. That's part of making a wise investment. Treat it like a business, but don't be an a-hole about it and kick them on the streets with just 30 days notice. Notify both tenants as early as possible. Explain that you are an investor but the investment only works if you rent at market rate. Give them 90 days to find alternative living arrangements and then stick to it, period. That should be sufficient for them to find income-based housing, a family member, or whatever. If they are half-way intelligent, they will look for alternative housing and see that rates have gone up since 1996 and they've been getting off easy for a long, long time.
I personally prefer to keep the notice short, professional, and without justification, excuse, apology, etc. You're running a business and they can either afford your product or not.
New to Real Estate · Cincinnati, OH · Member since 2019 · 35 posts · 22 votes
5y
@Nathan G. Really appreciate the response and the comment about Eric haha, I like your idea. Think I have to figure out how to phrase everything in my head and after close just have the talk with them. Thanks for your time Nathan!
@Nathan G. Really appreciate the response and the comment about Eric haha, I like your idea. Think I have to figure out how to phrase everything in my head and after close just have the talk with them. Thanks for your time Nathan!
Tyler, I probably wasn't clear enough. I would not "talk" with the tenants. That's a common mistake with Landlords and Property Managers because emotions come into play and you're far more likely to deviate from your plan. A short, professional letter is sufficient and safer.
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
5y
Its stories like this that give landlords the bad rap and have people with pitchforks coming for us. You can try to make yourself feel as good about yourself as you like. But you know that two elderly women living on a fixed income can't afford much higher rent. You knew that when you bought the building and probably got a good deal on it as a result. Your entire plan for making a killing rests on evicting these women and raising the rent to market rates. You also know that they will be unable to find equivalent housing elsewhere at a similar price. Now none of this is technically your problem but you became responsible when you bought the place. Do whatever lets you sleep at night but I don't think you can come out smelling like roses if you make them leave.
New to Real Estate · Cincinnati, OH · Member since 2019 · 35 posts · 22 votes
5y
@Eric Weldon-Schilling thanks I'm definitely not planning on making either of them homeless what ever I end up doing im gonna have to feel good about doing and I want them to feel the same. There's still places that rent around what their paying now so maybe we could come to an agreement down the road to help them transition out on their terms too even it takes longer than I'd like. Or I end up keep them time will tell and I gotta feel good about everything. Definitely aren't getting into this to make people homeless
I have given this much thought as I have found myself in a similar situation on a property I really love. (Mine...Duplex in a great airbnb community which could make a ton as a short term rental.) I think you know what the right thing is and are trying to make a decision if it's okay to NOT do that right thing in the name of profit. There are lots of people in the investing community who will say callous things like "this is just business" and that's fine for them I guess. There are lots people who do well... but don't do right. Sorry but you will need to decide what kind of person you are on this one and no one person's opinion will be very helpful. They might offer excuses for you or they might add guilt depending which side they fall. In my own situation I have thought about going the middle ground. Accepting that the rent is way under market value, allowing the renters to stay and not doing the upgrades I want to do to get the apartments to market value and rented as airbnb. I'm deciding to hold as long term rentals, long term if necessary. I am able to do this as it is not my first investment property. I have come to believe that how I treat people is important to my happiness more than making a few extra bucks. Just my two cents for whatever they are worth!
New to Real Estate · Cincinnati, OH · Member since 2019 · 35 posts · 22 votes
5y
@Dawn Centanni thanks for your reply Dawn and your right I need to do what makes me feel good and at the end of the day we're all still people too so I plan on trying to come up with the best situation for everyone and what makes me feel comfortable about the situation and let's me sleep at night. The other two units I need to fix up will still make the property money over all at least. The numbers look great with the other 2 units filled up at a higher rate but I couldn't do that by screwing 2 people over. Need to do the right thing for them
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
5y
Originally posted by @Account Closed:
Its stories like this that give landlords the bad rap and have people with pitchforks coming for us. You can try to make yourself feel as good about yourself as you like. But you know that two elderly women living on a fixed income can't afford much higher rent. You knew that when you bought the building and probably got a good deal on it as a result. Your entire plan for making a killing rests on evicting these women and raising the rent to market rates. You also know that they will be unable to find equivalent housing elsewhere at a similar price. Now none of this is technically your problem but you became responsible when you bought the place. Do whatever lets you sleep at night but I don't think you can come out smelling like roses if you make them leave.
How would any business survive with that mindset? Are you honestly claiming that anyone buying the property should have to honor the price offered 30 years ago until these ladies eventually pass away? If you bought bacon for $2.21 a pound in 1990, should the grocer be required to honor that price today just because you're 65 and on oxygen? No, bacon prices have gone up to $5.62 a pound and you can either accept that or stop eating bacon.
Do you think he's buying this property for the same price it sold for 30 years ago? Do you think taxes and insurance costs are the same as they were 30 years ago? What about the price of replacement appliances? Flooring? Paint? Doorknobs? Lawn care?
For whatever reason, the previous owner failed to raise rents to keep up with the increased cost of living. These women should be grateful for paying so little over the years. Now the rent is going to catch up with reality and they'll have to adjust, just like most renters have adjusted over the past 30 years. That's the fault of the renters and the market, not the young investor trying to make a better life for himself and his family.
Its stories like this that give landlords the bad rap and have people with pitchforks coming for us. You can try to make yourself feel as good about yourself as you like. But you know that two elderly women living on a fixed income can't afford much higher rent. You knew that when you bought the building and probably got a good deal on it as a result. Your entire plan for making a killing rests on evicting these women and raising the rent to market rates. You also know that they will be unable to find equivalent housing elsewhere at a similar price. Now none of this is technically your problem but you became responsible when you bought the place. Do whatever lets you sleep at night but I don't think you can come out smelling like roses if you make them leave.
How would any business survive with that mindset? Are you honestly claiming that anyone buying the property should have to honor the price offered 30 years ago until these ladies eventually pass away? If you bought bacon for $2.21 a pound in 1990, should the grocer be required to honor that price today just because you're 65 and on oxygen? No, bacon prices have gone up to $5.62 a pound and you can either accept that or stop eating bacon.
Do you think he's buying this property for the same price it sold for 30 years ago? Do you think taxes and insurance costs are the same as they were 30 years ago? What about the price of replacement appliances? Flooring? Paint? Doorknobs? Lawn care?
For whatever reason, the previous owner failed to raise rents to keep up with the increased cost of living. These women should be grateful for paying so little over the years. Now the rent is going to catch up with reality and they'll have to adjust, just like most renters have adjusted over the past 30 years. That's the fault of the renters and the market, not the young investor trying to make a better life for himself and his family.
@Nathan G. Are you suggesting that the older ladies are at fault for not being able to pay more and wanting to stay ? You don't seem to be comparing apples to apples. If apple prices go up then lower income people buy less apples...this is demonstrated in lower income areas where McDonalds are prevalent They simply then do without the items that increased in price and replace with other less expensive options, typically lower quality. When housing goes up it is not equivalent to say people who have made their home somewhere, that they should just relocate to somewhere they can now afford and it's their fault they haven't made more income to afford the inflated prices of higher demand. None of us would invest if we weren't in it to make profit to better our situation but it does not need to come at the cost of others in my opinion. There are other ways to fulfill both. It's not my life so I'm okay with either choice and understand that this is part of the game of capitalism. but for me I'd have a hard time living your truth.
No. I'm saying it's not anybody's fault. Costs go up, prices go up, rents go up. It's the market and it is beyond your control, my control, and the renter's control.
What I am saying is that he is not responsible for their financial welfare. The market has changed and his rent increase will reflect that change. He is under no obligation - legally or morally - to maintain low rent just so these ladies can avoid moving. Their age and health has nothing to do with it. What if this were a 36-year-old single mother? What if it were a 50-year-old single doctor making $300,000 a year?
I'll ask again: is it his moral obligation to keep their rent the same for the rest of their lives? Would it have been any worse if the previous owner bumped rent $50 every five years?
Investor · Brooklyn, NY · Member since 2019 · 185 posts · 205 votes
5y
@Tyler Tacy, as I'm sure you've just realized, you have just stumbled on one of the most polarizing situations in REI. Allow me to offer two "solutions" that should quiet both the angel and devil on your shoulders.
If these sweet little old ladies are really barely able to make ends meet and afford market-rate for rents, they may qualify for government assistance in paying their rent. It could be worth calling your state's Section 8 office (or whatever your state calls it) and get as much info as you can about who qualifies for assistance and what the process is for applying. Once you have that info, if your tenants qualify, you could then help them go through the application process. Once they're approved, you get higher rents, and they potentially end up paying LESS than they were before. Everybody wins.
If the above doesnt work for one reason or another, let them know that market rent for their apartments is $900, and that you do NOT plan on raising their rent from $550 to $900 overnight. But you do need to ensure that you are covering your bases and paying your bills. You could suggest a modest ~5% (or $50 increase or whatever else you are comfortable with) once a year when their lease renews. This way, slowly over time, you can nudge their rents up closer to market rate without doing it all at once or throwing them out. You can help to justify these incremental annual raises via capital improvements that will make the place nicer for them and more profitable for you in the future. Consider redoing the floors, bathrooms, kitchen, etc while they are there to show them that you are not simply taking that extra rent and padding your bank account. Ultimately these improvements will pay for themselves over time.
Just my two cents. Good luck with whatever you decide.
This renters will be paying your mortgage while you are rehabbing the other two units. Maybe get their rent to $650. You will also avoid several thousands in rehab expenses you will have to do to get the market rent. Also while rehabbing their units you will loose 2-3 months of the rent. Instead of spending bunch of cash up front and hope to get it back in several years you spent zero and get long-term paying tenants. You can increase the rent gradually every 2-3 years too.
To simplify you are short of 250 from market rate, but you are saving 10K in reno cost, so the renter can stay for 40 months and pay 650 and you will still breakeven if you spent 10k and rented for 900.
Older renters mostly more stable and less trouble making tenants in my opinion.
New to Real Estate · Cincinnati, OH · Member since 2019 · 35 posts · 22 votes
5y
@Brian Kantor I really appreciate the well thought out response! And like the 2 potential solutions you presented. Thanks for taking the time to reply!
Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
5y
I just love how everyone here is making the assumption that these women are poor and will be homeless. We know nothing about them.
The bleeding hearts always want to guilt trip you into sacrificing for others. How about the ones in this thread each contribute $50 a month to make up the difference in rent? Oh, I forgot, only others should sacrifice, not them.
It's a business. Run it like a business or you will be out of business and someone else will come along and raise the rent. Sad, but true. That's not to say you shouldn't have some compassion. Tell them your plans. 1) Remodel unit and raise rent to $900 or 2) Don't remodel unit, but rent goes to $800(?). Given them 90 days to find a new place if they can't accept either option. If you want to be a good guy, consider helping them find a place or at least an agent that will find them a place. Help them move or pay for the movers when the time comes. Give them back their security deposit early so they can use it for the new place. But remember, you're not running a charity and it's not your fault that the item they wish to purchase has gone up in price.
Investor · San Antonio, TX · Member since 2021 · 2 posts · 3 votes
5y
Would like to second the sentiment from Greg M. Why are we making this decision for them? We don't have a window into their financial situations.
I have a buddy that "rents" a hunting lease. It's a beautiful 600 acre tract in the gorgeous Texas hill country and, aside from the owners, he has exclusive rights to hunt it. He pays $100 a year, and is responsible for the maintenance of the blinds, feeders, and clearance of the hunting lanes. It's a deal his grandfather negotiated half a century ago, and has remained in-tact as the property has been passed down through generations. If the current owners told him they needed $5,000 a year for the same exclusive rights, he would pay it. Your tenants may be in the same boat. They may know they've been paying below market value, and are just waiting to see what the new rental rates are going to be.
If anything, I would adjust the model for their units based on a 0% vacancy rate. If they've been there 30 years they're not exactly a flight risk. That may move the unit closer to the $850 range, and they may be pleased to still be staying in the unit at that price. If not, be compassionate and provide them a longer runway to find housing and relocate.
Rental Property Investor · Knoxville, TN · Member since 2018 · 24 posts · 28 votes
5y
@Tyler Tacy
I appreciate your situation as I have been there! In my situation, it worked out ok. I bought a duplex with a long term tenant in one side. She was below market rent. I did a slight increase on rent when I acquired the property and gave a written rent increase progression for every 6 months for 2 years, with the rent increasing again and a 12 month lease at that time. We're about to sign that new 12 month lease. Meanwhile, I rehabbed the empty unit and immediately got market rent. I have spent nothing on the occupied unit and rent has steady risen. I spent a pretty penny rehabbing the other side to get market. In the end, I came out okay and I didn't have to evict a single, working mom.
I've been berated on this forum before for having a heart and not realizing I'm in a "business to make money". But, you truly can be a decent human being and make a profit.
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
5y
@Tyler Tacy Let's pretend this 65-year-old woman could find a comparable apartment for $800 a month. Do you think Anish and Dawn are willing to pay $125 a month each to help subsidize her income and ensure she could afford to continue paying only $550 a month? Of course not! They want to demand you sacrifice your income to help her out, but they won't do the same which is clear proof they don't really believe what they're saying. It's like a politician; always generous with other people's money.
Run your business like a business. I encourage everyone to use their investments to give to charity, but that doesn't mean you give your product away for pennies on the dollar. A thriving business enables you to be more generous towards those in need.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
5y
@Tyler Tacy My investment strategy has been value-add small multifamily over the past 6 years (since graduating from house-hacking and flipping), so I feel your pain. I like how you’re approaching this like a human being as well as a business person. Yes the property is your "product", but it's also someone's home, so it's not just some random widget or package of bacon we're talking about here. What has worked very well for me over the years in terms of being plenty profitable as well as sleeping nicely at night is to simply have an open conversation immediately post sale informing tenants of my long term goals for what I want the units to rent for. I also let them know that I’m planning to make improvements to justify those rents, and that I have no desire to kick anyone out in the street (unless they fail to pay rent, violate the lease or damage my property of course).
Some tenants leave immediately and others are happy to stay and pay market rent in exchange for improvements done to the property. I’ve had to evict a few times too, which is part of the business of course, but I only do that when tenants don’t pay rent, violate the lease, lie to me, don’t take care of the property, etc... 99% of the time I’ve been able to work with tenants, negotiate a win-win with them and get rents up to market rate within a year, which is what I budget for.
There’s nothing unprofessional about working with tenants and being understanding of their situation. This is a people business at the end of the day. However I’ve never had a tenant who had been in the property 30 years before! That’s quite some time. I actually passed on a property like this once after speaking to the tenants because there didn’t seem to be an amicable path forward. Also they had been living like slobs that whole time and the place was completely trashed.
In your situation, I would simply let the existing tenants know about your goals for the property, as kindly as possible, and see where the conversation goes. Perhaps they have plans to leave anyway, can afford the rent increase and have been wondering why the old landlord never raised the rent (fairly common actually in my experience), or will qualify for government assistance/ section 8 which pays market rent. Most tenants understand that expenses increase over time: taxes and insurance go up, property maintenance costs increase, the snow removal guy and the handyman all need to be paid more, etc. If you're not raising rent at least 3%/year, you're not even keeping up with inflation. You shouldn't need to explain this to tenants, but it certainly doesn't hurt to do so.
Taking a flexible approach has worked out very well for me personally. The last thing I want is several units going vacant at the same time, so it actually benefits me to work the tenants timeline a bit anyway. I’ve even had tenants tell me during that initial conversation that they’re ready to buy a home, who have then used me as their agent to purchase a property so that worked out extremely well (the commission was greater than 20 years worth of cash flow in fact). You never know what will happen in that initial conversation. I’d recommend having it sooner rather than later, being as kind about it as the situation demands, and negotiating a win-win however possible.
Good on you for asking this question by the way. I can see why the hard-nosed commenters in this thread take the approach that they do as well. It can be a hard business and sometimes you will have to be hard as a landlord. I can tell from your replies that you’ll catch more flies with honey than vinegar for the most part however and there’s nothing wrong with that in this business either. Keep in mind that your building will go way up in value once you get those rents up to market rate, and you'll get there eventually. My goal has always been to be able to budget properly in order to be able to afford to treat people well in addition to making money. I find that kindness comes back around and I bet it will for you as well. Good luck!
Without knowing any of the details of the rehab, I HIGHLY doubt you can move her out paying $550 and quickly just put someone in there paying $900. Figure out how much each unit would cost?
If I were in your shoes, figure out what the FMV of a non-renovated house, say it's $800 and tell them-- every 6-months, it's going up $50. The theory is slow and steady, they won't move for $50, maybe they'll get use to it, and then they'll get to the point it's not worth it and will absolutely talk to family members and move out by themselves. I don't know your state, but in my state, evictions are a minimum of 2-3 months, that's if it's quick/easy, some can be 6 months or even a year. Tell them your renovation plans, sorry-- this may be a construction zone, it's your choice to stay/go, have them on a M2M so the door is open.
If you really wanna kick one out, do it--it won't be any easier next month. If you can't, hire someone who can. It's just like not-renewing a single mom with 6 kids knowing she has no where to go--it's not pretty, but it's just kind of a fact of life in this business, it's not all pretty.
Plenty of charities out there, you don't have to be one of them, but you can be strategic.
