Red Flag Tenant?

Question

Here's the scenario: In escrow on property, seller provides rent roll and tenant is 10 days late on first months' rent.  Note, lease was signed right before listing property, so this is first time rent has become due.  Under lease agreement, tenant has 3 day grace period before late payment. So effectively tenant is 7 days past grace period.  Is this a red flag for those who are experienced investors? This is my first out of state investment property and i want to make sure i'm not buying a sour deal with a problem tenant...

Michael Smythe · Answer

@Ashley Ernst we disagree with @Mike Paolucci

While he could be right and this may be "normal", the opposite is too risky.

You haven't shared enough details, but what are the chances the seller is a flipper or turnkey provider who threw the first applicant they got into the property just to make a sale happen? You get stuck with a tenant you'll probably have to evict at some point, then repair any damages they've caused and then find a new tenant. What will all that cost?

Where is the property?

What Class is the property?

What is the tenant's credit score, income & job stability, rent payment history with previous landlords, etc?

How long has the seller owned this property?

How long has the property been a rental?

What repairs have been recently made according to your inspector?

Any recent building/electrical/mechanical/plumbing permits pulled at city?

Worse case, how many months of rent will the seller discount on the price to make you comfortable moving forward with the purchase?

Ashley Ernst · Answer

Michael - This was super helpful and, quite frankly, your comment that "what are the chances the seller is a flipper who threw the first applicant they got into the property just to make a sale happen" is what my concern is.  Seller owned the property 4 months and did some remodel before putting tenant in the property and immediately selling it. Property is rented for $100 over the avg for the C+ area, which already made me suspicious, but when running the numbers, it still cash flows even if I assume avg rent for the property. Property was a rental prior to this for several years (I confirmed with prop mgmt company that used to service the property prior to the Seller buying it.  This morning I finally received the report run on the tenant prior signing the lease.  Tenant has poor credit, no eviction history, and two historical collections on record.  To me this is a ticking time bomb...

Mike Paolucci · Answer

@Ashley Ernst

If you're confident that the deal makes sense and is a good buy, then I wouldn't let this be a deal breaker. I would definitely recommend contacting a local Property Manager and get their advice.

Late rent and potential evictions come with the territory of being a landlord. These kind of things will happen eventually with tenants regardless of market / location of property.

Michael Smythe · Answer

@Ashley Ernst So, how many months of rent will the seller discount on the price to make you comfortable moving forward with the purchase?

Jonathan Bock · Answer

@Ashley Ernst @Michael Smythe

Red Flag Tenant?

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