Train or be trained...did i do the right thing?

Question

Just bought a SFH and inherited tenants who have been there 8 years, always paying rent on time . Because of this, I gave them a 2 yr lease with no increase  (I could have gotten $50-75 more) . One month after purchase the hot water heater goes bad and i get a call from them that there's a $400  one at HD which they will get, and hook up, if i give them the money.

I do that, and tell him he can get 10 % off with his military ID and keep the $40 for his efforts , and gas money. He agrees.

A week later I get the reciept which says the HWH was $359  (same one on sale).

With his 10 % off  he paid  $324. BUT he still kept the $40 for gas.

I asked him to add the $8 on to next months rent . .. he said ok.

I don't need the $8 but i felt taken advantage of. I didn't want to risk getting off on a bad start, but i choose to not ignore it.

What would you have done?

Michael Olesky · Answer

@Marci Stein I would not let a tenant handle repairs, especially water!  Always hire a professional to do the work.

Thomas S. · Answer

Turn over should cost next to nothing, tenants give notice, advertise and find new tenant before they leave. Your vacancy will be exactly the same regardless of whether you choose to lose money or not. Landlords that subsidise their tenants rent are operating only as a hobby. Money does not matter, they are happy if they have nothing to do to take care of the investment.

If you are operating as a business you charge market rent, tenants come and go regardless - usually every 2-3 years and life goes on with maximum profit. Reducing a tenants rent does not make them better tenants and they do not stay any longer. Tenants rarely leave due to the rent.

Landlords do give "good" tenants a break in rent. It does not create any loyalty it only cost the landlord money.

Lots of landlords charge below market and their reasoning is complete rubbish. Non are professional landlords and there are no statistics to support their fear based theory. The theory is an old wives tale perpetuated by mom and pop hobby landlords.

Thomas S. · Answer

What would you have done?

1) I would never give any tenant a 2 year lease, M2M only.

2) I would never subsidize any tenant rent. Throwing away $75 a month for no reason is crazy. Beginning of the 2nd year jack the rent to market. Hopefully $125/month increase. Never under charge for rent.

3) never ever let any tenant do any work on the property for any reason.

Not sure what you mean by "getting off to a bad start" but in my opinion you are defiantly off to a bad one.

Christian Wathne · Answer

Hired a pro to do the water heater. The average diy'er does a terrible job, who will be responsible if the pipes leak and ruin the floor in a few months. How would you even know for sure if he actually replaced the water heater rather than just sending you a receipt for something he purchased an returned 10 min later? The cost to replace a water heater is also more than the heater itself: probably needs new hot/cold water pipes, cost to dispose of water heater, etc...

David Faulkner · Answer

It sounds as if the asset class you chose may very well give you issues. Buying in depressed areas in many cases can be penny wise, but pound foolish. The projections look great on paper, but once you get into it and realize with that tenant class all of the extra vacancy (both economic and physical), extra repairs, CapEx, headaches, etc. those great projections don't look so hot or realistic after all and you begin to see why the purchase price was low in the first place. That which is easy to buy is often difficult to sell or rent, and the opposite is true too. I hope I'm wrong on that, but if I'm right the upside is you will learn a lot ... if you learn how to manage such properties well you'll make a bloody fortune and if you don't and apply the lessons learned to a different property then you will still do well. Good luck!

Matt Vogt · Answer

There's something to be said about turnover costs, vacancy etc. If you're comfortable with your properties performance as-is, why shake it up? In most businesses, it's said that new customers are 5x more costly than keeping old customers. I don't see this being untrue for real estate, although my experience is limited so take it as you will. If/when you decide to charge more, you'll quite possibly be faced with the reality that you'll have to invest more capital to upgrade and refresh the unit(s). How many months of an extra $50-75/mo does it take to recover a few thousand in necessary updates?

Probably having the tenant change the heater for you isn't a good start, so try to avoid that if at all possible. About a year ago I lowered the 1st month's rent for the tenant to move into it as-is, uncleaned, unpainted after just closing on the property. That worked out, but not all situations like that will.

Good luck

Marci Stein · Answer

Greg---In this particular area of NY it is very depressed and hard to find good tenants. I have

read in this site that some give a break on the rent when they have good tenants.

In the long run i will not have  a vacancy or eviction, which makes up for the reduced rent.

Marci Stein · Answer

Wow - i sure do have alot to learn about being a landlord....thank you.

Nancy Curran · Answer

I never let a tenant do anything. I never let them get in the habit of taking anything out of their rent.

Train or be trained...did i do the right thing?

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