My Mother's Old Duplex - Keep or Sell?

Question

Hey Everyone,

I’m hoping to get some advice on my mother’s situation.  I’ve been attempting to deal with this for the past several years and can’t seem to develop a strategy that I’m confident with.  Any advice would be greatly appreciated.

• My mother owns (no mortgage) a duplex in Massachusetts.  She has lived in the property her entire life and inherited it from her parents.
• The duplex is very old and has not been well maintained.  It needs a lot of work (on both side)
• The tenant has lived in the apartment for over 30 years and my mother has failed to raise the rent since 1987. She is losing at least $1,200 per month because of this.
• My mother is 65 years old making minimum wage and has very little savings or retirement money. She essentially lives paycheck to paycheck.
• My brother and sister both want to sell the property and get my mother into a smaller house because they feel like the property is a money pit and not worth keeping.
• I think this would be a perfect opportunity to start my career in real estate. I would like to move my mother into a smaller house while renting both sides of the duplex. Here are the issues that I keep struggling with:How do you tell a tenant of 30 years that you want to raise the rent by $1,200 ?The property needs approximately $100,000 in repairs to be able to rent both sides at market value. None of us have the money and we would need to take out a new mortgage to get my mother into a smaller home.There is lots of code issues with the property (I’m an Architect).  Asbestos Shingles, Asbestos pipe insulation in the basement, Extremely steep staircases, etc.  Are we opening ourselves to a huge liability?
• How do you tell a tenant of 30 years that you want to raise the rent by $1,200 ?
• The property needs approximately $100,000 in repairs to be able to rent both sides at market value. None of us have the money and we would need to take out a new mortgage to get my mother into a smaller home.
• There is lots of code issues with the property (I’m an Architect).  Asbestos Shingles, Asbestos pipe insulation in the basement, Extremely steep staircases, etc.  Are we opening ourselves to a huge liability?

• How do you tell a tenant of 30 years that you want to raise the rent by $1,200 ?
• The property needs approximately $100,000 in repairs to be able to rent both sides at market value. None of us have the money and we would need to take out a new mortgage to get my mother into a smaller home.
• There is lots of code issues with the property (I’m an Architect).  Asbestos Shingles, Asbestos pipe insulation in the basement, Extremely steep staircases, etc.  Are we opening ourselves to a huge liability?

Any advice would be greatly appreciated!

David Moore · Answer

@Bob Smith

There are a lot of pieces missing from your story.  First, consider none of us know your market.  The first time you consider a rental, fear is a major factor.  It is important to get another set of eyes to look at the property, and evaluate it.  Look for another investor in your area, show him/her the unit, and get their feedback...what do they see that needs repair.

Talk to the local government.  Surely, a rental license is required.  Has there been one?  If yes, ask the municipal government what repairs they are requiring.  You might be surprised (hi or low) at the cost.

Next, go to a site that helps determine market rent.  Your mothers case is an important lesson for any investor.  Keep rents low at your own peril.  You need to raise rents to market, so you can maintain your property.

Finally, consider the intangibles.  The property has been in your family for years.  Are  you sure you want to sell it?

Also, if you think repair will work, try to acquire the property from your mother.  If you get it, renovate the side she lived in and then moved out of.  When that side is renovated, offer the unit at market rent to the other tenant.  If they pass, tell them you have to renovate their unit, and give them notice.  Renovate both sides, and collect market rents, and off you go.

Frank Chin · Answer

I agree with your siblings and sell the property. Since she lived there, her portion can be sold tax free. And for the 30 year tenant, it's easier for you to tell them, sorry, "mom is in bad health, we'll have to move her" and it would be less awkward and a good excuse.

Sounds like a real headache to fix, especially after years of neglect, so just get rid of it, and use the proceeds to buy something more up to date. You probably have to sell it at a discount, but it's probably worth it.

Seth Borman · Answer

1) You tell them in the form of a letter. Better yet, you terminate their month to month tenancy to renovate, if you have the financial capacity to do so.

2) What is the equity in the property? There are a lot of loan products that can be used to renovate such a building for sale.

3) You have no liability. If you renovate then you may need to have the asbestos remediated when you modify the systems using it. If you don't, you may be asked to give the buyer a credit.