Inherited long term tenant: What would you do?

Question

So what would you do?I purchased a value-add, 4 unit in Columbus Ohio last year. The building was completely occupied with rents way below market. A few months after buying the property we submetered all the utilities charging them back to the tenants. My thoughts were to do light rehab and raise the rents as people moved out which is what I have done so far, however..... I have a tenant that has lived in the building 40 years !!! Market rents are 700 per month and the tenant is paying 485. The tenant pays a week early every month, picks up trash around the building, shovels the snow in the winter and never has any maintenance request. Obviously, I don't want the tenant to move, but their rent is really low. Do I try to gradually get him to $700 a month with a 3-5% increase each year? This could take 10+ years. Or do I hit them with maybe a $50 increase each year? I have already increased the tenants cost 50-70 per month by charging back the utilities.Thoughts????Thanks!!Adam

Frank Chin · Answer

Reading through the comments here, the two things you have to consider is the de facto PM function this guy performs, and the condition of the apartment. Some years back, I compensated the neighbor around $100.00/month, and that didn't include snow cleaning which I had a tenant do. The neighbor picks up garbage off the sidewalks, sweep it daily, pull garbage pails in, change bulbs in the common areas, and advise me if snow cleaning is performed.Given he's been there for 40 years, the condition of his apartment if you don't plan on upgrading is another $50 to $100. Subtract this from $700, and you're at $550.00So just to give the message that rents would increase, I would do it in $25 dollar increments, and get to $550 in two to three years. If I were in your shoes, I'll be glad someone retired is doing this. I got a ticket for garbage on the sidewalk once, and my neighbor manager called me right away when it happened. He told me he could go with me to court to fight it because the garbage actually fell off the garbage truck when they collected garbage, and the garbage collector noticed it but was too lazy to pick it up. He was going to get to it, but the inspector got there 10 minutes later, before he could, and called me right away. Now I noticed garbage inspectors follow garbage trucks here in NYC, so what he tells me has a ring of truth. Now he sits by the front window most days watching, and where else would I find someone watching the place 24 hours, and tell me how a piece of garbage got on the sidewalk, and I'm informed in 15 minutes. He wanted to know if the ticket the inspector left should be mailed to me, or if he should hold it for me. Then his son tackled someone trying to break in the back of the rental late at night once. I just can't find anyone doing this for the price, and neither can you. Compare this to absentee landlords that has no idea what's going on.

Calvin Lipscomb · Answer

Starting with the numbers you need to quantify how much he is actually saving you. How much would the snow removal cost you? How much did you save by him making sure the area clean avoiding tickets? What is the value of hassle free tenant?

Caleb Heimsoth · Answer

Adam Fansler how old is this tenant? If there elderly I’d just let them keep living there and incrementally increase it. Good tenants are hard to find and I wouldn’t lose sleep over a hundred a month or whatever (after slight increase )

Frank Chin · Answer

With a four-plex, you probably need someone acting as a de facto PM, even if you're nearby. Something like that is worth at least $100.00/month. Seems like he's doing it already, so if the market rent is $700, rent concession for PM duties would bring the rent to $600 already, roughly $100.00 more than what he's paying.I really value tenants that handle their own maintenance, and that's worth something as well. BTW, I used a elderly neighbor keeping an eye on a triplex for some small compensation, and over the long run, things that he notices because he's on site that I can't would save on fines, lawsuits over slips and falls etc. I lived next to a triplex that the landlord expects tenants to handle snow, garbage etc. and I see garbage pails rolling around for days after garbage pickup, and snow not cleared for a whole week. Sooner or later, there'll be a slip and fall, and could be expensive.

Patrick Liska · Answer

I think you should raise it a little but be happy you have a tenant that loves where they are and takes care of the place. I purchased a 2 family 3 years ago, the one side the tenant had been there for 30 years, i was not going to displace them from their home, which they were worried about. they were paying $800 / m which is below what i could get for the property, but they loved living there, they take care of the property and look after it. after talking with them I did raise their rent right away to $1000 and they understood, but have not raised it since then. there is some value in having some tenants there that love to live there and look after the place, even though i have a PM that manages the property, it is worth that peace of mind to me, especially since the property is 3 hrs away from me.

Joe Splitrock · Answer

@Adam Fansler if you want him to pay fair market rent, then pay him fair market for the work he does. Or you can go shovel and pick up trash yourself, then decide how much it is worth. Another thing to consider is the quality of comparable properties is. Maybe you see other properties advertised for $700 but they probably have newer carpet, paint and appliances. If the guy has been there 40 years, who knows what condition the unit is in. If you are going to raise him up to $700, then make sure his unit is at similar quality to other $700 units in town.

Bob Prisco · Answer

LEAVE THEM ALONE!! ZERO headache and they clean up and shovel snow, DO NOT bother them.

Ian Walsh · Answer

I would see exactly what things they do around the building and see if the rent vs tasks are balancing out. I don't like to get in the habit of trading rent for property work but if they have been actually doing it for 40 years they have a case to listen to.

Pat L. · Answer

we inherited a 'long termer' who paid late & bitched about everything. So we raised to rent $100/month to $575 hoping she'd leave. BUT she paid it & on time from that time on. Then we finally evicted her when the hoarding became a serious fire hazard. So we upgraded the living room carpets & then redid the kitchen with my daughters old cabinets & immediately got $775/month.we inherited two older women who paid $425/month so we got them a new stove that worked, a new gas dryer that actually worked & then because of their high heating bills we upgraded the furnace, threw in a couple of gallons of paint so they could paint the kitchen & bathroom. We then raised the rent (it's now $825/month). No complaints & they are going on 16 years in the same home.

Chris Szepessy · Answer

I agree with @Jeff Kehl. Try to find the middle ground. People are right in that you aren't running a charity, but I think having a little compassion can go a long way as well. When I did PM, we had an elderly tenant who's rent hadn't been raised in probably 25 years. He'd been in the same building/apartment nearly 40 years and had never asked for a single thing. No new carpet, no paint, never had any maintenance issues, etc. He would also keep an eye on the property for us. I don't think you're "losing" the $200 a month, it's more that you're "paying" him $200/month as a PM/handyman.