Can I cope with alcoholic tenants - 8 of them???

[Alia]

Hi all

HELP!!! I'm freakin' out....

I'm thinking whether or not to buy this place...

It's a boarding house with 8 beds in one of the lowest socio-economic suburbs. The residents include alco's/workers over the age of 55. Some of them have lived there more than 20 years. Currently 5 rooms are tenanted - all for more than two years.

One of my friends has said, "are you crazy? it's the vortex of the idiots, they'll drag you down, they'll ruin your life.

"Better to buy a decent unit in a good part of town and forget about it."

So, why am I even considering it?

Because:

The purchase price is $250k, and if fully rented out it makes $550 per week in rents. For new starters, cash flow and rental yield is wonderful!!

So, on paper, it makes double what another place would make.

Second, the house is brick and tile in good solid condition. It's not glamourous but it's well-built and surprisingly very clean and fresh inside.(apart from the cauliflower-nosed inhabitants!!)

Third, my man and I are planning to each buy a property (first home buyers both), then get married, then have a bubba in the next year God willing...phew, a big year! But I'm 37 already and need to have a baby soon, plus he's dying to be a daddy.

I have read Jan Somers' books plus Peter Spann etc etc, and have been saving a house deposit for the last few years. We now have 55k between us, plus we have extra for the wedding etc set aside.

If I have a baby, I'll leave my 60k job at end of 2007. He's studying til end 2008 and only working p/t earning 25k, so we will go to a low income and a new baby.

We want to take advantage of both getting the FHOG and also build our property portfolio follwing Somers' advice: buy low, pay it off, buy more.

So, it seems that this place is definitely worth considering from a purely investment point of view, because it would see us through the lean two years ahead and enable us to purchase and service loans on two properties.

If we don't buy the boarding house, then I don't think that we'll be able to purchase two properties. We'd only buy one and even then struggle with one mortgage and three mouths to feed.


So, what would the plan be?

- Buy that one, rent out the rooms. Live in the separate unit space at the rear of the boarding house for six months (FHOG requirement).
- Buy one that we then move into after six months - rent it first for six months.
- Aim to keep both for the long term.

I've already seen a financial planner who said it's a great deal and drafted a plan how we could afford them.

The COST OF IT ALL... is change of lifestyle. Tenant issues. Am I up for that?

My friend said that buying into a low area like that is a mistake. That those 'losers' (his words, not mine) will drag me down...they'll be manipulative and tough and demanding.

It will be a huge drain, this friend says, on our lifestyle....For me to go from a white collar marketing job in the city to pregnant and not earning an income (which in itself is a massive change) , fighting belligerent old men who've been there 20 years.

One guy I've called "Clutter Man" because he has so much junk...he has filled the shed in the backyard plus he's got junk in piles in the yard...

how do i deal with those kinds of issues?

Who's the boss there? Not the owners, the tenants!! The owners are losing money bec the tenants rule. (The tenants have told the owner they only want 55ers+, no young people or women - so there's 3 vacant rooms!)

So, what's the go with setting rules for tenants???

How to manage them?

The odd thing is that they are not on leases, bec it's a boarding house. They pay two weeks in advance, cash in hand to the current owner (no manager/agent).

Am I tough enough to enforce my management - and win? ie clean up the sheds, get rid of the dogs (2), get new tenants to fill the rooms? Get rent paid regularly?

It seems there's only one tough ******* - Clutter Man.

The others seem relatively harmless, over 55ers, ageing rather less than gracefully. But none seem violent.

SO, what stresses me out, is that it's a down and out suburb and it might be very stressful to manage tenants - and maybe even to find tenants.

My gut feeling is go for it regardless...yes, it will be stressful at times. But what am I going to do? Live a life of fear? Avoidance? And saying no?

We want to get started in the property market and this seems the one rather dirty olive branch that would enable us to finance two loans on a low income.

If we can afford two 'normal' 250k properties with this situation, let me know!!

Cheers, Alia.

 

[see_change]

If you're not used to that environment , then going from a nice middle class environment to a rough area is an eye opener .

I get a steady stream of patients moving in to where I work ( Mt Druitt ) who have grown up in nice middle class areas . They buy there because it's cheap.

If they have nice neighbours they survive ok , but make a promise that by the time their kids arrive or go to school they'll be out of there.

Every so often they find they have the neighbour from hell and every thing falls apart. they're not used to having to shout down a drunken A....hole at 3 in the morning when the police have already been earlier that night, or worrying about who might be going over the back fence when they go out the front door.

So you're planning on buying " Their home " ( that's how they will be looking at it ). Because you will obviously not be " one of them :" you'll be the stuck up loaded landlord ". You have to collect rent of them and you have to live with them.

Of course you may move in their and find they are the most helpfull bunch of people you know and they will dot on you and your children ( and that may well be the case ) , but if it goes to the crapper , it may well go there in major style.

I probably wouldn't be that worried about buying it as investment , but living there ....

See Change

 

[GoAnna!]

I wouldn't be counting on full vacancy from the sound of it.

I don't know much about boarding houses but has this one been approved by council and does it meet all the requirements?

I would be tempted to either ask for it vacant possession so that I could start again and set my own rules

or lay down the new laws and if they kick up a stink and leave then so be it. Its not workable to have the tenants set the rules. At the same time I am sure that they would make life pretty unbearable for unwelcome co-tenants.

What would you value the house at were it vacant? Are there any vacant ons in the same area that you can convert to this arrangment?

 

[lizzie]

hi and welcome

firstly i can't give you any advice on how to run the place, having never done something like a boarding house myself. perhaps some of those with student rentals can help.

the biggest thing i can say is - if your friends aren't investor, specifically property investors, don't listen to them. they have no idea. not a clue. go with your instincts about the property - which, i might add, sounds pretty okay (brick/tile/good cond - not a slum).

secondly, if the tenants have been there 20 years and are quite happy and paying their rent on time, what makes you think they're going to suddenly up and cause a stink? i don't think so. this is just your friend being narrow-minded without knowing the tenants.

i'd also go with a managing agent - put a bit of distance between yourself and the tenants. then you can make the tough decisions and it's not you that has to enforce it.

i am sure there is more to add - but others will be able to advise better.

good luck and go for it.

 

[duncan_m]

It's a boarding house with 8 beds in one of the lowest socio-economic suburbs. The residents include alco's/workers over the age of 55. Some of them have lived there more than 20 years. Currently 5 rooms are tenanted - all for more than two years.

I'm not sure how often he logs on.. but TommyR would have a lot of insight into this.

 

[Alia]

Thanks Guys

Hi - thanks all of you for your comments so far.

This is the first time I have ever used/seen this forum, may I say it is an inspiration to encounter all these new friends who share my passion and interest in property.

May I recommend reading "23 properties in 5 years" thread by Karina.

Back to my humble beginnings...hmmm that is a thought mentioned earlier: vacant possession.

I had thought of getting home stay students there for $220 per week each, 'if I could get rid of the current tenants.'

Although my long term view would be investor, the rules of FHOG is you have to live there for six months. It would be great to really make the place nice and lift the standard a bit.

Also, then if they wanted to move back in, they would do so on my terms.

vacant possession would certainly be a 'clean break' from the current tenants.

In answer to an earlier question, someone asked what the property valuation would be - about the same. Other similar properties (5 b/r) are $260s, $240s.

However, on the other hand, the other strategy could be 'live and let live' -
ie purchase it and just leave all as is, except for the need to get new tenants in a few rooms.

but one guy has dogs, junk, all this crap....yuk

yah, i liked what lizzie said too.... that if they've been here 20 years then they've paid rent and are happy there.

i don't want a war, that's for sure.

hmmm...musings....

May I say another thing I really like with this forum is being able to read other people's issues and insights - to think what I would do in their situation - it's great problem-solving ideas for when i go to buy my own IPs.


Thanks again.
Alia

 

[lizzie]

sorry - i missed that bit about you wanting to move in to get fhog.

that being pointed out, personally i would ask for vacant possession. move in, tart the place a bit with a splash of paint and a good clean (and if it costs you $500 to get a guy to come out and remove all the sh*t from the back shed then so be it), and then start again with better quality tenants under your own rules.

students, clean single folk etc - much better than trying to "train" half a dozen drunkies.

 

[Simone]

Hi Alia

It sounds like a good deal - Go with your own feeling - particulary if the friend who thinks you are crazy does not invest in property.

That is a hard situation with the tenents. If the tenants who are there now are not paying rent regulary I personally would insist on vacant possesion. We have done this before with a IP (and the tenant was the owners son) but they did not care for the place at all and she new it. The only way this could be hard is if they have signed contracts??

If they are all paying rent on time and the place overall is in good condition then your plan could work - even with moving in for 6 months (if the unit is seperate out the back?) You could then clean the place up - have them sign new contracts - get them on your side (perhaps once you leave pay for a gardener as part of the contract, but specify that no junk is to be placed in the yard). You could even consider their thoughts on the new tenants - I quess this is reasonable given that they are are living under the same roof and it will keep all happy. We have tenants that have lived in one of our IP's for over 40 yrs and we have had to negotiate in this manner (as they obviously see the place as theirs!) it has worked well and we have a good rapport with them.

 

[Alia]

The emotions of being a landlord

The thing i find hard in this is that (d'oh!) i'm a compassionate person who always has concern for the underdog.

These qualities, whilst admirable in some contexts, don't necessarily make me the ideal landlord - or do they?

I have the idea that the best property managers are tough and able to lay down the law and not flinch.

Whilst I like the idea of vacant possession, my heart is already going out to these poor old guys (ie the current tenants), all run down by life and all alone, and I fear that I'll never get any mess cleaned up from the yard because I'll see Clutter Man's point of view and have compassion on him and leave him (and the junk) be! Which isn't a solution. Because others have to share the space.

That's on a good day.

On a bad day, it'll stress me out and they'll drive me crazy and it will be very frustrating!

I'm already thinking: "Oh but i couldn't do vacant possession; where are all these poor old guys going to go?"

In answer to GoAnna's q: yes, it's a licensed above-board boarding house.

How do other landlords suffer/struggle/deal with the emotional issues of landlording?

ie when they look at you with those big sad-puppy eyes and their sob story and can't pay the rent?
Or when some guy is nasty and you fear retribution?

etc.

 

[Jaffasoft]

I would have a go at it the way it is. And introduce new management to the house and slowly repairs and clean up. And do this within the first two months (fairly quickly) so they can see that chance is happening and they will adjust and shape up or condition them that they must ship out.

Condition of buying would be that 'Clutter man' if he has attitude he goes out on possession or clean up his act.

I would find the 'one' amongst them that seem the most sensible and authoritative type and assign him the house management role, there will be one there or one will come along.

Over 55 is not to much trouble I think grog could be a problem but as you say they seem harmless.

I've seen these types of houses and if managed can run smoothly usually it's no alcohol that works better. Still I would check how well and for how long each has been paying rent and those not are out when you buy or shape up. And be getting automatic direct debit as one of the rules.

It's one of those places that there will be nomads coming and going so it needs to have the resident management figure present and giving him or her a free run of the place to rent is enough. They will feel important to be given the role.

8 Beds does that mean 8 rooms then if that's say $80 a room it's 640 per week in rent provided it's managed well. You may not need to put any expenditure into cleaning the place up just an effective management system put in place!

 

[lizzie]

How do other landlords suffer/struggle/deal with the emotional issues of landlording?

ie when they look at you with those big sad-puppy eyes and their sob story and can't pay the rent?
Or when some guy is nasty and you fear retribution?

that is why i have a property manager ... i know i am too soft and would cave into every sob story.

it may cost me 6.6% out of my rental income, but i can sleep at night not angsting about the problems of others.

 

[geoffw]

Hmm. Not sure on the cashflow. Not if you're going to have to live there.

$550pw in rent- which may (after expenses) leave you $200pw.

And for that, you have to change your lifestyle, be around to be a policeman, cater for their problems etc.

All the best if you want to do it- but, for that money, I would not be doing it.

 

[flatout]

Alia,

To be honest my initial response was that you are probably buying trouble. Theoretically this is an income generating investment yet the current owner is willing to walk away from it - has basically thrown his hands in the air and said too hard, not worth it! You have to ask yourself why???

However, if you're determined to go ahead with it, I'd be inclined to try to stick with the current tenants. Why? Well you've got some very long termers there who must be paying rent reguarly and alcoholism aside, you said the place is surprisingly clean and in good condition so they can't be all bad. But clutter man's junk has to go. Put it to him that he is paying rent for a room and shared facilities. It does not include the shed or the yard. To soften the blow and perhaps get other tenants on side, undertake to establish a garden instead with a nice table and chairs in a nice corner somewhere. You might be surprised at how much some of these old fella's would enjoy it. If you're lucky one or two might even get involved in the upkeep.

Flatout

 

[AlmostBob]

Dont let your heart go too far out for those poor old guys
Bloke worked for my family, as a printer running a machine, lived in a boarding room in a Hotel for forty years in a dingy little room, poor old s.o.b. till he retired, then he sold the hotel, who knew, bought a yacht house car travelled.

 

[Bandita]

I have the idea that the best property managers are tough and able to lay down the law and not flinch.

Hi Alia,

For some reason I question this a bit. I'd say it's because of what I know from PM's - as a tenant myself and as an investor. Firstly, I would say I would absolutely use a PM if you buy this property - I would never want to deal with it myself - and I do think it could be a great investment - however, you must remember that PM's are paid very little, they're often young, and they seem to change jobs quickly. You'll probably have to stay on top of them if things start to go very wrong. As in investor, I've found them not to be nearly as active as I would be with problems/late rents/other issues (but I don't want to deal with it, so that's ok). As tenants ourselves - our PM is shocking and that's being nice! They've yet to respond to any issues (one being the broken fire alarm which we're suppose to check every week as stated in our lease - we alerted them to this over 3 months ago! - we've fixed it ourselves for our safety) - it's all things we're happy to fix ourselves, but looking for landlords approval (I know I'd prefer this as a landlords ourselves).

I guess my point is that is you think this investment will be trouble, don't count on your PM to be able to fix all the problems. However, if you do feel the tenants in place are good tenants and they take of the place, you have found yourself a pretty great investment!

Personally, if you do purchase it, I would not live there - I'd give up the FHOG for the amount of rent you'll receive by not living there - unless you're up for a challenge. The tenants are obviously happy the way it is, and they seem to not want under 55's there - and I'm guessing most likely will not want you their either. Not that it's their choice - but if you like the tenants and want to keep them - don't get them angry. An angry tenant is not a good tenant to have. I personally think a bunch of over 55's tenants are one of the best groups you could get! They're unlikely to move, not going to be throwing raging parties, and will probably keep the place as they would their own home (this could be a good or bad thing ).

My advice is - do you're homework, find out why the landlord is selling, and try to get a good understanding of the tenants in place - whether you want them to stay or not, and if you do, don't move in with them! .

Good luck!

Cheers,
Jen

 

[kathryn d]

hi Alia,
I know exactly how you are feeling. In about an hour we are putting in an offer on a house that we plan on converting to a 11 room rooming house/studio apt.We also will be living in it. At the moment it will need to have a reno, mostly adding bathroom in each room and a limited kitchenette plus doors to each and a couple walls.
We will be starting with no tenants...which means no income....
This place is in a good part of town,which helps.

I'm like you, I think this is an excellent investment. The first year will be the hardest.We also will be self managing.
I also agree with lizzie concerning your friends input.If he isn't an investor,don't pay any attention to him.

Good luck and keep us posted.

 

[grubar30]

How do other landlords suffer/struggle/deal with the emotional issues of landlording?

ie when they look at you with those big sad-puppy eyes and their sob story and can't pay the rent?
Or when some guy is nasty and you fear retribution?

etc.

Give it a couple of loud, rowdy, drunken nights and a few instances of missed rent, and you'll be singing a different tune real quick...

My advice - be friendly to your tenants but never be a friend (yes, harsh, but so what!), for when that happens, your position is compromised.


George "business is business" Grubar

 

[GIDDO]

The thing i find hard in this is that (d'oh!) i'm a compassionate person who always has concern for the underdog.
edit
I'm already thinking: "Oh but i couldn't do vacant possession; where are all these poor old guys going to go?"

ie when they look at you with those big sad-puppy eyes and their sob story and can't pay the rent?
Or when some guy is nasty and you fear retribution?

etc.

Ah, so you are a human being, and not an evil Landlord like the rest of us?

Clutter man MUST be causing resentment among the rest of the tenants.

Why not specify vacant possession, then take applications from the existing tennants on your terms.

Dont forget, if you don't buy this home, chances are that some evil landlord will buy it and kick em all out anyway.
From their perspective, you may be the best deal they will get. Don't forget that fear of the unknown is a terrific motivator for most people, including cauliflower nosed ones, probably moreso.

Go for it. Just clearing it up and sorting out the issues will give you INSTANT capital gain!