Duplex has two tenants with FAR below average rental rates

Real Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes

I am searching for answers to the situation we are finding ourselves in. I am in the Far Northern California area and are looking at a duplex that we think would work for our family. The issues are that both apartments are filled with residents. One is on a M2M with a $650 rent and the second one is on a lease till December 2025 for $750. Both these rents are extremely under median for the area. The lot is selling for $299K yet we have no idea (but are trying to learn) how to properly get access to one of the doors (so we could use our VA loan) and vacate the current tenants. The property is priced well for its potential, but we keep finding these multi-family homes with crazy low rents and long leases while the owners are trying to sell at top dollar. Using the BP calculators this is just a wash with a loss of $800 a month as the property sits- can you help us understand what we can do? Any options, recommendations or guidance would be so incredibly helpful. This is the third place we have found with this same situation, but in three different towns. Were baffled. We need a place sooner than later, and most of this market is still saturated with outdated and very overpriced homes.

if there are podcasts, youtube videos, books, websites or a real human that you think could help us, we would be forever grateful.

Hi @Melissa Johnstone, welcome to the BP Forum! Are there rules in your state that keep you from raising the rents on the M2M tenant with 30 days notice? And what about the other tenant with the Dec 25 maturity?

[email protected]

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Melissa JohnstonePro Member
OP
Member since 2025 · 11 posts · 2 votes
1y
Quote from @Jaycee Greene:

Quote from @Melissa Johnstone:

I am searching for answers to the situation we are finding ourselves in. I am in the Far Northern California area and are looking at a duplex that we think would work for our family. The issues are that both apartments are filled with residents. One is on a M2M with a $650 rent and the second one is on a lease till December 2025 for $750. Both these rents are extremely under median for the area. The lot is selling for $299K yet we have no idea (but are trying to learn) how to properly get access to one of the doors (so we could use our VA loan) and vacate the current tenants. The property is priced well for its potential, but we keep finding these multi-family homes with crazy low rents and long leases while the owners are trying to sell at top dollar. Using the BP calculators this is just a wash with a loss of $800 a month as the property sits- can you help us understand what we can do? Any options, recommendations or guidance would be so incredibly helpful. This is the third place we have found with this same situation, but in three different towns. Were baffled. We need a place sooner than later, and most of this market is still saturated with outdated and very overpriced homes.
if there are podcasts, youtube videos, books, websites or a real human that you think could help us, we would be forever grateful.

Hi @Melissa Johnstone, welcome to the BP Forum! Are there rules in your state that keep you from raising the rents on the M2M tenant with 30 days notice? And what about the other tenant with the Dec 25 maturity?
Thank you for the warm welcome. In California we have a cap on rent raises one in a year up to 10% which sounds like a lot if the rents were high, yet the lease is only at $750. With doing the math it will take us five years of 10% max rent raises till we are charging the $1100 for the apartment that the rent should be set at. This is not a high rent for the neighborhood, it is absolutely fair and will allow tenants to comfortably afford the rent. As for the $650 MTM apartment our relator is stating we can put in the offer, lower because the low rent prices then go for a no cause eviction due to it going to be our residence. This is so convoluted because we want to know we have a home when we purchase a place. Another option our relator (who has helped us purchase a home previously, and we truly trust) also gave us the option of "cash for keys" yet in the big picture they can't really find a home in our town for less than $950 and that's low living. We are using our VA loan so we must occupy the property, and this is truly the place in our small town we want. We are determined to find something that will work for us. We have asked about when the rents were last raised on both places and are waiting to hear back from our relator.
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Michael K GallagherBusiness Member

Real Estate Agent · Columbus OH · Member since 2018 · 1k+ posts · 1k+ votes

1y

@Melissa Johnstone similar idea to what was said already, but if ther is a mtm lease there shouldn't be anything keeping the seller from delivering the property with 1 unit vacant. if you plan to live in one unit simply make that a stipulation of your offer. The seller should be able to give notice and with enough closing time can deliver the unit vacant....unless I'm missing something?

[email protected]614-362-2231

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Melissa JohnstonePro Member
OP
Member since 2025 · 11 posts · 2 votes
1y
Quote from @Michael K Gallagher:

@Melissa Johnstone similar idea to what was said already, but if ther is a mtm lease there shouldn't be anything keeping the seller from delivering the property with 1 unit vacant. if you plan to live in one unit simply make that a stipulation of your offer. The seller should be able to give notice and with enough closing time can deliver the unit vacant....unless I'm missing something?

Thank you for this information. I did a lengthy reply to the previous above comment, if you can read through that and see if there are options I am missing or if you know how we can make it happen to move forward, it will truly be appreciated. You state that I can put it in our offer to have one unit open? That is exactly what we need but we are concerned as to how that works. Is their specific or legal jargon to use to cover out behinds, so in 45 days or so when escrow closes, we are solid with our expectations. What an exciting and confusing time. I do appreciate your knowledge and time.
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Seth McGatheyBusiness Member
Real Estate Agent · Milwaukee WI · Member since 2024 · 321 posts · 254 votes
1y
@Melissa Johnstone I don't necessarily recommend this option. Or at the very least, don't count on it. Stipulations like this are almost impossible to enforce. You say they have to evict, they say they tried, closing day comes and they still aren't evicted. What do you do? You could back out, but now you are back to square one. You could move forward and try to sue breach of contract. But that's going to be expensive and likely go nowhere. Which leaves the third option, just evict the person yourself. So you could put that in your stipulation and hope it works out. But just know there is a very real chance you will have to be the one to evict.

But is sounds like this deal is a good deal from what you said. It just sounds like you are apprehensive of evicting someone. And I will just say, if you want to be a landlord, you will have to get over that. Unless you are the luckiest landlord ever, you will probably have to evict someone at some point. Just remember that you aren't doing it to be a jerk. You have two very valid reasons. You literally have to move in and the rents are not manageable at their current price. So, you have to do what you have to do. Being a financially wise landlord is not the same as being a jerk. The fact you seem reluctant to kick someone out means you told intend to be a bad landlord. Which is a good sign, you just have to balance that with the financially wise and responsible side of you.

Best of luck!
[email protected]708-297-0996
Seth McGathey - Shorewest Realtor4.912 Reviews
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Cara Murray

Investor · Redding CA · Member since 2019 · 55 posts · 24 votes

1y

Okay I am also in Northern California and please note...... The Cap rate is not 10%. As we all know California laws/regulations are always convoluted.
"annual rent increases of 5% plus local CPI but no more than 10%, whichever is lower."
I believe your cap rate as of today is 8.8%

There are a few options for you to do this. If I am understanding you right, this is what I would do. Ask the seller to give notice to m2m tenant. Requiring the unit to be vacant at close of escrow. 60 days prior to your lease ending with 2nd unit give them a notice of increase (based off of current max allowed increase). Or give them notice if you desire to do so. (Make sure to research your requirements to do so and your obligation to the tenant if you decided to go this route. AND what you can re rent the units at after a no fault lease end)

I have come to find that landlords that are renting far under fair market rents do not want to give notice to vacate. They feel bad for the tenant. My standard practice is to take ownership with the units rented and give notices on my own normally because of health and safety standards of the units, and do full remodels. I don't know if you finances or your funding will allow you to do that.

Best of luck and congrats on dipping your toes in the water.

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Melissa JohnstonePro Member

OP

Member since 2025 · 11 posts · 2 votes

1y

Thank you for this response. This home is in Shasta County, so I really appreciate your input because this is your neck of the woods. We feel that we keep trying to make moves and find deals and run into all these problems along the way. My husband works in one town, and we live in another till our son graduates High School in two years, so two full mortgages is going to be ok but not a full remodel. Are there other options you can recommend? I do feel that we are going to do the shot in the dark with at least asking the owner to have the tenant removed by close of escrow, because it is always going to be NO till we ask. Yet, with our VA loan it is mandatory to take the home within I believe 60 days after closing escrow. May I be able to reach out and pick your brain as I go through this process? Our end goal is to end up in Redding again (my hometown) in the next two years as well. Love having knowledge from a local investor. My goal is to be an investor as well, I am just getting started on property first then in a decade or so maybe migrate your career way. I need to earn $$$$ first.

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Justin Jones

Redding, CA · Member since 2019 · 5 posts · 1 vote

1y

Hey Melissa

Congrats on looking into multi family. Its a great way to get started into investment properties. I'm an agent and investor in Redding. Usually, in our area, when properties are occupied you have to make an offer subject to viewing the home. Your agent may want to negotiate a longer inspection period (17 days is standard). Once you get in the units the agent should be able to tell you if there are any issues that the VA appraiser would have. A lot of buyers think VA loans do an inspection and that's not true. The appraiser will do the appraisal and if there are any major health and safety issues they will call those out as being needed to close. You would then try to negotiate those with the seller. The seller does not "have" to do them, but in my experience most of the time they will. The only other thing VA requires is a pest clearance (or an NPMA33 if there are no active termites). You could make the offer contingent on the seller giving the Mo to Mo tenant notice to vacate and you wouldn't close until they are out. Then you would be able to occupy that side and either give notice to the other tenant when their lease is up or raise their rent.

Let me know if this doesnt make sense or if you have any questions.

-Justin

1 Reply

Justin Jones

Redding, CA · Member since 2019 · 5 posts · 1 vote

1y

I'll add....

Once you get into the occupied units, if they are in worse shape than you expected you could renegotiate once you do inspections or cancel the contract and get your deposit back (as long as you are within your contingency period.

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Melissa JohnstonePro Member
OP
Member since 2025 · 11 posts · 2 votes
1y
@Justin Jones this is great information and through my last three straight days of research- your information is way more clear to decipher. I appreciate the time and knowledge. Who knew their is so much to real estate even outside the course? Wow. We are waiting on our agent now, but with all the help here we think we have enough information to move forward. You are in the Redding area, this is incredible to be able to feel lost in what I was trying to do and have local (Redding is my hometown) professionals willing to help. Much appreciated.

Melissa J.
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Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

1y

There are 2 common no fault evictions in AB1482. No fault evictions cost 1 month’s of rent either by forgiving the rent the last month (do not use this option) or paying the tenant a month of rent at move out.

1) move you or close family into the unit

2) rehab extensive enough that tenant cannot reasonably live in the unit through the rehab

The issue is the current owner cannot give the notice using criteria #1 because they are not moving into the unit. If tenant is given notice using this criteria, they can rightfully get damages, etc.

After you acquire the property, give the notice of the M2M unit and move into the unit 60 days later as required by AB1482.

For the other unit, either raise rents as allowed by AB1482 or rehab the unit to get the tenant out. Raising rent consistent with AB1482 will take a while to get to market rent. When rents are increasing significantly, your max rent increase may not even keep up with the market increase. Rehabbing units is costly, but can produce sweat equity.

good luck

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Duplex has two tenants with FAR below average rental rates

Duplex has two tenants with FAR below average rental rates

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