How to say goodbye

[Chilli]

I am looking at a group of units in a good location and needs TLC.
Current tenants are elderly ones who have been there for years and hence rents are low. I can see with some reno I can add value and achieve much better rents. The problem is my target won't be these elderly people (I don't think they can afford the rent), which mean they will have to leave ...
The numbers don't add up if I have to keep existing tenants with small rent increase.

I am not sure how to handle this. Should I put this issue in a too hard basket and walk away ? What would you do ?

ta

 

[keithj]

Current tenants are elderly ones who have been there for years and hence rents are low. I can see with some reno I can add value and achieve much better rents. The problem is my target won't be these elderly people (I don't think they can afford the rent), which mean they will have to leave ...
The numbers don't add up if I have to keep existing tenants with small rent increase.

I am not sure how to handle this. Should I put this issue in a too hard basket and walk away ? What would you do ?

I've had similar problems. If they are particularly infirm, then you'd be doing them a favour by persuading them (or their relatives) that they should be in a nursing home or assisted accommodation.

 

[Chilli]

Did you purchase the property assuming that you would be able to resolve the issue Keith ?

 

[Andrew]

Can you ask for vacant possession? That way somebody else gets to
be the bad guy.

andy

 

[The Y-man]

The other way is to let them stay there for now, but lower the offer.

Do the "What? You expect me to pay $xxxx ???? Bu the return is only xx% !! No, sorry, but the best I can offer you is $xxxx (a figure that would give whatever you consider "decent" return)"

Cheers,

The Y-man

 

[thefirstbruce]

Maybe there are 1 or 2 reasonably priced hostels nearby that can accomodate these ppl Salsa

OK, my 2 cents worth.

That the current owner has not kept returns up to market rate, indicates that their disposing of the current tenants was perceived as too difficult or emotionally draining, and/or they are out of touch with the market.

The other consideration, is that the vendor may be friendly with the tenants, and will favour doing a deal with a buyer who 'appears' to be open to keeping the tenants in place.

Use these probabilities to your advantage. You could either:

A:
Make your lowest offer based on inheriting the tenants.
If they reject the offer, then make a higher second offer based on vacant possession, which includes a reasonable amount for the vendor's trouble in arranging vacant possession. I'd personally factor in about $2500 for each. Though this will be peanuts compared to what it might cost you in having to sort it out afterwards.

B:
Make your first offer based on vacant possession. If they reject, make the same offer again but with tenants in place. If they reject that, make a third offer with more cash in it, but vacant possession again.

C:
If you find out the vendor is friends with tenants, then make an original offer with 12 months rental guarantee for current tenants. Second offer has no rental guarantee.


Note in your negotiations that the current owner apparently does not need market returns, therefore is not short of a bob, or has health or other issues that effects their commercial sense.

At the end of the day, you have to not take responsibility for the future of these tenants. You have to remember that you are paying a higher price for the building than the current owner, who created these circumstances. And your bank isn't going to cut you any slack on rpts to provide subsidized accomodation. You also have to remind yourself that we are in a welfare state, where your taxes are there to cater for ppl such as this. Further, you have to remind yourself that each of the tenants has a direct link to God, which when exercised, God will sort it out

 

[crest133]

Hi Salsa
Buy on fact, sell on emotion.
Go talk to all the tenants, assess their needs and wants confidentially, perhaps there is a solution that's a win-win, perhaps not. Don't be a social worker. They might just need time to move, who knows. At least you would know the facts.
cheers
crest133

 

[yadreamin]

Salsa
The tennants may be claining rental assistance, so any increase in rent may not actually bother them at all.
Not sure how you would be able to get this info except from talking with the tennants.
cheers yadreamin

 

[kathryn d]

We sort of have the same situation with one tenant. They are way under what the other tenants pay. Have been there at least 12 years. Just before we bought the place their rent was increased but still not to the others rate.

It's been a debate here as what to do. We have decided to increase them slowly over the next few years to get them caught up to the rest. They are quiet, good tenants. If they moved out tomorrow we would get $90 a month more.

Offer a lower price and check into rental assisstance. Give the tenants the info and slowly and steadily raise the rents.
If they are elderly, slowly they will be moving on (one way or another).

 

[Chilli]

Some good advice oops suggestions there thank you all.

TFB, wow to your "dedicated" long response thanks heaps.

Will also use the good tactics learnt from Michael Whyte's thread about making low ball offers.

See how I go and will report if anything interesting comes out.

 

[Chilli]

update.....

Had long chat with REA. He said the last offer was a few weeks ago and it was $xxx , the owner knocked it off (a bit reluctant tho) and did not countersign, just said he wanted more than that. I am guessing not much more, coz he was "reluctant to reject " . This owner has owned it for >20 yrs , now retired and want to sell, is not in a hurry but does want to sell.

The prop has been on the market for months and asking price has come down.
REA said it would not be worth it to present any contract with < $xxx amount .

 

[The Y-man]

Time for the "Thank you for your time. Call me if they change their mind" ...

Cheers,

The Y-man

 

[mja]

Had long chat with REA. He said the last offer was a few weeks ago and it was $xxx , the owner knocked it off (a bit reluctant tho) and did not countersign, just said he wanted more than that. I am guessing not much more, coz he was "reluctant to reject " . This owner has owned it for >20 yrs , now retired and want to sell, is not in a hurry but does want to sell.

The prop has been on the market for months and asking price has come down.
REA said it would not be worth it to present any contract with < $xxx amount .

Present it to them anyway, and if it's rejected then say "I'll see you in xxx months time."



-- MJ.

 

[facemaker01]

Interesting thread. We had the same issue when we purchased our first investment unit. The tenant was long term and had been an excellent payer. The rent rate was well below the average amount, so we decided to raise the rent in small increments to soften the blow. The initial increase was by $10. The tenant decided that he couldn't afford it and gave notice.
We've had two other tenants since then, and have brought the rent up to a healthy level..
I might add that the condition at purchase time left a lot to be desired, so a solid weekend's worth of cleaning, painting, new light fittings and aluminium blinds from Bunnings helped to bring in a new type of tenant.