INHERITING TENANTS IN NC

[Marco Padilla]

Well as investors we are always looking for our next deal. This time it has come in the form of a Four-Plex in Columbus county NC. All the units are being rented out and we are at a 10% cap rate. All seems fair and good the units need some updates and once updated we can get more rent for the units. Our biggest concern is inheriting tenants. We have another unit (Duplex) where we inherited the tenants and one of them has been nothing but aces and of course the other one is nothing but problems and hasn't paid rent since October 2020 and that's just the beginning, has chased away our contractors, threatened our property management & the other tenants we've been to court to get them evicted and have lost on two (2) separate occasions. We are at a loss at this point and it's totally unfair to our othher performing tenants, not to mention a discouragement for them as well. What are your thoughts?

[Ed W.]

I fully agree with @Drew Sygit.   

@Marco Padilla when you buy a property, particularly a small one (<= 6 units), your thorough due diligence has to include the complete due diligence of tenants (including interviews and estoppel agreements).  Interviews for larger properties, while possible, get pretty cumbersome but you can selectively interview based on unit condition, payment history, potential to renew for leases near their end, or other VALID reason for singling them out (race, national origin, etc. are never valid).  

Each tenant can cost you thousands of dollars and, sometimes, tens of thousands.  We always care about gross income, expenses, deposits, roofs, mechanicals, structural issues, survey, title, and all of the other things we should be investigating.  Bad tenants (any tenant with a high potential to cost you money) also have to be accounted for in the price.  Will the owner permit interviews?  Over the decades that I've used the process, I've never had a problem - the requirement is part of my contract.  I am unfailingly polite, usually take the tenants donuts or similar, and keep the process low key, factual, and cordial.  If I sense a problem developing, I excuse myself.  I always offer the owner to be present but I've only one take me up on the offer.  It's also a good time to build rapport with tenants and learn about property problems you've missed.   If both the owner and I agree that such a tenant meeting would be mistake for some odd reason, I assume the worst and my offer reflects that.