tenant occupied rental please help

[Kristen Ray]

Hello BP!

I am looking for some advice. I have come across a deal where I can purchase single family property in a C class neighborhood with an infinite COC return once I refinance. The property is in great condition (rehabbed last year). The property is under rented at $1K month (property can command $1300-$1350 with subsidized housing). Moreover, the landlord is not business minded and states he put the tenant in there to "help her out." Anyway, her lease is up 8/1/18 then goes to a month to month option. I feel sort of uneasy with moving forward but this would be my first rental so I am not sure if I'm nervous or if it's the under market rent that is bothering me the most (under market rent annoys me every time I see it). She also has pets and his lease does not say anything about pets (2 small dogs). In addition, Maryland is a tenant friendly state. I offered to purchase the property on an option in August when she moves out and the response from the seller was "Well I'll just list the property and get more money for it." The seller seem motivated and anxious to sell the property. I asked the seller if the tenant would accept cash for keys and the response I got was "No, she's already struggling and her rent is under market. Where else is she going to go for that price?" Seller has a personal relationship with the tenant. When I asked if he did a background check the seller stated he did not because he knows her personally. Helping a friend is all well and good but he does not see this as an investment or that someone is purchasing this for business purposes.

What has been your experience in similar situations? The property needs minimal repairs at this time. All feedback is appreciated. 

[Thomas S.]

If the numbers work and you can hold out till her lease is up then not renew that would be my choice. If your state regulations do not allow you to non renew or to raise her rent to full market at the end of her lease, forcing her out, then I would pass. There is no point in a investor not maximising there returns when facing under market rents. It is fine for a hobby landlord to supplement a tenants rent but not if you are operating as a business. There are excuses but no logic in investing in rental properties and not  generate market rents.