Advice on property with existing long-term tenant...please.

[Jeff Mills]

Hello friends,

So I have a house in Memphis under contract for $75k. This would be my first rental property. There is a current tenant who as been there 9 years and rent is $950 and currently month-to-month. During due diligence I took a look at the rent history and the tenant has a balance of a little over $1,000. They usually pay about 3/4 the rent on time and then pay some more a little later. So they are always paying late fees. It looks like a few times they've paid a big chunk to get the balance back to zero.

Also I think if I were to put about $10k into it I could get it rented for around $1100.

If I keep the tenant there's around $1,500 in repairs that I would probably do but not all of it is absolutely necessary right now.

So I know getting a long term tenant is usually something you hope for but if they seem to be struggling to pay rent on time and in full is it worth it?

[Sean Tagge]

Hello Jeff MHA stands for Memphis Housing Authority (Section 8 government-subsidized rent). So the govt. pays for a % or all of the tenant's rent then the tenant pays for a % or none of the rent. pros and cons to that and there is much BP discussion on section 8 tenants. 

I assume you are asking if it is better for you to #1 buy the property and evict the tenant and put in $10k in repairs to increase the rent or #2 just keep the tenant in there and put in few repairs and ride it out. 

Consider this: 

#1

Investment $10,000

Increased NOI $150/mo x 12 = $1,800 (but will probably have a 1-3 month vacancy.)

ROI = 18%

plus increased equity and potentially a better tenant

#2

Investment: $1,500

Increased NOI $0 but you do not have a vacancy for 1-3 months for repairs and tenant placement.

Savings: $950/mo x 3 monhts no vacancy = $2,850

I am just kind of helping you consider your options. My opinion is if you have the capital do #1.