Removing Long Term Older Inherited Tenants

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Removing Long Term Older Inherited Tenants

Tyler Tacy
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. 

Thanks in advance!

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Nathan GesnerBusiness Member
Moderator
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.

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  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    5y

    Honestly, this is precisely the conundrum we face every day as entrepreneurs or landlords: the balance of being human and business rationality. 

    Believe it or not, I have the same exact situation right, just one lady though, however, we have property management between us, as owners, and the tenant. 

    That said, the bank requires that the mortgage be paid (on time and at current interest rates), the contractors who work on the property like to be paid at current market rents, and your investors (if you have any) want a return based on today's expectations. 

    At the end of the day, I don't think anyone here is saying lose your soul and kick the ladies out to the curb but I think a letter explaining your plan would definitely suffice and you would be pleasantly surprised that they might be able to pay the current rates. 

    Obviously, if you wanted to provide affordable housing you would (or should) go down that route, which is also profitable actually! 

    It all boils down to emotional intelligence and treating people with dignity, traits I can sense from you. 

    2Reply
  • Tyler Tacy
    OP
    New to Real Estate · Cincinnati, OH · Member since 2019 · 35 posts · 22 votes
    5y

    @Steve K. Thank you so much for your response I really appreciate Steve. Very well thought out and I believe doing the right thing will come back to me too. Thanks again!

    1Reply
  • Tyler Tacy
    OP
    New to Real Estate · Cincinnati, OH · Member since 2019 · 35 posts · 22 votes
    5y

    @Ola Dantis thanks for the kind words and your response. I really appreciate it

    0Reply
  • Jeff Ronningen
    Investor · Cincinnati, OH · Member since 2015 · 242 posts · 182 votes
    5y

    @Tyler Tacy. You don’t know if they can afford it until you talk to them about it. If they’re using walkers and have oxygen tanks they’re probably not able to live independently much longer and they’re probably older than 65. I know at 23 you probably think 65 is ancient but it’s really not.

    Some things you can talk to them about, some not. I’m not an expert on that so do your own homework. I think you can ask who their emergency contact is and if they have senior service providers who visit to bring groceries, medications, etc. what you want to find out is if a senior services organization and/or family member is engaged to help evaluate if they’re safe. If so, then there’s an exit strategy. If not they may be hanging on as long as possible whether they’re safety is at risk or not. If they have no family support and no exit plan for life beyond living on their own, that’s a tougher situation.

    Some people would say forget all that, you’re running a business. But these are people’s lives. You can be compassionate and a good investor.

    0Reply
  • Tyler Tacy
    OP
    New to Real Estate · Cincinnati, OH · Member since 2019 · 35 posts · 22 votes
    5y

    @Jeff Ronningen appreciate the response I definitely believe in being compassionate in this business but also understanding its a business. Make alot of good points. Thank you for your feedback

    0Reply
  • TJ Sinn
    Minneapolis, MN · Member since 2019 · 10 posts · 4 votes
    5y

    I think there are a few questions to answer before getting to the end issue you have right now. 1) Are these tenants month to month or in a signed lease? You wont be able to evict unless the lease is up or they are month to month. 2) I am not sure of your local laws, but in MN we cannot evict right now unless there are unlawful reasons and they are a danger to others (this at least was the last I heard for our laws). 

    If both of those check out, the first thing I would ask myself is, do I have the cash on hand right now to renovate both units and still have a good reserve? If so and you want to make the move to get the market rents up, then could you add a contingency to closing that the seller will have the property vacant by the closing date? That would put the current owner responsible to remove the tenants instead of you being the bad guy. 

    I just went through this same scenario - with a family though and not older individuals. We are house hacking the duplex and talked to the tenants about the increase in rent. As others have said - talking in person will not help much as the tenant will not see the previous landlord as the bad guy for letting them think the unit is priced fairly..you are just charging a fair market rent for what you have paid for the home, but to the tenant you are just looking to make money off of them. 

    What we did was we pulled comparable rents for their units in the area to provide evidence to them of the increases in the rent, and how they were well below the rate (note that we always charge a little below market anyway so it would show them we still would be a better deal).

    Long story short the tenant did not want to have their rates increased - we checked their rent roll before closing day and were confident they could pay the rent they were at now. So what we did is have them sign a 6 month lease (they were month to month at the time) to give us time for our first property to build up its own reserves, and build our liquidity to build up for updates to their unit.

    We just sent them the renewal agreement which increases their rent to market rate. We are expecting they will not stay as they do not want to pay that amount. What this did though is let us build reserves while they had six months to understand that we were going to push the rent up in a few months. 

    I hope you are able to find a good solution to this issue, but just remember that if they do not want to pay market rates now, every single time renewal periods come up you will be in this exact same issue. So the question is, do you rip the band aid off now or later after you have foot the bill for the below market rents for an extended period of time?


    1Reply
  • Jason Young
    Realtor · Newport Beach, CA · Member since 2019 · 21 posts · 6 votes
    5y

    @Tyler Tacy can you amend the purchase agreement to request the property to be delivered vacant? Also, do you have a copy of their leases?

    0Reply
  • Account Closed
    Specialist · Bozeman, MT · Member since 2016 · 237 posts · 153 votes
    5y

    As a property manager, I have been tasked with this before on a few occasions. Once, I sold a multi-family property to a client, and they asked me about my services. It was tough. This one unit had a lady with 3 kids, one of which was down syndrome. The father was around, but I never met him, maybe because he had always been at work... The unit though was a mess. The mom was clearly overwhelmed and at the end of her rope. The kids had pretty much destroyed it, putting holes in the walls, dropping water everywhere. So the floors, walls, and plumbing needed fixing. If we were living in a warmer climate, the whole place would have to have been fumigated. It was borderline ready to be condemned, so the new owner asked me to kick them out. I said I would need to charge them $1000 for that. I gave the tenants 45 days, and connected them with a case worker at my local Human Resources and section 8. They didn't qualify for section 8, but I did their paperwork for them anyway, with their permission of course. They didn't seem like the kind of people who knew much about the legal and bureaucratic ways in which housing and government assistance works, so I tried my hardest to get them a new place to live. I did get them placed in a better situation through HRDC, closer to the dad's work, and out in the country with a ton of open space. I felt good about it, but, like you, I felt even more grateful for what I have. I will not do that again, as it would be impossible, in my market conditions to place them in new housing in a reasonable time frame, within 45 miles of our town. Back then, there were still places available for a decent price.

    If I were you, and it sounds like you are starting out, I would put in a modest rent escalation clause in the new lease, of about $50/calendar year. That may seem like a pittance to you, but after a few years, they may just be ready to find a new place. It will give them a lot of time, and be easy on your conscience. Worst comes to worst, sign up with a PM company and have them do the dirty work, but you will most likely be stuck with them for a year.  Good luck!

    2Reply
  • Roy Nash
    Rental Property Investor · Spokane, WA · Member since 2018 · 64 posts · 59 votes
    5y

    @Tyler Tacy you received a lot of really good posts on this subject.  I pretty much agreed with Everybody's opinions but at the end of the day, there really is no right or wrong and instead you need to find your comfort zone.    I agree it is a business and you need to make money and preferably as much as possible.  Its a struggle I have had to deal with when purchasing inherited tenants as well.   To be honest when the rent was too low and I learned there was maybe a long term tenant I have chosen to just pass the opportunity by and move to the next one .  I have also purchased rentals that were substantially below market on the rents and I likely could have raised the rent 25% in one raise and not lost the tenant but I have opted instead to try to spread that out a bit like over a 2 to 3 year period with larger than normal rental raises but something more manageable for the tenant.   To be honest it is one of the harder aspects of owning and self managing rentals if you have any empathy at all for others.   I have made plenty of money, and could have made more likely, but at the same time I can find peace with myself that I tried to find some balance between pure profit and being a caring human being.  During COVID my respect for both chosen and inherited Tenants has paid off.  I have not lost a single dollar in late rents .   Its a business for sure but there certainly is a moralistic component that I wouldn't ignore.   Good Luck!

    3Reply
  • Miho Y.
    Investor · Huntington Beach, CA · Member since 2015 · 105 posts · 25 votes
    5y

    @Tyler Tacy you need to tell them your plans before you proceed IF you really care about them. Otherwise you are only guessing and feeling good about yourself feeling bad about kicking them out. The fact that one of them said she wishes to be your landlord bc you appear nice is kind of tells you that you are going to betray they expectation if you didn’t disclose your plans. Yes it is business but pretending to be understanding when you exactly know that you need them out is bad karma.

    0Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    5y
    Originally posted by @Nathan Gesner:
    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.

    OK so lets take your argument to the extreme. Lets say I raise a bunch of money with the explicit business model of buying up properties with under market rents populated mostly by elderly people on fixed income. I get these at a discount (because cap rate is high) and promptly evict all the tenants and raise rents. Legal yes. But does it sound like the best way to make money? There are a lot of other ways to make money that is less predatory. The problem with America is that people believe anything legal and profitable is okay. Hence gun makers, tobacco companies, polluting energy companies all make legal profits at the expense of society, the environment and the general public. I would not invest in any of the above nor would I do predatory investing. You are of course free to make your own decisions about your life and the impact you wish to leave in the world.

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    5y

    This is not a sophisticated investor targeting vulnerable old people and then taking advantage of their weakness. He's a 23-year-old kid buying his first investment, he discovered a situation, and needs to figure out how to legally and ethically move forward.

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  • Andrew Flora
    Rental Property Investor · North Vernon, IN · Member since 2018 · 136 posts · 192 votes
    5y

    When I buy an underperforming property the inherited tenants all get an introduction letter from me.  In that letter I introduce myself, explain the economics of the building clearly and honestly and I let them know what my expectations are from them and what they can expect from me.  I go into detail what improvements the property will receive and what service I will be providing them as a landlord.  I also let them know what to expect in terms of a rent increase.  I usually let them know what market rent is and that I will be raising their rent to market(within 90-180 days).  Sometimes I promise certain improvements before raising rent sometimes I do not.  I let them know that I hope they can stay but understand if they need to leave due to the rent increase.  

    Obviously there is a lot of variables to this depending on the situation, the property, and what the seller has told me about each specific tenant.  99% of the time the tenants know they are way under market and will expect it to be going up after the sale so you probably aren't blindsiding them, they know its coming.  I hope you are able to keep emotions out of it or you need to hire a property manager to handle it for you.  If it makes you feel better inside offer to pay a moving service for them and first month rent at the next place.  Might cost you a few grand but you can make it back quickly with market rents and sleep good at night knowing you made every attempt to be respectable about it.

    1Reply
  • Dennis Wayne
    Member since 2020 · 339 posts · 356 votes
    5y

    Tough choices It’s part of being a landlord and you bought yourself another job wether you believe that or not . There will always be winners and losers in life and let’s face it life is not fair. Jesus himself said “ In This life you will have trouble..” and “ the poor will always be with us ..” once you accept these facts it will allow you to make tough choices . Last year I had a smoking deal on a duplex with a new metal roof big 3/2 units nice place nicer price ! I couldn’t buy it because there were tenants paying literally half what they should . It was a grandmother trying her best on social security raising her grandkids . the one grandson about 10 yrs old had brain cancer and they were on a very tight budget with his care . I decided I can’t buy it because I know what that would mean for them . I protected them from me .

    1Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    5y

    ==Long term tenants==   Sounds so sad, but might they really be underpaying tenants?  At least that is what the market place might say.   I am sympathetic to areas that get gentrified, and long term tenants find their spaces cost more than they can afford.

    I ran into this situation a couple of years ago.  I just kept them there.  

    Another tenant, I jacked up the rent, but not to full market value.  The tenant accepted it.

    1Reply
  • Ahmed Saad
    Rental Property Investor · Brooklyn, NY · Member since 2008 · 92 posts · 59 votes
    5y

    Be as nice as you can. But dot you i's and cross your t's. There's still an eviction moratorium and people can just stop paying rent entirely and not go anywhere for who knows how long. Prepare yourself financially so as to be able to withstand 2 years of lower- to no rent.

    1Reply
  • Cathy Malmrose
    Rental Property Investor · Lapeer, MI · Member since 2019 · 57 posts · 118 votes
    5y

    @Tyler Tacy I have had the exact same situation in multiple buildings. Tenants at 500 something when current rents are anywhere from 750 to 925. Fortunately I was able to prioritise renovations to allow the older tenants to move more slowly. One of them passed away a few weeks ago and was grateful to not have to move. Another is moving of his own free will. There is another that I will have to be more forceful in encouraging to move along but they've gotten nasty so it's not difficult. Just know I feel your pain and it's difficult. I was patient and that was the best route in my situation. If at all possible prioritise. While you are renovating the other units the noise and the improvement in the building will make it obvious to them that they need to move on. Talk with them frankly about the numbers. Offering to help them move can get tricky. Only offer to help with the large items if you have to. Offering to help them move can get tricky. Only offer to help with the large items if you have to. If they belong to a local church that's where they get their best help. Odds are you will help them move and next year though be sending you a Christmas card thanking you.

    1Reply
  • Cathy Malmrose
    Rental Property Investor · Lapeer, MI · Member since 2019 · 57 posts · 118 votes
    5y

    @Bakhodir Ismatov I wouldn't suggest a whole 100 increase a month. That may not seem like much to you but they're on a fixed income and that is a massive amount.

    1Reply
  • Tyler Tacy
    OP
    New to Real Estate · Cincinnati, OH · Member since 2019 · 35 posts · 22 votes
    5y

    Thank you everyone for your responses I really appreciate all the advice tremendously!!!

    0Reply
  • Rick Trivedi
    Real Estate Broker · San Jose, Dublin CA and Florida · Member since 2017 · 165 posts · 48 votes
    5y

    Couple more practical suggestions @Tyler Tacy

    1. See if the local or federal government programs (section 8 for example) exist that help elderly and low income family with rent money. There is very high chance that there is. This is the best option IMO. You will be doing all the work in helping them qualify etc. but at the same time you are helping yourself - best of both worlds.

    2. Help them move to senior care where they get additional help and probably for less with subsidies etc. With Covid and vaccine, this might be bit more complicated but doable.

    Also if I may suggest... these kinds of topics are rather controversial so I would also refrain from posting open questions like these in public forums. Ask people to private message you with ideas. Next time I will do the same but had to post it for the first time.

    0Reply
  • Logan Tatman
    Member since 2019 · 1 post · 0 votes
    5y

    Tyler,

    Just curious, how did this all turn out? 

    0Reply
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