COVID related rental conundrum

COVID related rental conundrum

Investor · St. Paul, MN · Member since 2020 · 19 posts · 5 votes

I purchased a 4-plex in November of 2020. Class C property in a neighborhood that houses a lot of voucher holders and lower-income families. I inherited three tenants that were advertised as paying and up-to-date with rents. I employed a full-service property management company that has many section-8 rentals in its portfolio to help me navigate this.

Came to find that 2/3 of the inherited tenants were non-paying. The paying tenant left after a month (she was on a month-to-month lease). While receiving no rents, I rehabbed the vacant units (they needed many repairs to pass section-8 standards). Eventually, the 2 non-paying tenants left on their own accord (April/May of 2021). I then rehabbed those units. I've since had 2 new tenants move in, but one broke their lease (unlawful weapons), and the other is wanting to get out of her lease due to not feeling safe in the building (related to the aforementioned issue). 

Admittedly, I could be leaning into my PM's more than I have. Other than doing the rehabs, I've let my property managers handle everything. The fact is, in nearly 10 full months of owning this property I've been sinking money non-stop into the mortgage, insurance, property management fee's, on-site washer/dryer (leased), etc and I can't see this turning around for another 2-3 months (at the earliest).

What should I be doing TODAY to get this property turned around? 

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
5y

Let you PM handle it or if they are incompetent fire them and take the reins.

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  • Investor · Minneapolis, MN · Member since 2016 · 254 posts · 228 votes
    5y

    @Dennis Meints tough situation, I'm in something similar with a duplex in the North End Neighborhood of St Paul right now. My thoughts are just keep grinding ahead. I think the fundamentals of the city are strong, and I agree that there are decent people around and there is pride in the neighborhood. Really, it isn't such as bad area, I think ppl who've been to a truly bad area would find it very decent.. 

    About property manager, 145 is frankly high, 100/unit/month is what you should pay. 

    I think you've had some bad luck and further difficulty with the rent moratorium, but I think your strategy is not all bad. You might consider renting on free market (not sec 8). Seems like when you get into a building bigger than a duplex, the lack of pride of rentership in sec 8 really makes management tough, unless its a truly specialized company. You might consider marketing to a group home, or making it a 55+ community, etc (guaranteed rent, more supervision, less feisty renters). 

    Before renting it again, try to touch base with your manager about really repositioning the place, give the impression its a clean/ safe/ decent place to live, decent bright exterior and interior, etc. 

    Like I said before, really nowhere in Minneapolis/ St Paul is too bad.. compared with the rust belt cities, etc. Anywhere where a burnt shells are selling for 90-100k is going to be somewhat decent. 

    Just keep at it and you'll get through this! 

  • Real Estate Agent · Los Angeles CA + Lake Tahoe, NV and CA · Member since 2021 · 180 posts · 158 votes
    5y

    @Jim K. is your man for this. Go Jim GO!

  • Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    5y
    Originally posted by @Zambricki Li:

    @Jim K. is your man for this. Go Jim GO!

    I have nothing of value to contribute, really, beyond what @Joe Splitrock said. The property has to be stabilized. It's going to cost money and take time, and you're going to have to work effectively with multiple parties. This is a quadplex in C-class, accepting Section-8 tenants. There's no such thing as dipping your toes in Section-8. You have to learn how the program works in your market and the local offices and players well. You have to decide if it's right for you.

    The OP doesn't seem to have fully realized that this place is really a niche investment. Local investors make money in C-class. Self-managers effectively build the beginnings of Section-8 portfolios. You're going to be dealing with a lot of human misery along the way.

    COVID has just added to the uncertainty of this kind of real estate investment. Different things will work for different folks.

  • Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
    5y

    @Dennis Meints

    I don't have an answer as I was in a similar situation a few years ago and ended up selling. I'm curious to know how it goes.

    The issue I ran into was the much the same-if I got good tenants they left soon after bc of the bad tenants. 

  • Investor · St. Paul, MN · Member since 2020 · 19 posts · 5 votes
    5y

    @Noah Chappell - Thanks for that point of view. Do you have a PM in the Twin Cities who operates at $100/month per unit? Also, I really like your idea about making it a 55+ community. Have you done that at a property before? 

    Thanks for the encouragement and advice!

  • Investor · St. Paul, MN · Member since 2020 · 19 posts · 5 votes
    5y

    For those invested in the conversation, here's an update:

    1) Tenant's with unlawful weapons are moving out with a quit notice.

    2) Other tenant who does not feel safe in the building is still planning on moving on (other circumstances playing in on the decision). PM's handling that transition and how she will exit her lease.

    3) Building will be 100% vacant again. I'm going to: Make improvements to the worst part of the building (common areas) with new flooring and paint. Add additional security lighting at all entrances. Doors/locks are already new as of this year.

    4) Our plan to fill units is as follows:

    a) Lower asking price to $1,400 (from $1,550)

    b) Require 3x monthly rent in income (previously set at 2.5x)

    c) No pets being allowed

    d) Ask for bank statements to match pay stubs


    Those are just a few updates to the screening process my PM has in place. They are doing other credit checks and background checks as necessary. I'm hopeful with a few more updates, starting fresh, and being more selective with our tenants we can get this property turned around.


    Thanks everyone for the help!

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