What would you do????

[Meg K.]

I know most people on the forums are well established financially and have real estate acumen, so please bear with me and be gentle ;)

I have lived in an owner-occupied duplex (top/bottom) for 12 years now occupying the first floor and renting out the upper unit.  For some reason i prefer the downstairs.  I do not like living on the 2nd floor.  It appears this was a bad plan because most people interested in renting the up stairs have children.  The floors are wood and i hear noise and everything going on upstairs if there are kids.

I've had the current tenants for 6 years now.  They have always paid late..after the 15th sometimes and since i am soft at heart i have let it slide for several years now.  Recently the wife and i had a falling out.  She reported me to the city inspection for 2 tiles on her kitchen floor that were worn out.  The city ended up inspecting the whole house and insisted that i paint some walls (a bit of cracking paint) and paint the exterior (a bit of cracking paint).  This is a 1921 Stucco/brick house.  So you can imagine it is not cheap to maintain.  Anyway, I am taking this personally and since I never charged late fees for the late rent, i want them out so that i can start over.  ALso the property is not in a highly desirable area even though the properties are well maintained old houses.  I am worried i will not be able to find good tenants in terms of understanding that i, as the landlord, lives downstairs.  The current tenants kids have since grown up so the running feet is no longer an issue.  Most people who inquired about the place in the past (3 BD) are single mothers with kids.  Yes, I know about discrimination but I live downstairs...

Current tenants have a month to month...i know i cannot ask them to leave within 6 months because they filed a complaint with the city.  Should I let them stay, continue to collect below market rent, and put up with the high maintenance wife?  Let me say that the husband is the total opposite and has occasionally helped me out with no charges with the property.

I ve thought of moving (out of my own house) and renting both units out.  But, as a social services employee, i make about $40k a year.  Not enough to purchase a second home.

Current mortgage is $956/mo...rental income is $740/mo

Thank you for listening to my emotional dilemma.

Meg

[Barbara G.]

Well you sound like you are on the right track.  You are now enforcing the late fee.  When you are allowed to raise the rent for your tenant do that.    Raise it to the fair market price whatever that is.  When you want to buy another duplex the lending institution should consider the rent you will be getting for the 2 apartments in your present house and the rent you will be getttng for the new duplex that you would be buying  plus in your salary.  Does your wife work?

It's not such a bad thing that you had to paint.  You really do have to have a schedule of mantanence when you own a rental.      

Now You are considering renting your apartment and buying another place so you have to maintain  this place and upgrade this place so you can command more rent for your own apartment and your tenants apartment.

 This  could be a very good move for you.   Another duplex will raise your income now and when you retire.   It should give you more cash flow right now.  It will also help you in tax savings.  It will also appreciate and in addition you will be paying down your principal on both houses.   You should consider   buying yourself another duplex or fourplex.  If you buy a side by side duplex no one will live over your head.

Look at this problem with your tenant in a positive a fashion.  It really will tturn out to be a good thing.   You are now going to enforce the late fee and that will either give you more income or the tenant will stop being late paying their rent..  Either way you are in a better position.  

Another positive thing is you have fixed the tile problem and you have painted.  Now you have the motivation  to raise the tenants rent.  These are all positive things that are good for you.  Your tenants will either pay the raise or move out.  Which ever they choose you are better off.  They might have done you a favor without knowing it.  

These tenants complaints have gotten you to think about your future and your retirement.    You are thinking about buying another duplex which will be a good thing for your retirement  and income flow.  $40,000 a year is not a lot of money and this duplex you are living in has helped keep your own rent low, so it has been a good thing for you.    

Look at 3.5 FHA mortgages where you have to live in the property in order to qualify for that mortgage.

Research fair market rents for your property and raise your tenants rent to that level.  Update your apartment so it will get top rent when you move on and up.  

By the time you move out you should have raised the rent for your tenant to the fair market price.  Speak to a real estate agent about finding you another duplex,  Look at Zillow and Trulia to try and find a suitable new buy for your self.

Keep us informed about your decision and your research because we are rooting for you.