Super long term tenant with way below market rent. What would you do?

Question

My younger brother and I are co-owners of a duplex that we inherited with a very long term tenant in one unit (18 years).

The market rate for the unit is about $900, and she pays $675. She is a borderline hoarder and I'm sure the place is in need of some serious attention, but due to the fact that she is such a hoarder, there is no way carpet is getting replaced, or even paint.

My opinion is to give the tenant 60 days notice that the rent will be increased to $825, and if that's a deal breaker for her, go in and spruce the place up after she moves out and put it on the market at $900.

I'm waiting to get my brother's input on it now.

David J. · Answer

You could simply have a discussion with her about what she is paying and what the market is charging.  Maybe she can afford to get a bump.  Maybe you could increase it by $50 every 6 months to get her up to market.

I know everyone says you have to run it like a business, but remember you are in the people business with real estate, not the real estate business with people.

I had a buddy that would screw people over and say "its just business" all the time.  Now no one will do business with him and no one is his buddy.

Eric Thompson · Answer

The final decision we reached was to raise the rent to $825 with the current tenant. It will be done in two $75 steps, the first in August, and second in December.

She responded positively and was grateful for the tiered approach and the chance to adjust.

I'm happy with the compromise. The duplex will be grossing about 15% more income next year than the previous year without any capital contribution or bad feelings with tenants.

Steve M. · Answer

Read this after my last post.

At the end of the day, if YOU feel incremental increases are the way to go, YOU may the decision.  Your PM is an extension of YOU.  You hired them ~ If they fail to comply, start interviewing new PM's.

Steve M. · Answer

David J. has some good points ...

If I were in your shoes ... I'd have a sit down talk as well.  Go over the comps in the current rental area, and explain that you love her as a tenant and wish to see her stay on board, but you must raise the rent to more marketable rates.  See what she is "ok" with doing.  Whether that's $50 every 3 months, or 6 months, etc... etc...  I'd have a new lease spelled out with the new terms drawn up ~ go over them with her, and go from there.  If she balks and wants to move out, let her.  If she agrees, look at the bright side ~ you've got a long term tenant who has proven she'd like to remain such.

If a long term tenant (18+ years) had 18 year old carpet, never complained about it, and paid rent on time.  I could care less about redoing the carpet or paint.  Whether she moves out tomorrow or 5 years from now, those items will still need to be done.  So whether or not she continues to reside there doesn't make much of a difference.

I could care less about the tenant being a hoarder.  And I feel a $150 increase (nearly 25% increase) demanded by the Landlord may fall upon deaf years.  See if you can reach common ground and raise it slowly :)

My $.02 cents!  Good luck and let us know the outcome!

Mike Sedlacek · Answer

Okay so this is what you have to think about. I've been in the rental business for 30 years. Every property I ever purchased got an automatic 10% rental increase and continued that way each year. With property taxes and insurance and upkeep always on the rise it is a must to let the tenants know this is a recurring thing. There has always been an old tenant or  a hoarder it seems at every property I ever bought. You have to realize what fire codes they are effecting and you being the owner are liable and responsible for what ever your tenants do. Do you want to be responsible for a death of someone due to a  fire on your property? Hoarders bread mice and other bugs, carpenter ants for one. What if the tenant falls due to a item that tripped her or him and breaks a leg. Just think what thier daughter or son will do to you when they find out. Yes be nice but be a responsible owner and explain the fire codes and health risks to them and to the other tenants. Explain that the local salvation army will pick up stuff for free, just call them.  As far as raising the rents start with a conversation about thier financial situation and if they are low income there may be rental subsistence from the local county office or state. When I purchase a 50 unit trailer park I rented 3 large dumpster to clean up all the trash around each trailer and charged each tenant for my time but offered them for no charge to clean up them selves. Maybe you can do the same. Also, what I've done in the past for a tenant with very low rent I offered them a new kitchen but the rent has to go up. Some suggestions for you. Thanks

Deanna McCormick · Answer

The basic loss on this apartment is $2700.00 a year in revenue.

Now is the perfect time to update all your files and leases.

Give her rent increase to market rate, she'll complain no mater if it is partial increase or the market rate at this point, what do you have to loose. With the rent increase notice, let her know you will be inspecting the apartment 2 weeks prior to the lease renewal date. On that notice tell her your inspection will include being be able to see that her apartment will comply with upcoming city inspection, that these items need to be in order, so you can Offer a lease renewal. If her apartment does not meet the criteria you will not be renewing her lease.

1. All trash and clutter removed. 2. Appliances in clean and working order, oven cleaned. 3. Bathroom fixtures in clean and and serviceable condition. 4. Smoke detectors working. 5. Clear access must be available to all windows, doors, and any exits. 6. Heat registers not blocked.  7. Apartment in neat and clean order. (whatever you want done!)

It gives her 2 weeks to clean apartment so it meets expectations, or if she will need to give her notice to move.

Let her know you are planning on painting a room of her choice if she meets the terms.

I had similar issue when I inherited a 5 plex from my parents, the woman had lived in apartment for 19 years on a month to month lease.. She moved.  I rented the unit after complete turn work and got lovely tenants at market rate.

Michele Fischer · Answer

I think you are on track by giving plenty of notice and raising rent.  While it will be a lot of work when she moves out, there is no reason to put it off when you can get higher rent with someone who hopefully doesn't hoard.  We have a philosophy of meeting long term tenants halfway on rent increases.  So I would start by raising the rent to $785, and each year raise the rent another 50% of the gap between market and their rent.

Rick H. · Answer

I think there are several different things going on here:

1) Long term tenant paying under market rent

2) Prior owner/manager's reluctance to increase rent and the implications and bad signal this sends to a tenant

3) Excessive storage-turned-hoarding and how it affect other tenants

4) Cost of renovating empty unit and lost rent if you lose a good paying tenant.

Consider hardball vs softball tactics and what's best for your style. Just remember that whoever decision you make will be watched by other tenants, too, so it's not just about one unit at stake.

Do you have a written plan to upgrade?

Suggest you take Fixer Jay Decima's tenants and toilets class and buy Mike Cantu's Rental Property Management course.

Ericka Parrott · Answer

I agree she needs to pay at least $825.  But, as you move forward keep in mind that hoarding in a mental disorder and a protected class. Double check you state and local laws.  And make sure the health and safety of the other tenant in won't be put in danger because of all the stuff in her unit.

Super long term tenant with way below market rent. What would you do?

Most Popular Reply