Forever Tenants and House Hacking

10 Replies

Hi All! 

I'm currently searching for my first duplex/house hackable property. I plan to move into one unit, renovate, then move into the next unit and renovate over time. The problem I have run into is that one property has a tenant that has occupied the unit for over 20 years. This is a very desirable part of town and the tenant pays well below current value for the space. Our realtor said this tenant wants to be in the unit forever... which leads me to my question.. what would you do?

I would feel horrible kicking someone out of their forever home and I don't think the tenant would go without a fight.. 

Is this a fight worth fighting? 

(A big) part of the reason they want to stay forever is because they have below-market rent. Raise the rent up to what you could get from a new tenant and they may change their mind about staying forever.

Or they might stay after you raise the rent. No vacancy and higher rent = you WIN!

What is the difference in what your current tenant is paying vs market rent?  Are we talking a lot of $$

is there maybe somewhere in the middle, like keep property as-is, but make a slight upwards adjustment in rent.  You could make the adjustment and if they didn't like it, they'd move out, which would also solve your issue.

I would examine the following:

Do they take good care of the property

If they moved out, how much would I have to rehab and spend to get market rent

What are my short term goals for the property

What are my long term goals for the property

Will keeping that one un-rehabbed keep the value of your rehabbed one down

How much overhead do they create as-is?  

Do they call for a lot of repairs

Do they take care of minor stuff themselves

What is their current financial situation like?  

    Are they renting due to not enough income to buy a house, bad credit etc

Are they in a stable type job where they can really afford it for 20 years?  probably so since they've afforded it for 10 years.

Its hard to say without knowing the difference in rent, but I'd be very tempted to leave the current tenant there with a rent adjustment.

Don't forget that you are in a business to make money not lose it. So, with that said you would need to increase to rent to market rate.

You will probably get push back, but, if they stay that's fine. However, you need to ensure that the property updates are in line with the current neighborhood rents. 

The tenant needs to see the value of the increased rent.

Good luck!

Originally posted by @Shawn Thom :

What is the difference in what your current tenant is paying vs market rent?  Are we talking a lot of $$

is there maybe somewhere in the middle, like keep property as-is, but make a slight upwards adjustment in rent.  You could make the adjustment and if they didn't like it, they'd move out, which would also solve your issue.

I would examine the following:

Do they take good care of the property

If they moved out, how much would I have to rehab and spend to get market rent

What are my short term goals for the property

What are my long term goals for the property

Will keeping that one un-rehabbed keep the value of your rehabbed one down

How much overhead do they create as-is?  

Do they call for a lot of repairs

Do they take care of minor stuff themselves

What is their current financial situation like?  

    Are they renting due to not enough income to buy a house, bad credit etc

Are they in a stable type job where they can really afford it for 20 years?  probably so since they've afforded it for 10 years.

Its hard to say without knowing the difference in rent, but I'd be very tempted to leave the current tenant there with a rent adjustment.

 The tenant is paying $525 for unit worth about $850. I will explore all the questions.. Thanks for the insight!!

For buying the property I would assume the worst in making my offer.  That they will stay the holding period at below market rent and then have to be evicted to be able to sell the unit.

Once I bought it I would try to make the situation better than that.  One approach may be to upgrade your unit first and then offer that unit to the long-term tenant to compensate for paying market rent.

You won't get an unbiased answer about how they are as tenant, but asking neighbors may give you some clues.  Once it is under contract, I would want to see the payment record from the past year or so.  

Originally posted by @Steve Babiak :

Or they might stay after you raise the rent. No vacancy and higher rent = you WIN!

 Isn't that the best? I've agonized over the decision to raise rent or not more than once. Sometimes they say no problem we're staying! I've had it go the other way too.

@Stephanie Cederdahl , you don't say if the other unit in this duplex is currently rented. Have you been in the long-term tenant's unit? Hoarders have a habit of staying put and being quiet so they can add to their stash and not have to move it around. Make sure you can get in to see this unit before making any offers, or make the offer contingent upon inspection of BOTH units.

@Shawn Thom 's advice is spot-on. While it looks like they are paying significantly less than market, you need to look at the whole picture. I would assess them based on his comments, and then think about incrementally raising the rent. If you can go as high as $750 with zero improvements, that might be a great trade-off. 

Perhaps you could keep them as-is until you are finished with the renovations on the other unit. Better some money coming in rather than no money coming in. And I don't think it would benefit you to evict them and try to rent out the unit for a short term.

Do they have a lease or are they month to month?

Charge the market rent. The best landlords are FAIR and stick to a lease that protects both the tenants, and owners.

Don't let tenants walk all over you, and don't walk all over your tenants.

Charging market rent is the fair thing to do. Not more, not less.

If they've been there that long, then the unit is going to require an amount of money to rehab. Put a number to it, maybe $12k? (What are people getting for $850? If it's a really nice bathroom and kitchen because the area has slightly gentrified, then $12k becomes $20k in short order.)

3 months downtime, $250pm extra in rent. So what's that? $13,500 in the hole, so it'll take 4x13+2 months to recover your increased investment. Add in a bit of empty time for tenant turnarounds over that period - you're talking at least 5 years to recover your improvements.

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