Rookie mistakes I'm making and a tenant with tumors

[Cory J Thornton]

Hey BP family - 

I am very new to RE Investing. I decided to make RE Investment a focus a year ago, and as of four weeks ago, my wife and I have picked up five properties. Below I tried to give a brief overview of my current learning curve situation, as well as my game plan. 

How can I improve my approach? Please don't hold back. I prefer candor and will embrace any feedback I am given. 

Scenario:  

I recently closed on a property and inherited a tenant. The property was rented (no previous lease and no security deposit transferred) for $600 a month. Market rent, with minor cosmetic improvement would be $1400. I have no interest in displacing the current tenant to get full market value rent, but I need to get the rent increased to a minimum of $850. 

The day I bought the property, I called the tenant to notify them of a change in ownership. We discussed that we needed to meet, talk about a rent increase, and hopefully sign a new lease. I told them that while we needed to meet right away, I was going to give them until the first of the year to start paying any new rent rate. I told them that I didn't want to come in and impose an increase ... I wanted to have them tell me about the property and any improvements they would like to see and then hopefully arrive at a new rent that worked for everyone. I did make it clear that even without improvements, the rent had to increase. 

That conversation was four weeks ago, and they have been avoiding me ever since. When I do get them on the phone, there is always a story for why they didn't call me back sooner. Today I was able to get the tenant on the phone and was hoping to set up a time to discuss the rental increase and sign a lease. The tenant informed me that they could not meet until they got results back from their doctor and that they had some tumors in their liver. They promised to call me by Sunday to set up a meeting for Monday or Tuesday. So far the tenant has canceled two different meetings and has yet to take the initiative to reschedule. An additional piece of history, this tenant gave my appraiser the run around for two weeks and nearly delayed things enough to cause me to miss a closing. 

While I don't have a reason to doubt what the tenant is telling me about their medical condition, getting the run around for four weeks doesn't breed confidence. 

Pending Solution: 

1) given that I have a sense that this tenant isn't going to be forthcoming, I am going to retract my initial offer to make the rental increase a discussion. 

2) I am going to set rent at a rate that establishes cashflow, but doesn't go anywhere near market rates. My current thought is to go from $600 to $900 and set that expectation for annual increases at 3-5%. 

3) I am planning to tell the tenant that given the medical concern they shared with me, I will give them an additional two months to see if they can come up with the extra $300 a month. The only way I allow them to continue to live in the house at all is to sign an agreement where they acknowledge by the end of the additional two months, they will either start paying the new rental rate or they need to be out of the house. 

4) Since I don't have a security deposit, and I want to skew to the side of taking care of the person, I plan to tell them that if they decide they need to move on and leave the home in good condition, I will refund their last two months of rent to them in full. 

Sorry that the post ran a little long ... thanks for giving it a read and thank you in advance for any insights you are able to share. 

Kind Regards - 

Cory