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You can't jump it up all at once, just my opinion. If they are good tenants they deserve better. I am in geriatric health care, and your concern about the IRS looking at it as a "gift" vehicle to hide money is totally baseless. You made almost a 100% jump 4 years ago, that is a lot IMO.
My apartment is also dirt cheap. My landlord's daughter told me his accountants used to beg him to raise the rent. But he is already wealthy enough, and just wants good people and doesn't want to be bothered. We don't ask him for anything. Heck last year I put new kitchen and bathroom floors in on my dime because he is a good landlord and rent is low. My rent is exactly $124 a month higher now than when I moved in 16 years ago.
You may just price them out and be sorry for it later. Your mom's expenses going up should not affect your tenant however, unless the costs of the house they are living in go up. You should not expect to cover assisted living rent by renting a small apartment, it's just not going to happen.
You can't jump it up all at once, just my opinion. If they are good tenants they deserve better. I am in geriatric health care, and your concern about the IRS looking at it as a "gift" vehicle to hide money is totally baseless. You made almost a 100% jump 4 years ago, that is a lot IMO.
My apartment is also dirt cheap. My landlord's daughter told me his accountants used to beg him to raise the rent. But he is already wealthy enough, and just wants good people and doesn't want to be bothered. We don't ask him for anything. Heck last year I put new kitchen and bathroom floors in on my dime because he is a good landlord and rent is low. My rent is exactly $124 a month higher now than when I moved in 16 years ago.
You may just price them out and be sorry for it later. Your mom's expenses going up should not affect your tenant however, unless the costs of the house they are living in go up. You should not expect to cover assisted living rent by renting a small apartment, it's just not going to happen.
You have to read a few of my earlier posts to get a sense of what's happening. Thank you for responding, by the way.
The tenants have never lifted a finger to try to compensate for the cheap rent over all the years. Realistically, they have saved well over 50K in rent since they've been there. That has to count for something. As I explained what looks like a 100% hike in rent is nothing when you consider
1. they'd already saved about 40K in rent up to that point
2. going from 575 to 1000 was a gift when you consider that at house next door the tenants were paying $1600 at the time. I could have hiked it to market and let them pay market or move, but I was just too nice a guy to do that, which is why I shouldn't be in the property management business, which is why I'm hiring a PM'er.
...I could have hiked it to market and let them pay market or move, but I was just too nice a guy to do that, which is why I shouldn't be in the property management business, which is why I'm hiring a PM'er.
If you do not understand what mindset it takes to profitably own a single rental unit hiring a property management firm will not change that!
The fact is that if sell the property for $500k and pay $100k in taxes you still net $400k, which even if you were making 100% profit on the rent would take you the better part of TWO DECADES to pocket. Your "yield" should be what you focus on when planning to cover long term expenses
I know that there is a kind of appeal to making money with real estate -- I owned about a dozen rental homes over the years. Even with a top notch property manager it is much more hassle than putting the money into a nice boring index fund Index Funds: The Key to Saving for Retirement? | FRONTLINE
Split the $400k into something like a handful of funds -- I suggest about 50% total market etf, 25% a high-dividend yield etf and 25% a bond etf, the blended return will almost certainly exceed what the rental returns are...
Given the likelihood that mom will continue to see increased costs for healthcare it makes a whole more sense to make this about the finances and not the emotions...
I don't believe that the wife makes $27k/year income if they live in Los Angeles, unless she is working part-time. If she is working part-time, then she should look into working full-time if they want to be able to afford rent.
Let your new property manager raise the rent to market rate. If the couple wants to move, then they can. They stayed there all these years because they won the lotto as far as super low rent. They got spoiled. Time to stop with the ultra-cheap rent. They already had ultra cheap rent for enough years.
So what if they move. Your propery manager will get new renters.
Get your stuff out of the garage asap...before they get notice about the rent increase.
Chet, I don't have the power in the Living Trust to sell, except at the death of my mother.
Quote:
Originally Posted by sware2cod
I don't believe that the wife makes $27k/year income if they live in Los Angeles, unless she is working part-time. If she is working part-time, then she should look into working full-time if they want to be able to afford rent.
Let your new property manager raise the rent to market rate. If the couple wants to move, then they can. They stayed there all these years because they won the lotto as far as super low rent. They got spoiled. Time to stop with the ultra-cheap rent. They already had ultra cheap rent for enough years.
So what if they move. Your propery manager will get new renters.
Get your stuff out of the garage asap...before they get notice about the rent increase.
I like the way you think, sware.
They did hit the jackpot due to my mother's and then my lackadaisical attitude about it all. And the sad part is that renters do not appreciate at all how much you've sacrificed for them when it comes time to raise the rent. And the sad thing is I knew about all this. I watched my late stepfather get sued by the tenants of a 5-unit complex he had that he was giving rock-bottom rents to for decades, and when he needed a $50 increase from them to cover renovations they went to the Rent Board and filed a complaint.
I just talked with an HVAC company about installing central heat. That will be about 5K if not more, and I will definitely have to pass the cost on to them but I'll let the PM company handle all that. I have an appointment with them on Mon.
I hear you about getting the stuff out. I could try to put a steel door on the garage since the old one is rotted out. I don't know if that would be successful keeping the tenants out if they decided to get nasty. They are supposedly a Christian couple. HAH! Christian till they have to pay a little more rent. Then Christian principles fly out the window. Moving all that stuff to storage at my age sends shivers down my spine. I'm getting too old for all this.
I talked with a property management co on a referral from a real estate acquaintance of my mother. They have agreed to take over the management of the rental. They will have the heat fixed. I'd rather have them take care of all this; it's too much for me. As I said I'm not heartless enough to be demanding they either pay market or be evicted. By the way, going from $575 to $1000 when the rents in the area are $1400-1800 is a kindness. If I were really cruel I'd have handed them a notice telling them to pay $1500 or be evicted. Don't think they weren't making out like bandits when they were paying $575 for 30 years.
Big increases to existing tenants are exactly how rent control becomes law in California.
Rent increases in my California city is strictly controlled and limited... there is a push for Statewide rent control and it sounds like your mother's tenants would make for a great story on the evening news...
I worked for a company that aggressively pushed rents... they had high turnover which affects the bottom line... their focus was to get the rent rolls up and flip the building.
Thirty years ago $575 was good rent for 800 square feet...
Big increases to existing tenants are exactly how rent control becomes law in California.
Rent increases in my California city is strictly controlled and limited... there is a push for Statewide rent control and it sounds like your mother's tenants would make for a great story on the evening news...
I worked for a company that aggressively pushed rents... they had high turnover which affects the bottom line... their focus was to get the rent rolls up and flip the building.
Thirty years ago $575 was good rent for 800 square feet...
Maybe professional management is what you need.
I didn't word that properly. They weren't paying $575 30 years ago. It landed at $575 sometime in the 90's and the stayed there until 2012 or so when I pushed it to $1000 when everybody else was paying $1700. I can't seem to convince people I was committing a crime letting it stay anywhere below $1000. Nor can I convince anybody I was doing them a favor by not just turning my humanity off and raising it to market and let them either pay it or move out. I wasn't under rent control and so could easily have done that but I didn't. I'm not the bad guy here. A little inept, I grant you. But not bad.
I am a former property manager, and I've hired them and fired them for myself and my daughter.
It's my opinion, that you should not trust a property management firm to make you any money on this property. They only make money when there are problems. Been there.
If I was in your shoes, I would get rid of the current tenants because they are a pain in the butt and feel entitled to ridiculous rent. Your only obligation is to give them 60 days notice to move. Unless you are under rent control, which wasn't my impression.
Then, clean the place up. No need to refurbish everything. Advertise it for a fair market rate. Do good screening for a new tenant. Then rent it at a fair price to people who appreciate getting it for the current market price.
I have been a property manager and I've hired them and been completely ripped off. PMs can lose you money faster than you could ever imagine. If you're okay with that, then fine. If not, then get a book on landlord law and screen new tenants really well. Most problems can be avoided by simply doing good screening.
^^^I'm thinking the OP simply wants to be out of the loop and make the headaches go away.
It does happen a lot...
I agree that management is expensive... I have a management firm for distant property... it can be frustrating because something simple generates a service call...
Here... I buy quality products with lifetime warranties and I collect on those.
My property manager simply sends out a plumber or locksmith to replace...
Had a water heater with a 12 year warranty go out at year 4... plumber said it would cost me more to use the warranty then to simply replace... it's those kind of things... I've saved the owners of property I manage locally a bundle... unfortunately, managers coordinate work... they rarely fix things....
Above is primarily about single family homes.... economy of scale is much better at properties with resident managers and staff.
If you do not understand what mindset it takes to profitably own a single rental unit hiring a property management firm will not change that!
The fact is that if sell the property for $500k and pay $100k in taxes you still net $400k, which even if you were making 100% profit on the rent would take you the better part of TWO DECADES to pocket. Your "yield" should be what you focus on when planning to cover long term expenses
Chet, He's waiting to inherit the place so he can sell it with NO taxes, or at least the current year as the beginning for the basis.
Honestly, it sounds like is running a good risk of getting slammed with a lawsuit when he runs amok of CA's consumer friendly laws. A PM might be a great idea simply so he can walk away from the property.
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You are making a poor decision...
Then Christian principles fly out the window. Moving all that stuff to storage at my age sends shivers down my spine. I'm getting too old for all this. 
