We have been unwrapping a recent purchase of a 4 plex with a gross cap rate (the annual projected rental income of $31,200 divided by the purchase price of $155K) of 20.12% to see the results of the tenants performance on our return of investment in the short term.
When we look at the actual rents that we inherited due to the leases that were in place when we closed on the building we find that instead of each of them being at $650 a piece for a income of $31200 we have 1 unit empty (keep reading to find out why this may be a good thing). One unit at $575 a month, one unit at $625 a month, one unit at $795 a month and one unit that was empty we can assign the $650 value to for a actual projected gross income of $31,740
In reality we are down one unit's income untill unit is filled and we have yet to factor in our inherited tenant's behavior or lack thereof.We are now half way thru the month and should have recieved rents from our existing tenants however we have not.
We hired a property manager to manage the property for us (roughly 10% of rents annually) and found that our tenants all had different and unique situations that caused them to feel as if actually paying rent was optional. After attempting to collect the rent from each tenant in person the PM served each with a written 3 day notice to pay rent or quit the property (move out ). This caused the previously unresponsive tenants to respond in the following manner.
Unit A - states she has paid the rent to the previous owner, then later changes that to the previous maintenace man and then to the previous property manager. When all three are confirmed to have not recieved any rent she then states that she wants to move but does not have the money to do so. While observing the property during the management of other nearby units she is seen being dropped off by 2 police cruisers. A teenager is seen hanging out of the window near the front door to hold conversations with neighbors.
Unit B - states that she has always paid on time but is with holding her rent because her electrical is not working correctly and her oven does not work. When the electrician comes she does not answer the door but is seen later exiting the apt to check the mail. The electrician replaces 2 outlets and 2 light bulbs and declares the rest of the electrical to be in good shape. The next day she refers the PM who is back to collect the rent to husband for payment. She states that she is being harressed. She now says that the heater gets too hot upstairs and stays cold downstairs. BTY the husband does not appear to be living at the apt.
Unit C - states that he has not had a working heater since for 11 months and is withholding rent untill it gets fixed. He refuses to set an apt for a HVAC man but then later calls in with a time. The apt. confirms that the unti is bad and will cost $3500 for a repair. Tenant still refuses to pay. For the most part this unit is maintained very clean if you overlook the stains and smells caused by the dog feces and urine in the down stairs carpet. A puppy sits in a 2 foot cage in the living room.
A cash for keys plan is proposed and rejected by two tenants, Eviction cost $1700 for the two tenants, however this is offset by the $1200 we received in deposits during the escrow.
Month 1 = Income 0 , Expense = $ - 950 ($500 eviction + $150 PM + $200 Electrical + $100 HVAC)
How do the tenants respond to the Evictions in Post #106