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I bought a home in 2000 before I met my wife. I paid 50,000 for this property and it is now valued at triple that amount. We married and moved but I kept this property as an investment property. The tenant in the home has been there for 15 and has been fabulous. The rent that I'm charging is no longer making sense as an investment property. I'm breaking even. Ok, I'm lying.... I'm coming out of pocket maybe a thousand dollars a year. My wife wants me to sell the property but I want to keep it a little longer. My elderly tenant has been great but fell on hard times because of serious health issues. She still remains to be able to pay the rent but can not afford an increase at this moment. I tried to refinance the investment property but realize I would only be saving an additional 125.00 a month with closing cost costing 3945.00 I would not break even for 3 years. I was thinking about doing a streamline refinance but it doesnt really benefit me. My property is not under water. I was thinking about doing a HELOC loan. I would only do this if I fell on hard times or needed income to repair something major in my primary or investment property. The issue is that the rent has remained the same for many years but the mortgage has gone up due to property tax hikes. As a result, the rent I am charging basically covers the mortgage. Any suggestions? I can get so much more money in rent but because this tenant has been so great and my previous tenant before her was so horrible I feel like I have to stick it out with her and now she is sick. My wife said I don't have the stomach to be a landlord and would like for me to sell the property. Doing so would provide a very good return. However, I don't want to do that to the tenant and also, I really have no interest in selling this property as I do feel like the longer term investment potential exists.

All that said, just looking for an outsiders opinion on what they think and also if you have any suggestions for different options. I can't continue to take the loss on this property. But I don't want to get rid of this property and I also don't feel like I can raise the rent for this tenant (with a new tenant I would probably get double the rent).

What are your thoughts on my conundrum?

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    Can you edit your question to be more specific than "What are your thoughts?" What do you want to know? – JohnFx Feb 27 '15 at 18:03
  • As a decent human being you can let the current renter stay on. But can you digest it and let the current situation go on. I would assume no, hence the question. So as @JohnFx says mention what you want to know and not what we think about it. – DumbCoder Feb 27 '15 at 18:09
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    Are there programs in your area that would help your tenant be able to pay the higher rent? Some kind of low-income or disability program? – Geoff Feb 27 '15 at 19:49
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    Ron, just curious what you ended up doing with the property. – InbetweenWeekends Feb 8 '18 at 18:43
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You are not a landlord.

You have choices:

  • Sell now. Get your profit, stop your anxiety.
  • Keep your current situation and be unhappy.
  • Hire a management company. They will take a percent of the rent (8-10%) but provide a firewall between you and the tenants. They should be aware of market rent, and will treat your rental like a business.

The current situation is charity. And that's ok, so long as you acknowledge it. In the big picture, anything less than market rent is a gift that you are giving the person living in your house. A good tenant might keep the place in better shape, and deserve a lower rent, but that's a quid pro quo. In the end, landlording is a business. If you had 10-20 apartments, they would be proving an income to you and you would have a large chunk of your wealth tied up in it. You would keep the apartments in good shape both to be legal and not a slumlord, but you'd also collect market rent. $100/apt would be $1000-$2000/mo income to you and your family.

You wife is right. As always. You have a decision to make to stop the bleeding.

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    Your wife is right as always? As if there was any other option (pretty funny side note) – jclozano Feb 27 '15 at 20:16
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    @jclozano - I jut had my 20th anniversary. A good friend told me long ago - "If you aren't happy, but your wife is happy, you are still far happier than if you were happy but your wife isn't happy." Too long for a bumper sticker, but still true. – JoeTaxpayer Feb 27 '15 at 20:43
  • wow congratulations, i'll take that wisdom to heart – jclozano Feb 27 '15 at 21:36
  • Here's the phrase you can put on the bumper sticker: Happy wife, happy life. :) – Bernard Dy May 16 '17 at 15:45
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You're worried about your tenant. That just means you're a nice guy, and it's ok to be nice. At the same time, you can't be expected to lose money on the property or charge well below market on the rent. My suggestions:

  1. Talk to your tenant. Let her know exactly what's going on: you've kept it low as long as you could, but it's costing you money and you need to raise the rent or sell the place. If you sell the place the rent will go up anyway. Give her plenty of time to make other arrangements, say 2 or 3 months notice (if you are month-to-month), or at the end of the current term.

You know what? She'll totally understand. You've been super nice in keeping the rent low for so many years, and she's been a great tenant, too. At a certain point, inflation kicks in and you have to raise the rent. She'll get that. If she can find a cheaper place, that's a win for both of you. Help her move if you want to be extra nice.

  1. Then decide if you want to sell the place or raise the rent. Either option is fine.

  2. Listen to your wife. That's just general advice.

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    FWIW, 2-3 months might not be "plenty of time" to an elderly person with serious health issues who hasn't moved in 15 years. But if you set out to offer whatever is, to her, plenty of time, you can at least hope she'll be able to make adequate arrangements. – Steve Jessop Feb 28 '15 at 14:31
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If you're losing money or breaking even, you own a bad investment.

The problem you have is that you are emotionally invested in your tenant. That isn't a bad thing in general but it's costing you money and, unless interest rates fall enough to justify a refi or property taxes go down in your area, that's kind of unlikely to change.

Option #1 - Tell your wife that you are willing to accept a loss up to a certain level because of your long term relationship with your tenant. In a perfect world, the two of you would then discuss what the "magic number" would be where you got out and come to a compromise. For example, if you are comfortable losing up to $3,000 per year and she is unhappy with any loss, you may agree on selling the house when your losses climb to $1,500. In a less perfect world, it would cause an argument as she has already told you what she wants you to do.

Option #2 - Raise the rent to the break even point. From what you've said, this will likely result in the loss of your tenant but you could then rent to someone else for significantly more.

Option #3 - Sell the house. It's an investment property which means it's supposed to make money for you. It can do that very quickly by way of a sale and then it's no longer your problem.

Option #4 - Sell the house to your tenant. You bought it for $50,000 and it's currently worth $150,000 (roughly). The problem you face is that property taxes have gone up and caused your mortgage to increase past your tenants ability to pay. My guess is, after 15 years, your payoff is somewhere in the high $20's to mid 30's assuming you got a 30 year loan and haven't refinanced. If you sell to her for say $75,000 (or even up to $90,000) you will still make a profit (wife is happy), she will get a mortgage she can afford and be able to stay in the house (you and the tenant are happy). Added bonus is that her property taxes would be lower (assuming a different rate for investment property in your area). I would discuss this at length with your wife as well before making such an offer.

Option #5 - Get a property management company. As mentioned above, they will keep a percentage but will remove your emotions from the equation altogether and turn the situation into a winner.

I don't know if your wife is right in saying you don't have the stomach for this, but I do think your heart is getting in the way in this particular situation. I get the feeling that if your tenant was 25 years old and had only been renting from you since last October, you would have no problem raising the rent to market levels at every renewal.

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    I don't see how giving the house away at $60k to $75k less than market value is in any way preferable to losing (say) $3k a year - at a minimum, that would be saying it's better to combine the losses for the next 20 years into a lump sum now (increasing the NPV of the loss). On the other hand, if the sale is done with some sort of contingency, for instance, if the tenant agrees to sell the house back upon death for a token amount, that might be palatable for both parties. Even just having a conversation about this with the tenant might lead to them taking favorable action. – Michael Feb 27 '15 at 19:47
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    I didn't say it was preferable to anything. The OP seems more concerned about the tenant and that option would let him help her without angering his wife (too much). Personally, I don't think it's a good option and I'd either raise the rent (at the next lease renewal) to market levels or sell the house for what it's worth depending on how a discussion with the Mrs. went. If the tenant wasn't able to pay the increased rent, then I'd find a new tenant and wish her the best in finding a new place to live. – geewhiz Feb 27 '15 at 20:03
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Renting your property out at less than market rates is a form of charity. Your heart says that this is the right thing to do, your bank account says no. And so does your wife. This isn't a question for the Money stack exchange, I think ...

But since you are asking here:

  • Are you emotionally attached to the house? Could you imagine living there after retirement? That would be a reason to keep it in the care of a nice tenant.
  • Consider how property prices are moving in your area. Up or down? Does that give you a reason to sell now or to wait?
  • What would you do with the money if you sold the house? Do you have any investment which is as good?
  • Are the medical issues going to change, one way or another?
  • how much time and how much money would it cost to set the current tenant out and to find a trustworthy new one? Multiply that time with the hourly rate in your day job and you will get a surprising amount ...
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If you're sinking 1k/year into it, and the value is rising by $100k in 15 years, or $6k/year, you have a fine investment. Ignore the wife, she just wants something even better.

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