Life is interesting because, if you're listening, it will often place just what you need in your path right when you need it.
I lead volunteer crews planting neighborhood street trees with a local non-profit. Yesterday our planting was in Vancouver WA, just across the river. One of the homeowners in my group who was getting a couple trees planted in his parking strip, I found out through the course of conversation, actually owns about 50 units in the Portland metro and also a few in Texas and the Midwest. Jim's in his 70's and has owned many of these units for decades.
While we were chatting in the truck between house to house, he told me a story about a tenant whose union went on strike for 2 years and he wasn't able to pay rent. Jim didn't charge him rent during that time, but after the tenant started working again, he paid it all back. I thought, "wow, Jim was lucky he got his money back; I would never let someone live rent free for 2 years." Then he told me about an older lady who lived in one of his apartments (in a historically black neighborhood that has been completely gentrified in the last 10 years) for 30 years. When it came time to raise rents, the tenant, who was Section 8 and on a fixed income, called Jim up, worried sick that she would not be able to afford a rent hike and that she would be homeless. He said to her, "don't you worry about a single thing. Your rent won't go up one cent." Jim raised everyone else's rent in the building, but not hers.
Again, I thought, "geez, he could be getting double the rent for that unit." But over the course of the day, Jim continued to tell me stories about instances where he was genuinely able to help people. He said, "when you get to where I am and own a bunch of buildings free and clear, you can do things like this and really help people."
I asked, "have you ever had to evict people?" "Of course," he replied. That just goes with the territory. You have to let go of bad tenants. But the ones who pay on time every month, who take care of your units and who have been there for years, you don't have to squeeze every cent out of them, because the other units are more than compensating for them." In addition to his 50 units, Jim owns a local business that's been in his family since the 1950's. He and his wife are set for life and will never lack for anything.
I met Jim at 9AM, chatted with him throughout the morning until around 1PM, and had my first appointment with the tenants in one of the units at 4PM yesterday.
They are a family with one son; mom and dad are originally from Mexico but speak very good English (I don't speak Spanish). I went by myself without my partner so it wouldn't be too intimidating for them. I first introduced myself and made small talk with them and their son, then asked about any maintenance issues that were neglected by the previous landlord and that need to be addressed. They told me about a few things, which I wrote down, and then I asked whether they had any questions. They just wanted to know if "anything would change."
That's when I explained that the previous landlord had owned the building for many years and had purchased it for a lot less than I had. Obviously, I said, there's also a lot of deferred maintenance. I confirmed that they moved in in 2012 and that their rent hasn't gone up at all in that time, and I let them know that market rents in the neighborhood are in the $1300 range for apartments in good condition. (They pay $695 and the previous owner paid water/garbage to the tune of $3k/year for both units.).
"I can tell that you're good tenants because you take care of the apartment and it's in good condition. You seem like very conscientious and responsible people, so I don't want you to leave we can figure out a rent amount that will work for both of us. I understand how anxiety-producing it is when the owner of your home decides to sell--the reason I own my home right now is because the the landlord where I was living decided to sell, and with 2 dogs and 2 cats, I never wanted to be in that position again. I was lucky enough to get a home loan, but I also understand that not everyone has that same opportunity."
"That said, we have to make sure that we can pay the mortgage and taxes and insurance and for all the repairs." I was very open and said that our inspector estimated repairs to cost about $67,000. "So I have to make sure that I'm not losing money each month. Speaking of which," I said, "the previous landlord paid $3,000 in water bills last year, which is crazy." I compared that to the cost of water at the duplex I live in, which is is $800/year for both units combined. So beginning in a month, I explained, the water bill would be split between the tenants according to the number of residents in each unit. They would pay 3/8 and the other unit would pay 5/8 of the bill every three months.
"Now, what do you think is a fair rent that you can afford for this apartment?" They asked what amount I had in mind. I reminded them that market rents were $1300, but my partner and I were thinking in the $1000 to $1100 range for them. Their eyes got wide and they spoke to each other in Spanish. Then they said the most they could afford was $850. I told them that I still have to talk with the tenants in the other unit, but I will run the 850 by my partner to see if it's something we can afford, and told them I would be in touch soon.
One thing I found out while there was that the husband works as a framer, and before that, as a maintenance guy.
Today at noon, I also met with the other tenants, a couple with 3 kids and a dog in a 2/1 apartment. Their unit is in worse shape and needs new kitchen cabinets and new bathroom fixtures. They told me that they've had to move from their previous two apartments because the landlord raised the rent higher than they could afford. They said that their kids go to the local school and the husband goes to the community college a mile away.
I had a similar discussion with them that I had with the people yesterday. The mom told me the previous owner accepted rent on the 5th because that's the day she gets paid each month. I adjusted the due date to the 5th each month (so late would be on the 10th). We talked about some of the work that needed to be done (e.g. the MDF cabinets are so old that they shed MDF crumbs on their silverware each time the drawers are opened, and the tenants have to wash everything before they use it. And the tub valve has a wrench for a handle). I was open with them and admitted that I was at a bit of a loss about how to do some of this work (especially the cabinets) while they are living there. Normally, I said, a new owner would just ask tenants to leave and then do the work. I said, I don't necessarily want them to leave, but I also don't want to be a slumlord with cabinets that are falling apart. Maybe, for example, if you ever go out of town for a couple days, that would be a good time to do the work? They didn't have a reply.
Throughout the interaction, I tried to have them come up with as many of the solutions as possible.
Unlike the previous tenants, they had done some research and knew what market rents are. I asked them, given market rent in this neighborhood, and you have 5 people living here (which is fine, I said, but it puts more wear and tear on the place), plus a dog, what do you think would be a fair rent that you can afford? I don't think they were expecting the question because they didn't know how to answer. I told them that my partner and I were thinking somewhere in the $1050 to 1100 range, but also that I understand what you can afford is whatever you can afford, and asked them to get back to me by Tuesday. I thanked them for their time, and then I left.
Both conversations were less painful than I expected. I still don't have the answers as I'm waiting to hear back from the second tenants about what rent they can pay. If, for example, the second tenants can pay $1050 and the first tenants can pay $850 but help with some of the repairs, my partner and I would be OK with that. It would save us a lot of up-front costs for repairs, and make it easier to make other repairs that would likely be too intrusive/loud if someone were paying $1300/month (e.g. new roof, or maybe even adding a third unit by raising the roof).
So it's not completely resolved yet, but my chance meeting with Jim at the tree planting, along with a conversation with @Mike Nussyesterday, and reading everyone's comments (thank you @Neal Collins) have helped me to come to this point. The previous agreement [I was going to have them sign] raised rent to $1208 in 3 months. The one they did sign changed nothing about what they pay, except for the water bill.
If we accept the amount of rent they can afford, we will send them a Change in Terms of Tenancy, in effect after 90 days. If we don't, we will send them a Notice to Terminate Tenancy, in effect after 90 days. But either way, they will have been heard and treated with integrity, and they will understand (even if they are angry about) why they are getting the notice they will be getting.
If people here are interested, I can update here what we ultimately end up doing when we know, sometime before the end of this month. But right now, I feel good.
