Bad Tenant Case Study - Advice?

Question

Quick case study I was hoping to get a couple of updated opinions on.

I inherited tenants in a duplex I just purchased. Long story short, I honored the existing lease which had a low security deposit (<50% of rent), and low rent (75% of market rent). They only had two months left on the lease. First month, late. Then said they would pay on the 12th. Missed it. I filed eviction. Finally paid on 16th with all late fees. Tenant claims husband lost job and finally has another one.  Month #2 (this month), 11 days late. Payment received with late fees.

Now I have asked them to fill out an application for the property to qualify for my lease. I suggested that if they were denied I would give them one month at a rate $100 higher than current rent payment before they have to leave. Sure, perhaps I'm a big naive but I honestly want to keep a good relationship since their security deposit is so low I don't want them to destroy the place.

That being said, the tenant was surprised that I could and would actually deny them. She states they are good tenants and have paid for many of the upgrades in the place. She also warned me that they don't have great credit, the husband has had some past misdemeanors and they walked out on their last landlord to move into this place.

I'm thinking I have two options 1) deny the application and get rid of them. Lick my wounds if they do damage to the place. 2) accept the application but on a month to month basis. This gives me flexibility to kick them out (South Carolina eviction laws aren't bad).

Thoughts?

P.S. this is a quick attempt at getting more keyword hits for better advice ----> Buy and hold. Tenant. Landlord. Cash Flow. Charleston. Carolina. Rental. Property Manager. Hope it works.

Scott Stevens · Answer

Paying late to their new landlord is not a good impression. If you can fill the property with better tenants, that is what I would do, especially since the rent amount is lower than market as you said. Just seems like it could only get worse, especially since you said they walked out on their last landlord, they could do the same to you. I know there is a human element in life, but you didn't buy the duplex to show your compassion, you bought it as an investment. You are a cut above the others, so I would let an amateur landlord/greedy person accept them as tenants and you pick a more desirable set based on their performance over the past two months.

Marcia Maynard · Answer

I would have each tenant reapply.  You can set the rent at market rate and set in place a more reasonable security deposit.  After they apply and you review their applications according to your established rental criteria, make a decision.  Misdemeanors generally wouldn't worry me, felonies would.  Bad credit, maybe.  Not paying rent on time, definitely a problem that must be stopped.   I would drill down on what they did to their previous landlords, locate them now if you can and find out the landlords' side of the story.  This will help you be better prepared.

About the "upgrades"... many tenants think they have made "improvements" to the property in the course of breaking property rules and making changes without the landlord's consent.  Find out what "upgrades" she is talking about and if the former owner sanctioned and/or paid for the upgrades.  When they vacate, you don't want to be surprised by them yanking out upgrades that they think belong to them.... electrical fixtures, plumbing fixtures, etc.

Lastly, changing the terms to a month-to-month tenancy will give you more flexibility for removing them if they don't follow your rules.  When we bought multiplexes with tenants in place, most of the undesirables moved out on their own once we established our terms and conditions.  One thing I regret is not doing a more through job of inspecting their places at the time of purchase and periodically thereafter.  On more than one occasion a place that looked fairly well kept turned out to have some serious damages that I overlooked.  Now I use a checklist, so I don't get sidetracked.

Darron Stewart · Answer

@Tim C.

I would step back, tenant is paying, look at how the place is kept, adjust rent and monitor performance under month to month.  With a long term tenant and late fees you may be better off than kicking out, going a month or so with no rent while repairing and screening.

MaryAnn Morelli · Answer

We were  in your situation with a duplex we purchased  in the Upstate 10 years ago.  We elected to take  the hit and move on.  One of the best decisions we made. We didn't need to wonder when and if the tenants were going to pay every month and the associated grief.  The Charleston rental market is too good with too many good tenants looking for a quality rental.  Best of luck, it's hard but this is business.  According to your description, the property is an under performing asset.  Take this as an opportunity to get better tenants, a higher return and less stress--less stress the most important of the 3.

John Semanchuk · Answer

Another tact would be to raise the rent above market value and let them make the decision to move be theirs.   If they stay it might make it worth the trouble of dealing with them .

I think I agree with Scott though.... I'd look for tenants who don't have a history of walking out on landlords.   It seems likely that they will just do that to you one day.    If, as a new property owner, you do a current inspection with pictures to document the condition of the place, then you would be in a stronger position to enforce action if they should do intentional harm to the place.   I know "enforcing action" is never a route a landlord wants to go but tenants don't either and there may come a day when you'd be happy you documented the current condition of the place.

Kenneth Hynes · Answer

I think Marcia makes alot of great points .  Do you have a copy of their original move in inspection form from the previous owner?

as far as renewing them, is Rent / Gross Income your main screening criteria ?   If these people applied as new tenants , would you accept  them ?

Jason Shamis · Answer

Tim,
    Would love to help you any way I can. We have had reallly great success helping investors just like yourself. If you have any questions I would be more than happy to answer them.

Elizabeth Colegrove · Answer

That's a hard situation. I personally would raise the rent to market and/or not renew them because rent has not been received on time. In my experience if the situation starts bad it only gets worse!

Bad Tenant Case Study - Advice?

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