Retaking Control of Rental

[Caitlin DiBenedetto]

I own a single family home which is a long term rental. The home is mine outright, as it was inherited. Unfortunately, I live out of state making managing the property a bit more difficult. This is my only rental property, and I would like to learn how to take back control of the property and manage it properly, as I am certainly not doing that now.

The current tenants have been in the rental since 2003. They have taken decent care of the property over the years, however as they have aged, unfortunately, the property upkeep has started taking a hit. Therefore, it is now in need of a few fairly costly repairs.

Property Managers, this is where it gets a bit ugly and you may want to reach through the screen and slap me…please don’t…I just want to learn how to get myself out of the mess I’ve made: I have not raised the rent on the tenants who have been in the rental since 2003 (I should be charging roughly double what I’m currently charging). I know I know…FOR SHAME! Originally, the agreement was, we would keep the cost low, provided they took care of the property…I am now in need of raising the rent in order to take care of repairs.

Here’s where the rock meets the hard place: I am VERY reliant on the current rent as it is, I cannot emphasize this enough. Without this income, I WILL NOT be able to make ends meet.

In total: I need a new lease agreement with the tenants and need to raise the rent, but I literally cannot afford to lose the current tenants. I would also like to hire a property manager, but I'm not sure where that falls in the overall scheme of things. 

I need a game plan, I've been doing research online and there is sooo much out information out there, I’m not sure where to start and feel overwhelmed at this daunting task. I'm just looking for a starting place or a good guide to follow. Is there something like that out there?

[Mica Moore]

Have you thought about selling the property -- makes it a headache to walk away from.

The best thing to do is talk with a few local property managers -- long term tenants present unique challenges (State & local laws vary).  You won't get a court to say the maintenance is tenant responsibly but it's normal wear & tear because they have been there over 10 years.  All maintenance will have to come out of your pocket. Doubling rents on long-term tenants may be regulated as well.  

[Caitlin DiBenedetto]

I have and am considering selling it, however, I don't think I'm there yet. I have deep emotional ties to this home. I would ideally like to get my butt in gear and learn how to do this properly. However, if it comes to it I will do what's best for me and my family. If that means selling so be it, but again I would like that to be a last resort. 

[Andrew B.]

Originally posted by @Caitlin DiBenedetto:

I own a single family home which is a long term rental. The home is mine outright, as it was inherited. Unfortunately, I live out of state making managing the property a bit more difficult. This is my only rental property, and I would like to learn how to take back control of the property and manage it properly, as I am certainly not doing that now.

The current tenants have been in the rental since 2003. They have taken decent care of the property over the years, however as they have aged, unfortunately, the property upkeep has started taking a hit. Therefore, it is now in need of a few fairly costly repairs.

Property Managers, this is where it gets a bit ugly and you may want to reach through the screen and slap me…please don’t…I just want to learn how to get myself out of the mess I’ve made: I have not raised the rent on the tenants who have been in the rental since 2003 (I should be charging roughly double what I’m currently charging). I know I know…FOR SHAME! Originally, the agreement was, we would keep the cost low, provided they took care of the property…I am now in need of raising the rent in order to take care of repairs.

Here’s where the rock meets the hard place: I am VERY reliant on the current rent as it is, I cannot emphasize this enough. Without this income, I WILL NOT be able to make ends meet.

In total: I need a new lease agreement with the tenants and need to raise the rent, but I literally cannot afford to lose the current tenants. I would also like to hire a property manager, but I'm not sure where that falls in the overall scheme of things. 

I need a game plan, I've been doing research online and there is sooo much out information out there, I’m not sure where to start and feel overwhelmed at this daunting task. I'm just looking for a starting place or a good guide to follow. Is there something like that out there?

If you can qualify to refinance or take out a HELOC on the property, this would give you the cash to make necessary repairs and give you enough cash to support the property while you make them. Then, once its fixed you can re-rent it at a normal market price.

[Patrick M.]

I am with @Andrew B. on this. Besides, you don't want to keep these tenants- they have gotten rich on your indifference and they are never going to adjust to a market rent.

Incidentally, I bet you would have more regularly raised the rent if you were carrying a mortgage... 

[Mike McCarthy]

Remember, this is a business. Tell the tenants (and follow up with a letter) stating that you need to catch up on years of the rent staying the same and need to increase the rent to $xxx. They can sign this doc and agree that the rent change goes into effect in 30 days, or they can move. (Most states are 30 days, but do confirm)

You can tell them that it isn’t personal, but taxes have gone up, repairs are needed, etc.

You’re going to end up with a few months of no rent - you need to make some repairs and get new tenants, so plan that in.

But, it’s extremely unlikely that tenants will agree to a 2x increase, which might be better anyway.

[Christen G.]

I agree with @Mike McCarthy - it seems very straight-forward to me. Re-lease with an increased rent - If you can't afford to lose them then don't go crazy on the increase - but raise it enough to let them know you mean business. Explain that due to their last few years slacking that you now you have repairs you have to fix, taxes have gone up and you will need to do some upgrades. And then do it again at the end of the term. I'd suggest leasing them so that the terms ends in the spring when it is easier to find tenants. I am sure the tenants know that they're getting a steal and are taking advantage of that - probably not maliciously...but b/c they can. And no one likes to move, in fact we all HATE it - so much so that they'll probably take a stiff increase to stay put, b/c truthfully it sounds like even a stiff increase ($200?) would be hard for them to find elsewhere. 

What are the repairs that need to be done?

As for PMs - just starting making calls after researching local companies and mom and pops and seeing who you like the most - it will be a big burden off your shoulders to have someone else properly managing this, getting rents where they need to be and helping with upkeep. Best of luck!

[Bob B.]

What makes you think you can not find a new tenant that is willing to pay market rent?  

[Patrick M.]

Agree @Bob B.

I hate to hear landlords sound like they are beholden to tenants- especially if you want to run it correctly now.

Truthfully, I se no benefit in keeping these tenants if you are working off of a 15+ year old market rent. I would do the numbers on what needs to be done and what you could conservatively get for rent after repairs and renovations. I would look to leverage the property and not renew the lease.

[Thomas S.]

If you do not want to sell you need to embrace the fact that you are operating a business. There is absolutely no place for emotions in business. Decisions are made primarily/only with your bottom line in mind.

I find it difficult to believe you are capable of making the necessary decisions going forward if you are entirely dependant on the rental income yet have never raised the rent. These two do not lineup. 

I do not believe keeping this property is a wise decision. You do not have the necessary skill sets to be a landlord. I would sell it immediately and if you still want to be a landlord buy a property where you live. If you keep it I suggest you finance it to 80% on a 30 year and hire a PM to get the place renovated and re-rented at full market. Do not self manage you can not do it from away and do not have the skills.

[Joshua Lidberg]

Do exactly what @Andrew B. said. Of course depends to what extent you want to leverage the property, but you should still cashflow with a note on it, if you bring the rent back to market.

@Caitlin DiBenedetto The only downside I see with this method, is that the property will not appraise to as much as you want it to in the current condition. If you find a way to get the funds for a fix up first (HML, private money, etc.), and then cashout Re-Fi or put a HELOC on it, you should expect to pull more money out of it.

[Dennis M.]

Judging by your post I think you simply need to sell it . I’d let go of those emotional ties and realize your in over your head . You don’t have the skill set for this task or the fortitude . Be realistic,This place is not what it was or should be and you don’t live in the area anymore . I think I’d close this chapter in my life and use the income of the sale for yourself

[Greg M.]

My #1 suggestion is that you sell the place. If you can't make ends meet each month without the rent then you should not be a landlord. The fact that you are out of state and the tenants are elderly is only going to compound the problems when they arise. What happens when the roof needs replacement or the HVAC system dies? I'm sure your emotional ties to the property run deep. What also runs deep is your desire to put a roof over your head and food on the table and if you can't do that without the steady stream of rent, you need to rethink this business. 

If you must keep the place, then get a HELOC on the property. It'll allow you to draw funds to cover the repairs as well as provide you money as needed. Kick the tenants out, make the repairs, and re-rent it for current market rent. And after you have repaid the HELOC, create an emergency fund for 6 months worth of rent.

[Caitlin DiBenedetto]

@Dennis M. Thank you for the feedback, however I think I will decide what I do or do not have the "skill set" or "fortitude" to do or not do. I am very capable of learning and taking control of a situation once I decide to and have the correct tools in place to assist me. Hence why I came here, to continue my education on the subject matter. As long as I can create a game plan, I am capable of anything. This is important to me, and therefore I will learn and try all I can before I ever make the decision to sell. It sucks it took me so long to wake up and decide to do something about it, and yes I will probably regret waiting financially for a bit, but I'm also willing to accept that.

[Dennis M.]

Originally posted by @Caitlin DiBenedetto:

@Dennis M. Thank you for the feedback, however I think I will decide what I do or do not have the "skill set" or "fortitude" to do or not do. I am very capable of learning and taking control of a situation once I decide to and have the correct tools in place to assist me. Hence why I came here, to continue my education on the subject matter. As long as I can create a game plan, I am capable of anything. This is important to me, and therefore I will learn and try all I can before I ever make the decision to sell. It sucks it took me so long to wake up and decide to do something about it, and yes I will probably regret waiting financially for a bit, but I'm also willing to accept that.

Well that’s good to hear . I wish you the best of luck with your dillema  

[Lori Greene]

Give them your letter of intent and the new lease immediately after they pay rent on the 1st so you have so you have 30 days to find new tenants if they don't sign the new lease right away. I also like the idea of a home equity loan to fix up the property and have a little cushion in case it takes you longer than 30 days to find renters. And do seek the help of a great property mgmt co to help you do things right.

[Kenneth Garrett]

@Caitlin DiBenedetto

Hang in there.  Every day is a learning experience. Many investors started by inheriting property and were thrown into being a landlord.  Everyone can learn how to do this.  You will find the method that works for you. 

 In the meantime, I would go visit the property and determine what needs to be done.  Put together a plan and a budget.  Raise the rent if possible based on the condition of the property.  You can raise rents methodically each year to gradually increase rents.  Remember the condition of the property effects the capability of the market rent.

If you need help with typical budget numbers pm me.  

Good Luck.

[Marian Smith]

@Caitlin DiBenedetto I would look into a home equity loan or line of credit on the rental. Your current tenants will need to at least pay more rent to cover the new loan payments. The repairs you complete with the loan should preserve the property, eg. Exterior caulk and paint, new roof, whatever is threatening to create damage, rot, etc. Have your current tenants kept up with interior upkeep? No water damage from leaking fixtures? On one hand, you should have been raising rent every year with inflation to cover your increased property taxes, insurance, etc. and had a little holdback for a repair saving account (water heater, etc) even though the current tenants were maintaining the property....so a small rent increase each year should be a given....even $5-10 month makes adifference. Apartments write Annual increases into leases. But that is water under the bridge. What will you need to do to get “market” rent? I suspect quite a bit. Complete rehab? It may be well worth it to keep the current stable tenants with the current dated, worn interior and keep the rent flowing until you get to a better spot financially...provided they can raise rent payments to cover the loan for the needed repairs and understand that your costs require you to raise rent a little each year. Lots of people rent to good tenants at below Market rates because it fits their needs, but you need to collect enough for repairs...they are using up the sytems as they live there....and half market rent is crazy low.

[John Hovanec]

@Caitlin DiBenedetto. Graduates on asking for help. That means u are willing to learn. You can get this back under control and keep it for many years. I would suggest a heloc to pull some money out to help with repairs. I know you want to keep some money coming in because you need it but maybe start to bump the rent up some while you are working on the repairs. I’m sure if the couple is getting up in age they probably plan on staying there until the end. Once you get it all fixed up refi into a 30 yr loan payoff heloc , get ur property management company and raise rents up to market value. Hope this help. Good luck.

[Amy Beth]

@Caitlin DiBenedetto. If you can’t afford to make the repairs then you can’t afford the property. I would sell it. Even if you raise the rent slightly, to keep these tenants as you seem to want to do, it would take time for the rent increase to pay for the repairs.

The only way to get significantly more rent is to find new tenants, use a property manager, and make these repairs. If you can’t afford to do that, I would sell it. You can still hold on to your memories since the house is sentimental for you without owning the house.

[Account Closed]

@Caitlin DiBenedetto Definitely thinks you should keep the property. You own it free and clear and that is hard to come by. Plus, there are lots of options to fund the repairs. Overall, I think you are in a pretty good position.

Your tenants seem normal. They don't want rent to go up and they don't own the property, so they don't take great care of the property... Sounds normal to me.

You are a flexible landlord, meaning you will work with your tenants. That's not necessarily a bad thing. Life happens to people and sometimes we all need some slack. That compassion and understanding has value. People will want to rent from you.

However, too much compassion can obviously be problematic. That is not to say you are the problem. You are who you are. Any management structure always has two pieces. The good cop and the bad cop. The good cop builds loyalty, which you clearly have, and the bad cop lays down the law.

Since you are charging them only 50% of the going rent, it seems to me you have plenty of room to raise the rent for a property manager.I wouldn't be too worried about the tenants leaving. Even if you raised the rent to 75% of the going rate, they might complain, but they won't be able to find a better deal anywhere else. And if they leave, at 75% of the going rate, you should be able to fill the property quickly.

Anyways, with a property manager, you will have someone to lay down law without you being the bad guy. Some people like being the bad guy and others do not. The property manager can handle raising the rent, charge fines for damages and keep everyone accountable. The tenants won't like it, but that will be the point. Then you will come in, give the tenants a high five, lifts their spirits and keeps them renting for you. The good cop bad cop routine.

Once you feel like your back in the diver seat of your property, I am pretty sure you will find some solutions for the repairs.