How to handle existing tenants w/o lease agreements when buying?

Question

Hello,

I'm about to put a offer in on a triplex in Milwaukee, but there is a situation that I'm not sure how to handle. The property is an estate sale which is occupied by family members in each unit without lease agreements. The two out of the three long term tenants want to keep living there. With that said, I'm afraid that if the current residents don't want to sign my lease after I close on the property, I'll have to deal with evicting them at my own expense. Their rent will go up $100 per month because it is seriously under market value. Is there something I can do to reassure myself that I will not get shafted if they decide to reject my rental lease and keep living in the property?

Thanks in advance!

-Chris

Samantha Klein · Answer

I'd make the offer contingent on them signing leases or vacating before closing.

Account Closed · Answer

They can't live there if you don't want them. Offer your lease at market rent. If they don't like the new arrangements they are free to leave. Get a lawyer to advise what is a reasonable amount of time to get them out.

Michael Noto · Answer

@Chris Semklo Is there any reason you want to keep these people as tenants? Walking into a situation where tenants have run amok for years paying below market rents is not an easy situation to walk into as a landlord. The odds of them having the ability or agreeing to pay market rents is not very good.

Based on experience I would do the following if I were you

• in your initial offer put in there that the house be vacant upon sale
• If the seller balks at that then reflect your offer for the fact that you are likely going to have to evict the current tenants or at least start the process so they know you are serious about raising rents. So for those reasons your offer is lower. 
• Then when he balks at that give them a choice of 2 offers. The vacant property offer (which will be higher) and the considerably less offer ( tenants stay upon sale).

I have never once had a landlord take the higher offer, they always take the lower offer and avoid the conflict with the current tenants. It can be a good way to get a good deal.

Getting rid of the current tenants will not be easy and I can almost guarantee they will not be willing to pay market rents so make it worth it to buy the property by getting it at the right price.

Chris Semklo · Answer

Thanks everyone, I value your input!

I'd like to keep the tenants if possible, at market rents of course. By keeping the tenants for at least another year, I could differ some make ready repairs that would need to be done to the units after a long term tenant of 10+ years.

Like @Samantha Klein suggested, I'll try to sign the leases before closing and have a attorney draw up the lease agreements.

I'll keep you posted on what happens.

Darren Budahn · Answer

Just put it in your offer that you want the building vacant at closing. There's also a box to check in the offer to purchase that basically says it is seller's responsibility to evict if tenants don't want to leave.

Joseph L. · Answer

I've just went through this very scenario. I had several tenants that were $150-$200 below market value. Upon acquisition, I introduced myself to the tenants and sent a certified letter informing them of the rental rate increase. The tenants were below market value for a number of years so they were expecting an increase. In this case, they really liked the are and did not want to relocate. I did have one particular tenant who felt the need to play hardball. I essentially informed him that he can pay the new amount or vacate while leaving a forwarding address; he ultimately stayed.

Joseph

Josh Murr · Answer

you are the boss. You are in charge. Decide how you want the lease and rent to be and move forward. They will either like it or they won't but there's nothing wrong with asking to pay market price. Think of it this way. If you have to spend the money on eviction it will cost money up front but by losing $100 every month per tenant will also cost money. Either way it's going to cost you, right? So. In my mind it would be worth the risk on the change that they would agree to pay the market rent.

David Ade · Answer

Tracking this thread

How to handle existing tenants w/o lease agreements when buying?

Most Popular Reply