Closing soon should I be worried? Vacancy? What to look out for?

Question

Hello BP family,

I was scheduled for a closing this Thursday.

Quadplex: 2br/1bath, cost $211k, seller pay closing. C class neighborhood. Repair 5k. New roof. Older hvac 12 yrs old.

Cash flow:600/month with PM

However, that has been extended a week since they have to evict two units. I have to extend my rate lock.

The issue is two units have to be evicted. U ut B has already been evicted and their cleaning that up. Unit A has eviction court Friday. I am scheduled to close next Wednesday. So that mean 2/4 are occupied. I am looking to home owner occupy, so really 1 is vacant.

It's too late to backout now. Did anyone else have issues prior to closing? I have a property manager that is working with me at the moment.

Any advice? How did yall get over being nervous? I'm very anxious, up until now I was told that the tenants were good.

Patricia Steiner · Answer

What does your purchase contract state in terms of right to cancel?  Was there a clause about the property being fully occupied at the time of closing with tenants acceptable to you?

I can tell you this without hesitation:  I would rather have a vacancy to fill - than a bad tenant.  Any day.  Any time.  I would refuse to close until the tenant is gone and the unit returned to a condition that is acceptable to me.  You have a property manager so have that person start soft marketing the unit so you can have prospects identified quickly and minimize the hit to cash flow.

If you have to delay the closing again because of issues such as these, present a contract addendum to the seller to extend the closing date AND assess the seller with the cost of extending your rate lock.

Nervousness?  Anxiety?  The best way to overcome those is to act.  Have a plan.  Put everything in writing and assume everyone is lying (good tenants don't get evicted, right?).  Get your PM up to speed, perfect and fine tune the lease contract and screening criteria.  And, be sure you tell everyone you know that you've delayed the closing until the SELLER evicts a bad tenant and returns the unit to satisfactory condition...a seasoned investor would do just that.

You're not buying a property.  You're starting a business.  Be ready to leave skid marks on day one of your ownership by having a strong plan and support team in place.

Congrats on your upcoming acquisition.  You can do this.

Mike McCarthy · Answer

@Johnny Dang don’t worry. The need for rentals is at an all time high, as long as you price competitively, you’ll be fine. I don’t mind pricing a new property a bit above what I think it should rent for. Within a week, you’ll know if it’s too high for lack of applications.

Talk with your PM. Stay on top of them, but let them do their job. Don’t micromanage, but let them know that you’re an active participant. They should be able to get it renters quickly to a GOOD tenant. Ask them what happened on the last ones they had to evict.

Good luck!

Jon Dang · Answer

@Jeff Fruhwirth Closed last week, and i'm painting and cleaning the vacant unit. I'm still pretty nervous since I see like alot places in my area have rentals listed. I'm worried about a prolonged vacancy. I still plan to screen and everything, but do you have any tips on getting tenants?

Jeff F. · Answer

Hey @Johnny Dang -

How did close go? You should be fine here. I had a similar situation on my 4 unit - they had to evict someone right before closing so we moved close. I agree with everyone here - taking an empty unit is better than a bad tenant.

Joe Splitrock · Answer

The way I overcame the fear is I just looked at all the other people doing it. I said to myself, "you are as smart and capable as those people, so if they can do it, I can do it".

Jon Dang · Answer

@Joe Splitrock Thank you for your words of encouragement! It means alot to me. You're right it is the just the fear of something new. I am nervous and excited. I do have a property manager to do the heavy lifting. I met numerous people on the BP community and investors in the same subdivision I am investing in. Since I'm doing FHA, I don't have too much skin in the game. It will be alot of work but I am willing to work it out. I keep forgetting this is a long term game.

If you don't mind me asking. How did you overcome your fears starting off? And a little background of your first property?

Joe Splitrock · Answer

@Johnny Dang if the property is properly cleaned, in good condition, priced right and marketed properly, it will rent quickly and you will find a good tenant.

You are scared because it is something new. It is your lack of experience that is driving the fear and the only way to fix that is get experience. That means jumping in with a leap of faith. Honestly there are millions of landlords who do this every day and most of us are nothing special. I don't know you personally, but this is not rocket science. Even easier if you have a PM doing the heavy lifting of tenant placement.

It is good the current owner is evicting the trouble tenants. Vacancy is far better than a problem tenant.

You will be fine. Just remember that real estate investing is going to be a series of challenges. Your ability to deal with each problem and move forward is essential to be in this business long term. Not only deal with problems, but put systems in place to prevent occurrence. Focus on one challenge at a time. Each makes you stronger.

TIm Harstead · Answer

Personally often times I would rather take a unit vacant it allows you to do any upgrades you need and get max rent, the fact that they are doing the eviction and not just leaving them there for you to deal with means these sellers are probably good people. Think of it as a blessing that the dirty work will be done by time you buy.

Patricia Steiner · Answer

@Johnny Dang

That feeling of "going in this alone," welcome to the world of entrepreneurship.  It takes guts.  You've done a lot of things right and you've learned a lot too.  Please promise yourself that there will be no handshake agreements in the future. This is business and business is a formal contractual effort.  In addition to your PM, get to know a realtor who works with investors who can write a contract for you next time, put in all the safeguards regarding tenants and inspections, and deal with the seller so you don't have to.  Right now, document everything that was agreed to on this transaction.  And, do not close until the property is in the condition you expect and deserve.  Take your PM to the Final Walk.  Make a punch list - right then and there - as to what the seller needs to do before closing and what you need to do to get it rented (your list should be very short).  Again, don't close until you get what you expected and your PM has your back (if your PM can't "cowboy up" at this point, better to know now than later).

And, the minute after you close, what will you do?  The day after closing, what will you do?

The week after closing, the month after closing...get a work plan - sign it and get your PM to sign it to acknowledge his/her role and commitment.

It's not about getting your ducks in a row, it's about getting your ducks swimming!

Jon Dang · Answer

@Patricia Steiner Thank you for the confidence. There was nothing in the contract the said anything about having them fully occupied. Yeah, this will be a huge learning curve for sure. Of course i'm scared for obvious reason. I will be meeting with my PM to catch up and draft a game plan! I have reserves to account for eviction and vacancys and such.

For some reason, I feel like I am going in this alone. Even though I have a PM, mentors, the BP family.

We have a handshake agreement for them to evict and clean the evicted unit. Final walk through is next week.

Closing soon should I be worried? Vacancy? What to look out for?

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