Get new tenants or how much do increase rent?

Question

Hi! First off, thanks for your time in reading this and your input. Truly.

I own & self mng 3 props in Winston-Salem, NC and our former primary res (of 12 years) in High Point NC.

We hurriedly rented out our former primary residence: pretty big: 4 br, 3 ba, 3600 sq' house, about .35 acre lot with a pool, LOTS to take care of, outside. Lease has paint "as is" = if we get new tenants, it'll need full paint job (and we did a lot of nice paint, so might be big $$ to have painted).

2 year lease is coming up in Sept. Tenants have (mostly) paid on time, but he's played games a few times (waited until literally 11 pm to pay, etc.). Inside prop has been fine. Wife takes care of it. She's due with their 3rd child in Sept, so I'm SURE they don't want to move.

Outside maintenance has been the issue. Weeds are everywhere. Guys they've paid to mow have ripped up some plastic border/ edging, pool discharge hose and now I have to replace fence gate because they didn't properly latch it, so storm waters warped gate. Pool wasn't closed last season, so I had to do it and they didn't pay for 4 months/ had to file in court, etc. It STILL has weeds in formerly mulched areas (mulch has washed away in many places, and they've not replaced it. Lease DOES say they've got to take care of mulch and all bushes (only front bushes have been trimmed).

Being out of area, they're taking advantage of me (I think). Current rent is $2750. Market now is $3K+. Painting it will easily be $5k. So if I don't renew, I'll have that plus holding costs. Due to size/ price it's not the easiest to rent, far less long term (I ONLY do 2 year leases). Tenants definitely want to stay, at least 2 years, likely longer.

Oh, tenants (husband in particular) do NOT read my emails/ prop inspection reports, etc. Regrettably the lease doesn't have any fees for not maintaining prop. Won't make that mistake again.

What do I do? "Get outside up to shape & keep it that way or your out?" Just don't renew (they would trash it if I don't give a big heads up, esp bcuz she's pregnant).

I'm leaning towards the "get outside up to shape & keep it or your out," due to simplicity & I think they'll do it. Then also raise it to $2950 (I've had a LOT of expenses on the place, some of which is due to outside neglect).

Thanks!

Drew Sygit · Answer

Nothing you do is likely to change their behavior because they have a "tenant mentality"!

They don't own their home, so they will do as little as possible to take care of it.

You being out of the area has nothing to do with this situation.

A PMC also won't be able to do anything to change their behavior.

You can try a more strongly worded lease with penalties, but you've already had to take them to court for nonpayment of rent, so what do you think the chances of them paying penalties will be?

If you renew them, expect more of the same - especially with a baby on the way and all the additional expenses associated with that.

You state painting will be $5k, but how much is a less stressful tenant worth to you?

BTW - all this is common for landlords that convert their primary residence to a rental. Hard lesson learned that it's RARE a tenant will take care of your former home like you did. So, you should tenant-proof your property, removing amenities tenants are unlikely to take care of wherever possible. Price into the lease things like maintaining the pool and any other special maintenance issues - because you should assume tenants won't take proper care of them and it will actually cost you MORE to fix their mistakes.

BG Malamut · Answer

Thanks guys.

Tenant replied to my email that he is or soon will address all of the issues. So that's a relief - for now.

Going forward I'll include a 10% over cost for any work not done, after 1 warning. The $2950 shouldn't be an issue. It's close to 3% annually AND slightly below market rate. So, he can't really complain.

Thanks again.

Brian Teeter · Answer

I own a property management company in Little Rock, Arkansas. I agree with John Doss above.  Also, if they are otherwise good tenants, you may as well try to salvage them, thus avoiding turnover cost. Turnover cost, lost rent, etc are one of the biggest killers.  You may get a better tenant or an increased rent, but could take many months or years to make up for the loss of the tenant turn.

I suggest a new lease and raise rent to include lawn care. Additionally, I renew leases with a 3% increase annually.  Even with a 2 year lease, year two starts with a 3% increase.  So not a 3% increase for the term, but a 3% increase per year.  I use 3% so that it keeps up with inflation and mirrors our local, annual appreciation.

John Doss · Answer

Hi BG, I'm local to the triad and operate a property management company in the area. What I tell owners is that the tenant will never take care of the yard as good as you would. In a Class A or B neighborhood (which is what this sounds like), I normally include lawn care in the rent charge a premium for it.

Alternatively, you can say that you will renew their lease and they will pay an extra X amount additional per month towards lawn care, and you will use your contractor to maintain it to to your expectations.

If your biggest complaint with them is the lawn care, this approach would be your best bet. Also, tenants will never take care of a pool and I don't think it's reasonable to expect them to know how to and for them to do it correctly. Pool care should be factored into the price that you charge them for rent.

BG Malamut · Answer

Hey Bob,

Thanks for this. I actually just sent a "2nd Notice" to them about the exterior, pool, etc & it has some pretty strong language (lemme know what you're planning on doing by June 3, if you don't do anything by end of the month then I'll assume you're refusing to address these, you can choose to move out - but you'll still have to pay for these, etc.). I do plan on raising to FMR. I think with some tenants you can get away with not doing so, but not all. Thx, again, for your input. Truly value your time!

Bob Anthes · Answer

Hi BG

I also invest in SW and Greensboro, live in FL.   Would love to connect.  I would definitely raise rent to FMR.  Tough call on whether or not to replace tenant, I would let them know now of the proposed rent increase and see how they react.  If the y want to stay I would have a convo with them re: pool, landscaping etc...

Good Luck

BG Malamut · Answer

Thanks, Peter.

Yeah, I did an inspection in January - which they've mostly ignored, like all other emails/ stuff I've sent.

This upcoming email has a bit of teeth/ bite to it in that it I'm clearly stating, fix the areas or you can move out. Either way, you're still responsible for the costs incurred.

I was trying to avoid having them leave, due to headache of not being local anymore, etc. NOW, it's not worth the hassle of having to be the heavy just to have them take care of the exterior that they're likely not used to having. It is a lot to deal with - but that's what they signed up for. So... that's the deal!

BG Malamut · Answer

Cool. Thx. That's kind of what I was thinking. I'm sending a "2nd Notice" about the exterior work, saying either: 1. clean it up/ get it done, 2. agree you'll pay me to clean it up with expenses + 10% fee OR 3. move out now - but allowing it to continue will not be accepted/ they certainly can move out. However, if they move out, they'll still be responsible for costs incurred.

There was a water heater leak, so the basement flooring is ripped up and will soon be replaced. So that's been a hassle. But... he's gotta step up.

New lease will have a: 1 notice, no fee; 2 notice, 10% fee plus costs incurred, upon receipt. Failure to pay before next rent payment is due will then be considered default of lease contract.

We'll see!

Thanks, again.

Michael Fraulo · Answer

I’d offer to renew for two more years at $2,950, but only if they clean up the yard and commit to maintaining it going forward. Be specific- mulch, bushes, weeds, pool, all of it. Put it in writing and make it clear it’s a condition for renewal.

If they follow through, great. Just make sure the new lease has stronger maintenance terms. If not, you’ve got time to prep the place, paint, and find a better tenant.

Don’t let the pregnancy stop you from being firm. You’ve put a lot into that house and deserve tenants who respect it.