Ethical dilemma around kicking tenants out

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Ethical dilemma around kicking tenants out

Erik Haugen
Tacoma, WA · Member since 2017 · 2 posts · 3 votes

I bought a 8-unit apartment building; the value add is that rents are 20% below market value. My strategy was to buy, let the tenants go, rehab, and raise the rents. We gave notice to all the tenants (who are month-to-month) to vacate. During the walkthrough I saw quite a scene where tenants were genuinely shocked that they would be moving out.

During coffee with a friend I mentioned what I am doing with this property. He was shocked and said "so this is what you do for money." I tried to rationalize that if I don't buy the building, someone else would and they would have done the same thing. I also tried to say something of the effect that this is the byproduct of a capitalistic society - should I feel bad about being a software engineer, for instance, because I know that machines one day could replace human labor? He maintained that he could have an opinion, and said that this is why rich people are hated by some. From the discussion, I can see that he thinks money corrupts the conscience, and pursuit of money is bad. From my perspective I told him that if I were just to be rich, I would not have done house hacking, live frugally, and drive an old car. I said financial freedom and not having someone direct me at work one day is important to me. 

I am new in my investing journey. I am asking for advice from experienced investors on what framework do you use to think about all the ethical dilemmas you face in your real estate journey. For instance here are some options; none is right / wrong, more important is I pick one and stick with it:  

1. I now embark on a journey that I would be hated by people simply because they are jealous and they don't understand the function of money the way I do, and I would accept that as part of my tradeoff. 

2. I would not invest in any apartment buildings where rent increase means kicking tenants out 

3. If the path to financial freedom means that some people lose their homes but it's done so in a most humane way (proper notice, empathy etc), so be it. 

Thanks for reading! 

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David Dey
Investor · Lakeland, FL · Member since 2015 · 344 posts · 606 votes
9y

I am a Christian and do investments.  I love people, I enjoy this business.

I understand the issues on both sides.  The number one key to this business and faith, keep your word.

If you have decided to purchase a property renovate it, raise the rents... keep your word.

If you have signed a contract with your tenant promising to exchange housing in good order and repairs when necessary for rent paid on time on a monthly basis... keep your word.  

If your agreement says that if they don't pay their rent in a timely fashion that you will evict them from the premises... keep your word.

The most loving thing you can do is listen to the leading of the Lord.  And keep your word.  And do everything to the glory of God.

It could be that your raise in rent woke up a tenant who had gotten lethargic on moving forward and now with this wake up call, they are now opened up for a new blessing.  (Maybe home ownership.  Maybe they need to move from the area?  Who knows?)

You be obedient in your actions and let God take care of theirs.  (That is the most loving thing you can do)

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  • Aaron Mikottis
    Architect · Joliet, IL · Member since 2015 · 207 posts · 119 votes
    9y

    @Account Closed you are right in that the Bible is not an advocate for hoarding wealth nor is there any substance to the claim that wealthy people are in God's favor. However, just because Jesus was poor that does not mean that it's unethical to achieve financial freedom.

    The passage you quoted,  Matthew 19:24 says that it is EASIER for a camel to pass through the eye of a needle than for someone rich to enter the kingdom of God. It does not say that the rich cannot enter the kingdom.

    Also, 1 Timothy 6:10 says that it is THE LOVE of money that is the root of all evil, not money itself.

    Consider Matthew 25:14, the parable of the talents. Those who were good stewards of the money given to them were regarded as "good and faithful servants". Proverbs 13:22, already mentioned in this thread, is another example of encouraging wise money management.

    "A good person leaves an inheritance for their children’s children, but a sinner’s wealth is stored up for the righteous." 

     We see examples of real people in the Bible who were regarded as both wealthy and righteous, too. Cornelius the Centurion in Acts 10 was told by an angel of the Lord, “Your prayers and gifts to the poor have come up as a memorial offering before God." His resources enabled him to send for Peter and that meeting was historic in the foundation of the early church. 

    I invite you to join the miserable poor and tell me of the great moral virtue in that social class.

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  • Account Closed
    Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes
    9y

    @Scott L.

    Did Jesus want us to pile riches on riches? I think the New Testament provides evidence that He didn't. As I quoted before:


    Do not store up for yourselves treasures on earth, where moths and vermin destroy, and where thieves break in and steal.

    But store up for yourselves treasures in heaven, where moths and vermin do not destroy, and where thieves do not break in and steal.


    Matthew 16:19-20

    ------

    I also think the New Testament also provides solid evidence that Jesus wasn't that big on us worrying about how to get to "financial freedom," to use the euphemism so popular on this website for being independently wealthy and never having to worry about money.

    Again, from Matthew, 6:25-34

    “Therefore I tell you, do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more than food, and the body more than clothes? Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they? Can any one of you by worrying add a single hour to your life?

    “And why do you worry about clothes? See how the flowers of the field grow. They do not labor or spin. Yet I tell you that not even Solomon in all his splendor was dressed like one of these. If that is how God clothes the grass of the field, which is here today and tomorrow is thrown into the fire, will he not much more clothe you—you of little faith? So do not worry, saying, ‘What shall we eat?’ or ‘What shall we drink?’ or ‘What shall we wear?’ For the pagans run after all these things, and your heavenly Father knows that you need them. But seek first his kingdom and his righteousness, and all these things will be given to you as well. Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.

    -------

    So Scott, that's two of your points answered rather clearly. The rest of your incoherent rant about Jews and Gentiles, upgrading apartments by raising rents, and Communism, well, I've leave you to work that out in therapy and/or prayer.

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  • Account Closed
    Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes
    9y

    @Aaron Mikottis

    The parable of the talents is an ALLEGORY. It does not have to do with actual MONEY. Matthew 25:14 actually reads:

    “Again, it will be LIKE a man going on a journey who called his servants and entrusted his wealth to them." (Emphasis added)

    The original Greek makes this far clearer. The word used is ὥσπερ, which means "just as, even as."


    Proverbs 13:22 -- A good person leaves an inheritance for their children’s children,

    but a sinner’s wealth is stored up for the righteous.

    Once again, it should be perfectly  clear that this is also an allegory. If we are going to close-read it, however, we shouldn't cherry-pick it completely out of context. Here's Proverbs 13:20-25

    Walk with the wise and become wise, for a companion of fools suffers harm.

    Trouble pursues the sinner,but the righteous are rewarded with good things.

    A good person leaves an inheritance for their children’s children, but a sinner’s wealth is stored up for the righteous.

    An unplowed field produces food for the poor, but injustice sweeps it away.

    Whoever spares the rod hates their children, but the one who loves their children is careful to discipline them.

    The righteous eat to their hearts’ content, but the stomach of the wicked goes hungry.

    Obviously, THIS IS NOT ABOUT MONEY. THIS IS A SERIES OF ALLEGORIES.

    But just in case you continue to belabor the point that the Old Testament should be taken in its entirety by Christians and lived to the fullest as God's direction to His faithful, then should we put gay people to death, as directed by Leviticus?

    "If a man lies with a male as with a woman, both of them have done what is detestable; they shall surely be put to death; their blood is upon them." Leviticus 20:13

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  • Scott L.
    Investor · Flower Mound, TX · Member since 2017 · 182 posts · 198 votes
    9y

    So you are good at quoting Scripture, but shy about saying how you think the Lord tells us how to live our lives. You opine that Financial Freedom as defined on Biggerpockets is antithetical to your interpretation of the portions Gospel that you cite. Yet you never relate a description of it applies to the moral question that original poster asks. Perhaps you could clarify why removing month to month tenants at below market rents in order to improve the quality of the building and re-lease it, is not a Christian thing to do. Or you can keep quoting Scripture without any context....

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  • Account Closed
    Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes
    9y

    @Aaron Mikottis

    Cornelius the Centurion? REALLY???

    Roman Centurions in the time of Christ made only approximately double what legionnaires made. Cornelius was hardly rich. Later on, during the fall of the Empire, the centurions were far better paid, but in the time of Christ...no.

    As for WHY an angel of the Lord would value a man's generous gifts so regardless of their value, doesn't Luke 21:1-4 make that perfectly clear?

    As Jesus looked up, he saw the rich putting their gifts into the temple treasury. He also saw a poor widow put in two very small copper coins. “Truly I tell you,” he said, “this poor widow has put in more than all the others. All these people gave their gifts out of their wealth; but she out of her poverty put in all she had to live on.”

    ------

    Who teaches you people this miserable, lying drivel? Cherry-picking the verses out of the NT, putting them up against each other to paint this caricature of the text...it's diabolical.

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  • Account Closed
    Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes
    9y

    @Scott L.

    OK. Um...I think Jesus would not want his followers to get rich. I think it's easy enough to extrapolate from that, no?

    It's you people that have to do these incredible Biblical gymnastics to come up with reasons for why Jesus loves landlords who make bank.

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  • Account Closed
    Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes
    9y

    The man was born in a stable, lived in a miserable little hamlet (have you seen Nazareth?), had to do miracles to have food for his followers, rode into Jerusalem on an ***, drove the moneychangers (rent-seekers) out of the Temple, was crucified between two thieves, penniless, had to rely on the charity of his friends to take care of his mother, was buried at the expense of his friends.

    I simply cannot understand how this utterly straightforward example of a life of poverty becomes an instrument of justification for divinely-inspired cash flow in the minds of so many people.

    I keep on waiting for someone to pop up here and tell me Jesus would have been a hard-money lender if things had just gone a bit differently.

    0Reply
  • Bob B.
    Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    @Account Closed How do you think Jesus supported himself and his followers? 

    0Reply
  • Abraham Anderson
    Investor · Sevierville, TN · Member since 2015 · 121 posts · 674 votes
    9y

    If you want to be successful in real estate, treat it for what it is, a business, not a charity. If you don't collect enough rent to make your mortgage payment, do you think your bank will go easy on you? No. You either make the payment or lose the property. It's not cruel, it's just business.

    If it's difficult for you to do the "hard" but necessary things, I recommend hiring a property manager, which is effectively outsoucing tenant interactions to them.

    1Reply
  • Malcolm Boston
    Titusville, FL · Member since 2016 · 55 posts · 40 votes
    9y
    i fail to see how this is an ethical dilemna. Market rates are what they are. Did you get a break on your purchase price because the seller felt it unethical to charge whatever the market will bear? i think its a bit hasty to nonrenew the tenants. perhaps offering them favorable terms if they choose to stay on at the new rent rate might be better. Read: if they minimize your turnover costs. You are not running a nonprofit (at least you didnt declare that). if you want to give away money, there are numerous charities available.
    0Reply
  • Roger S.
    Investor · TX · Member since 2015 · 393 posts · 290 votes
    9y

    @James K.

       I understand and mostly agree with you viewpoints, I try to do my business in and moral and ethical way.  But I notice your profile says you are a flipper.   What is your goal when it comes to flipping houses?  Do you give away your efforts when you are done, or do you price the house at the market rate?
    1Reply
  • Account Closed
    Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes
    9y

    @Bob B.

    I have no idea. I know they were poor. After all, if John can be said to be a reliable gospel, I know they didn't have the scratch to whistle up more than two little fish and five loaves of bread to feed 5000 men (John 6:1-14). Not coincidentally, this is another fine example of Jesus telling people not to worry about making a living and worry about God instead.

    Then Jesus declared, “I am the bread of life. Whoever comes to me will never go hungry, and whoever believes in me will never be thirsty." (John 6:35)


    I also know Jesus is identified in Mark 6:3 as a τέκτων, a builder, rather than as the more familiar English translation, "carpenter." The word τέκτων is the root of the Greek word αρχιτέκτονας, which we are more familiar with written in English as "architect."


    We can safely assume the τέκτων Jesus would have had about 15 years on jobsites growing up. The most current theory in academic circles is that Jesus was likely involved in the rebuilding of the Hellenistic city of Sepphoris, a day's walk from Nazareth.

    I too am something of a τέκτων, and I've been at it for quite a few years. If I had a group of men who followed me around and did what I told them to, I know exactly how I would make a bare living...fixing houses. How many dudes do you know with 15 solid years of general building experience, a brain on their shoulders, and a good-sized crew like that who go hungry anywhere in America?

    But that's just my personal theory.

    All I really know is that the historical JESUS WAS POOR.

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  • Account Closed
    Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes
    9y

    @Roger S.

    Aye, there's the rub. To quote something other than the NT.

    1Reply
  • Account Closed
    Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes
    9y

    @Aaron Mikottis

    Aaron, I've known poor people of a nobility of spirit that I suspect you are incapable of comprehending just yet. Your resume, publicly posted online, indicates that you were homeschooled until 2009, when you entered the Illinois Institute of Technology, from which you graduated summa cum laude in 2014. That makes you what, all of 23? A bit young to learn such towering contempt for your fellow human beings and God's children, made just as you are, in His image.

    Someday you might actually get to know a few members of "the miserable poor," see the things many, many of them do for their families, and understand their problems and their limitations. With real luck, you might learn to understand the damage done to their psyches by need, want, the offhand cruelty of the world, and the crushing despair they live with.

    Perhaps then you'll learn to feel the shame of what you've written in your bones for the rest of your life.

    Mark 21: 31-46

    "But when the Son of Man comes in his glory, and all the holy angels with him, then he will sit on the throne of his glory. Before him all the nations will be gathered, and he will separate them one from another, as a shepherd separates the sheep from the goats. He will set the sheep on his right hand, but the goats on the left. Then the King will tell those on his right hand, ‘Come, blessed of my Father, inherit the Kingdom prepared for you from the foundation of the world; for I was hungry, and you gave me food to eat. I was thirsty, and you gave me drink. I was a stranger, and you took me in. I was naked, and you clothed me. I was sick, and you visited me. I was in prison, and you came to me.’

    “Then the righteous will answer him, saying, ‘Lord, when did we see you hungry, and feed you; or thirsty, and give you a drink? When did we see you as a stranger, and take you in; or naked, and clothe you? When did we see you sick, or in prison, and come to you?’

    “The King will answer them, ‘Most certainly I tell you, because you did it to one of the least of these my brothers, you did it to me.’ Then he will say also to those on the left hand, ‘Depart from me, you cursed, into the eternal fire which is prepared for the devil and his angels; for I was hungry, and you didn’t give me food to eat; I was thirsty, and you gave me no drink; I was a stranger, and you didn’t take me in; naked, and you didn’t clothe me; sick, and in prison, and you didn’t visit me.’

    “Then they will also answer, saying, ‘Lord, when did we see you hungry, or thirsty, or a stranger, or naked, or sick, or in prison, and didn’t help you?’

    “Then he will answer them, saying, ‘Most certainly I tell you, because you didn’t do it to one of the least of these, you didn’t do it to me.’ These will go away into eternal punishment, but the righteous into eternal life.”

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  • George SkidisPro Member
    Rental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
    9y

    Erik Haugen There is more than one way to turn over the tenants in a building, Slow and steady wins the race in real estate investing. Unless you are made of cash you need the "Cash Flow" of the current residents.

    Rehab by attrition is a successful strategy which we have employed. Multi-family residents move in and then out on a regular basis. This gives you the advantage of rehabbing one unit at a time while maintaining cash flow. It also helps with your insurance to not have a vacant building. 

    Vacant buildings under REHAB need a vacant building insurance policy. New construction buildings need a "Builder's Risk" policy

    A better strategy would have been to send out a 30 Day notice aannouncing a 5% increase of the rents when you took over. One or two units would have moved out voluntarily but the remaining six or seven would have paid the increase. 

    After the volunteers move out start your Rehab on the vacant units.

    Once the rehab of the vacant units is finished offer them to performing current residents at the new higher rent you are asking for. If they don't take them rent them to someone else. 

    Any new residents would pay the total increased rent you are asking.  Since the residents are on month to month agreements, once the vacant units are rented send out another 30 day notice with another 5% rent increase and repeat the process until all units have turned over.

    This strategy employed by Varski Properties has proven successful, has allowed us to pay as we go without additional financing and increased the resale value of the building.  We did this on a 9 family rasing the rents from $275 to $400.00 a month over six years. We then sold the building close to a $70,000.00 profit in the 7th year.

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  • Tony Gunter
    Investor · Canton, GA · Member since 2014 · 728 posts · 500 votes
    9y
    There are those who do, and those that criticize those that do. Always easier to sit in the sideline and criticize than to be the one making and implementing those decisions.
    1Reply
  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    9y
    Nothing that anyone says will ever convince me that it is unethical or immoral to be wealthy. I refuse to believe that.
    Podcast Guest on Show #21
    1Reply
  • Account Closed
    Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes
    9y
    Originally posted by @Anthony Gayden:

    Nothing that anyone says will ever convince me that it is unethical or immoral to be wealthy. I refuse to believe that.

    Good for you. No garbage about Jesus blessing your ambition. Get your money and go about it like a man, not like a good Christian girl who parades her purity ring about while she takes in the butt every Friday night, because everyone knows it's the sex that God can't see.

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  • Christen G.
    Rental Property Investor · Seattle, WA · Member since 2017 · 383 posts · 248 votes
    9y
    Originally posted by @Jeff D.:

    Um......what ethical dilema??

    I have been a landlord for 30 years.  And a renter for years before that.    I've seen it all and i know both sides.  

    This moral dilemma mentality is a dangerous slippery slope that leads to extremely biased and unfair regulations like we now have in Portland,  where if I need to have a tenant leave my person property so I can do an extensive remodel of the unit, (or because I have just had it with a bad tenant),   I have to give them 90 days notice and pay them $3500 "moving assistance".    

    MOVING ASSISTANCE?!   

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  • Jeff D.
    Real Estate Investor · Portland, OR · Member since 2012 · 70 posts · 26 votes
    9y

    So the company that rents the box truck to tenants to move their stuff is ethically to blame.   And the company that rents the crane to the construction company that built the apartment building they're moving into is ethically to blame.   And the bank that loaned the tenants the money (and basically owns) a portion of the car they drive is ethically to blame.   And the parking lot owner that rents that parking space to them downtown each day they work is ethically to blame.   And the cellular provider that rents them space on their network is ethically to blame.    And so on and so on and so on........          If you don't like renting someone else's stuff,  then save up enough money to buy your own stuff.  Until then stop faulting the person who own's the stuff you're renting when you don't pay your rent,  or mis-use their stuff.      

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  • Jill F.
    Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    9y

    @Account Closed 

    Did you forget the verse that goes "Do not Judge; and you will not be judged"?

    1Reply
  • Account Closed
    Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes
    9y

    @Jill F.

    You've made an astute and thoroughly relevant point.

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