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Nice couple (children grown and gone) has been renting my mother's SFW in Highland Park Los Angeles for 30 years or so. They have always underpaid rent because my mother was lax when she was well-enough to look after the property and now that she's too old the duties have fallen to me. I've been too lax myself and have let them slide on the rent for the 7 years since my mother has been put out of commission.
The property is a 2+1 800 sf in good condition (no heat--wall unit went out) in the Occidental College area. The husband is on disability $1000/mo and the wife works (27,000K annual according to him) so that's a combined 39K annual. Their rent---get this---is $1000/month and when I talked to them this morning about the situation and how the IRS might come after my mother for gift taxes because of the low rent and how I was spending down my mother's bank account to subsidize his rent he got really upset because he said they couldn't pay more and that 4 years ago when I raised the rent from $575 to $1000 I said off the cuff, "That'll be it", thereby, in his mind, committing myself to never raising their rent again. But that was before my mother got four rent increases of her own at her assisted living complex in the meantime. He said he'd get SS in Oct. and his income would go to $2000/mo and he would gladly pay more then, how much more is undetermined. He could never get it up to market though.
I store some stuff in his garage. That's worth about $200 in rent so their actual fair market rent is maybe $1200 or so, still way below market, which in this area is $1600 for an apartment; $2000 for a SFD.
I seem to be too nice a guy to deal with this. Should I hire a property management co. to manage the property and let them deal with the headaches? Unfortunately, all the property management co's in this area seem to rate about the same as health care insurers---slightly below 1 star.
In some ways, if your mom's care requires more than the rent that is NOT REALLY the right way to look at the situation -- sounds like the place is NOT in tip-top shape and the couple is spending about a third of their modest income to stay in the place.
You need to evaluate what a fair rent for the place IN ITS CURRENT CONDITION -- the heat does not work, you are storing your stuff in the garage, and I am guessing there has been ZERO updates to the place in seven (or more ...) years.
You should also get an evaluation of what is a fair price to sell the place for, that might eventually be necessary to keep mom in the assisted care facility.
I really doubt that hiring a property management firm is going to, by itself, help you make any more dough -- they take their cut regardless! The firm you hire will not magically squeeze more out of the existing tenant, if the disabled guy and his wife can find a better deal they will move. And then you have no rent coming in. The management company likely would strongly suggest that the place needs to be updated to get a new tenant... Is that really the direction you want to go?
If you think there is solid demand for the place in current condition at $1200 you really have to decide if an extra $2400/yr is worth the hassle of new tenants AND booting out a solid tenant that seems to be very undemanding...
Nice couple (children grown and gone) has been renting my mother's SFW in Highland Park Los Angeles for 30 years or so. They have always underpaid rent because my mother was lax when she was well-enough to look after the property and now that she's too old the duties have fallen to me. I've been too lax myself and have let them slide on the rent for the 7 years since my mother has been put out of commission.
The property is a 2+1 800 sf in good condition (no heat--wall unit went out) in the Occidental College area. The husband is on disability $1000/mo and the wife works (27,000K annual according to him) so that's a combined 39K annual. Their rent---get this---is $1000/month and when I talked to them this morning about the situation and how the IRS might come after my mother for gift taxes because of the low rent and how I was spending down my mother's bank account to subsidize his rent he got really upset because he said they couldn't pay more and that 4 years ago when I raised the rent from $575 to $1000 I said off the cuff, "That'll be it", thereby, in his mind, committing myself to never raising their rent again. But that was before my mother got four rent increases of her own at her assisted living complex in the meantime. He said he'd get SS in Oct. and his income would go to $2000/mo and he would gladly pay more then, how much more is undetermined. He could never get it up to market though.
I store some stuff in his garage. That's worth about $200 in rent so their actual fair market rent is maybe $1200 or so, still way below market, which in this area is $1600 for an apartment; $2000 for a SFD.
I seem to be too nice a guy to deal with this. Should I hire a property management co. to manage the property and let them deal with the headaches? Unfortunately, all the property management co's in this area seem to rate about the same as health care insurers---slightly below 1 star.
Any advice, thoughts?
What a load of garbage that bold part is. Get a property manager to take it over and manage it right because you are screwing your mother trying to handle this with no knowledge of how to handle it.
Stop having discussions with the tenants. Send a letter/hand-deliver, whatever so long as it's in writing. It isn't up to the tenants whether to pay or not pay more only whether to stay and pay or leave. However, I would definitely not raise it $1000 all at once, expecially since you have been derelict in your duties to maintain. You need to pay attention to issues, however. There's no heat because the wall unit isn't working. Fix or replace. Do a maintenance check every 3 months and fix what needs to be fixed.
It is better to have a tenant that pays on time and doesn't cause damage/annoy neighbors/etc. than no tenant at all.
I'll keep rent a little lower to keep an excellent tenant. $200 a month below market is a bit too much of a discount.
However, keep in mind that if you kick these tenants out and try for new tenants with more income, you are going to have to update that unit, repair the heat, probably paint, and maybe replace carpet. You will have to move your stuff out of the garage, which you should do whether they stay or go.
I suggest that you start making smaller increases annually. Raise the rent $50 with each annual lease renewal.
You nearly doubled the rent four years ago. That was a huge increase and I am a little surprised that the tenants accepted it. You scared them really good with that big increase and now you are talking increase again, they think you are going to bump the rent by several hundred dollars again.
I'll keep rent a little lower to keep an excellent tenant. $200 a month below market is a bit too much of a discount.
However, keep in mind that if you kick these tenants out and try for new tenants with more income, you are going to have to update that unit, repair the heat, probably paint, and maybe replace carpet. You will have to move your stuff out of the garage, which you should do whether they stay or go.
I suggest that you start making smaller increases annually. Raise the rent $50 with each annual lease renewal.
You nearly doubled the rent four years ago. That was a huge increase and I am a little surprised that the tenants accepted it. You scared them really good with that big increase and now you are talking increase again, they think you are going to bump the rent by several hundred dollars again.
In CA he is legally required to provide heat and the law for it says something like failing to do so could result in a $500-$1000 fine and up to 6 months jail time.
In some ways, if your mom's care requires more than the rent that is NOT REALLY the right way to look at the situation -- sounds like the place is NOT in tip-top shape and the couple is spending about a third of their modest income to stay in the place.
You need to evaluate what a fair rent for the place IN ITS CURRENT CONDITION -- the heat does not work, you are storing your stuff in the garage, and I am guessing there has been ZERO updates to the place in seven (or more ...) years.
You should also get an evaluation of what is a fair price to sell the place for, that might eventually be necessary to keep mom in the assisted care facility.
I really doubt that hiring a property management firm is going to, by itself, help you make any more dough -- they take their cut regardless! The firm you hire will not magically squeeze more out of the existing tenant, if the disabled guy and his wife can find a better deal they will move. And then you have no rent coming in. The management company likely would strongly suggest that the place needs to be updated to get a new tenant... Is that really the direction you want to go?
If you think there is solid demand for the place in current condition at $1200 you really have to decide if an extra $2400/yr is worth the hassle of new tenants AND booting out a solid tenant that seems to be very undemanding...
Little more explaining in order: the "disabled" guy is not really disabled; he gets around better than you or me. He was a meat cutter and cut off a finger. That's his disability.
I have spent 12K on a new roof 7 years ago and I upgraded the electricity three years ago at a cost of $4500. --that on top of an earlier upgrade of $1200 to accommodate an extra wall AC for them. I have spend quite a bit and absorbed the costs for 90% of it. The house, except for the heat is in good to excellent shape. I could easily get $1500 as is; $2000 if I installed HVAC. The tenants are not paying one-third, they are paying one-fourth of their income.
My mother cannot sell because she would pay a huge capital gain.
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. The heater was working then. I tried to fix it but having another wall unit installed with the danger of carbon monoxide poisoning if a disreputable company did the work put me off. I negotiated the absence of a heater in exchange for no rent increase and they were fine with that, but what set all this off was a stupid water drip she said was about a drop about every 5 seconds that they wanted me to fix for $300 plumbing bill and no rent increase. I'm not the ogre AZ Manager is trying to make me out to be.
Little more explaining in order: the "disabled" guy is not really disabled; he gets around better than you or me. He was a meat cutter and cut off a finger. That's his disability.
I have spent 12K on a new roof 7 years ago and I upgraded the electricity three years ago at a cost of $4500. --that on top of an earlier upgrade of $1200 to accommodate an extra wall AC for them. I have spend quite a bit and absorbed the costs for 90% of it. The house, except for the heat is in good to excellent shape. I could easily get $1500 as is; $2000 if I installed HVAC. The tenants are not paying one-third, they are paying one-fourth of their income.
My mother cannot sell because she would pay a huge capital gain.
Secondly, the items you've listed are likely not the kind of "upgrades" that will entice higher paying tenants. Typically it is assumed that the roof is not leaking and electricity does not trip breakers. Depending on the lay out and local climate lack of A/C is going to be a negative...
The sum that the current residents might be a quarter of their pre-tax income, but regardless of what sorts of disability the guy suffered, these are not going to be confused with high-income tenants. If their kids have moved away I don't think it would be going out on a limb to say they are "quiet" and probably fit into to the neighborhoods seamlessly -- if you tried to get new tenants that had a mess of kids or pets that might very well result in a whole lot more hassles dealing with upset neighbors.
You can try rationalize your thinking that a "property manager" will magically squeeze higher rent out of this place. The management fee is often 10% right off the top, which basically cuts your hoped for gain in half. Factor in the reality that many management firms have a nasty habit of actually INCREASING turnover and then charging the landlord fees for advertising the vacant place and screening new tenants and your NET goes negative -- Should You Hire a Property Manager?
Secondly, the items you've listed are likely not the kind of "upgrades" that will entice higher paying tenants. Typically it is assumed that the roof is not leaking and electricity does not trip breakers. Depending on the lay out and local climate lack of A/C is going to be a negative...
The sum that the current residents might be a quarter of their pre-tax income, but regardless of what sorts of disability the guy suffered, these are not going to be confused with high-income tenants. If their kids have moved away I don't think it would be going out on a limb to say they are "quiet" and probably fit into to the neighborhoods seamlessly -- if you tried to get new tenants that had a mess of kids or pets that might very well result in a whole lot more hassles dealing with upset neighbors.
You can try rationalize your thinking that a "property manager" will magically squeeze higher rent out of this place. The management fee is often 10% right off the top, which basically cuts your hoped for gain in half. Factor in the reality that many management firms have a nasty habit of actually INCREASING turnover and then charging the landlord fees for advertising the vacant place and screening new tenants and your NET goes negative -- Should You Hire a Property Manager?
Capital gains tax rate: 20% ---Mom paid 18K for the property--- worth roughly 500K now--- CGT: roughly $100K
PM I talked to said that it must have heat but with a new wall unit and assuming the property is in rentable condition (it is) could get $1600 tomorrow, but $1800-2000 is about the rents he getting for the houses he manages in that area.
They are good neighbors, but I can't let $1000 go on. Oregon had a good idea of gradual tax increases but @$50 a year it'd take years to get it anywhere near market and theoretically never since rents are always going up.
PM's are not the best solution, I agree, they are just a solution to something I don't want to deal with anymore.
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