All Forum Posts by: Michele Fischer

I don't have personal experience with this, but some initial thoughts:

ADVANTAGES

Could be a longer term tenant than a normal tenant.

Meeting a much needed housing and service shortage.

Should be able to charge a premium rate compared to traditional renting.

DISADVANTAGES

Insurance could be significantly higher, to have any business but especially a business with more risk of falls.

More wear and tear on the property with likely more occupants and maybe more damage.

Guessing a lot of these businesses don't survive, it's harder than people think it is.

Potential added expenses to accomodate business use, handicap access, potential commercial kitchen set-up, etc.

Utilities are an interesting topic.

In my investment neighborhood, tenants always pay electricity, but the water sewer garbage can go either way. Advertisements for open units clearly state which utilities are included, and it varies.

Many will say it is worth the money to get everything metered separately and have the tenant pay directly.

Any time something is prorated, it is not directly tied to usage and it can be awkward when you tell two tenants that their cost is going up because usage went up when only one of them filled an unauthorized above ground pool with water… when they figure it out it is detrimental to already strained neighbor relations.

In my area the landlord is completely responsible for the WSG bills, so we kept them in our name and included an average amount in rent. It helped us to ensure the bill were being paid. But it causes us to pay more to our PM since WSG is included in rent. And usage doubled during the pandemic with no ability to raise rent. If we were self-managing we could keep closer tabs and educate the tenants more, (we were starting a program to provide a rebate back to tenants with lower than average usage), but now we just have to bear the higher costs and be thankful that rents have increased once the moratorium was lifted.

You need to create a new rental agreement in your name anyhow, so you can write the future rent increase into the rental agreement.  We usually step it up each month to get to market rent, but you can do whatever you want as long as you give proper notice.  All of our existing tenants have moved out given the rent increase, but your results may vary.

How long has it been since you moved out?  I would just have the tenants toss the junk mail, it has a pretty long tail to stop.

Hi, Hannad!

I live in Seattle now, but all of our rentals are in Longview, WA, so we are kinda neighbors.

I have seen adult family homes where the downstairs are where the residents live and upstairs are office and employee living quarters.  Something to think about.  You may also want to consider ability to restrict access to the kitchen if you are going to have any memory care type residents.

I would think you would want to puchase rather than rent a home to convert.  If you purchase you have a lot more control over what modifications can be made, and most landlords will not want a revolving door of residents.

Rentals are very dependant on the quality of property management if you aren't self managing, and I assume AFH's would be even more so.

Agree with others that I would choose the SFH.

SFH has two exit strategies, sell to an investor or to an occupied owner. Multi will only attract an investor.

SFH will have less maintenance, wear and tear, and headaches. SFH renters will expect to move their lawn, shovel their driveways, and are further from other neighbors that they can't get along with.

We have made offers on properties sight unseen, but we always have an impartial inspector get in to provide a report.  Sometimes we go along, and have stopped the inspection when the inside is worse than we can deal with, sometimes we don't ever see inside as it transitions to our PM.

A tenant in place will rarely be as good as one you place yourself.  He should already have a lease in place if he wants them to have a long lead time, this does feel pretty sketchy.

Will the loan go through with renovations not done?  We have had to pay higher insurance for awhile, we usually wait for a turn to do renovations.

Hope my perspective helps.

How long has either applicant held their current source of income?

If you go with tenant 2, put the third adult on the lease and get them to tell you that he does not have a terminal illness, I have burned by that in the past.

I like to have low income applicants be between 28-31% of income on rent.

I also like applicants who have lived at a previous address 5 or more years, and/or live at all addresses for at least a year.  Tenants who move a lot will only cost you money, turnovers are expensive.

Applicants lose points for a banruptcy in the past 3 years.  And I only consider collections for items other than medical or consumer debt.  Unpaid utilities or amounts owed to landlords are bad, consumer debt explains why they are renters.

Hope that sheds some light.  Be careful going below your standards, and always document your objective reasons for choosing one applicant over another.  I use an objective point system that provides a score.

Agree with others that you should at a minimum run a criminal check on the new occupant.  Up to you if you want to do a new lease with two tentants or add him as an authorized occupant with an addendum.  The advantage of a tenant is that he is also completely responsible for rent.  Disadvantage is that now you have two people to deal with or evict if needed.  We have a shortened application for new occupants, regardless of status.

Never tie a rent increase to a new occupant, that can be viewed as discriminatory, especially with kids or non traditional relationships.  Tie rent to the market and make a habit if reevaluating it every year and increase at least a little bit if the market is higher.  We like to raise rent to 50% between current rent and market rent; keeps you making progress, keeps them for moving if they are a good tenant.

You are getting a lot of varied advice to consider, will throw another one in the mix.  Offer to cost share and split the cost 50/50.  This would give them some skin in the game and would lower your outlay.  In general, if it is a reliable tenant, pay it and move on.  As long as a tenant isn't nickel and diming you to death, it is a good investment to keep the tenant and property in good standing.