Do a make tents sign a new contract?

Question

Hello biggerpockets friends!I'm buying my first house which is a duplex. We close on the 9th of June so in less then a month.My question is this, the current tents in one half has a contract ending at the start of next month. As I am becoming the new owner, should I be making them sign a new contract? This duplex is in Provo Utah, so anyone that knows how it works in that area that would be awesome if you can inform me.Thank!

Douglas Larson · Answer

Good replies so far!... My 2 cents is that you can ask for anything you want. They can say "no" but you can always ask. Tenants who like their current arrangement and want to stay, might welcome the predictability of a new contract with the new owner. By law, you have to honor what's left of the contract in place, but again, they may be very happy to sign for another 12 months or more just to have a predictable future. Another piece of advice is that you will want to make your relationship very clear so that you are not having neighbors knock on your door at midnight just for a new lightbulb. Maybe @Brandon Turner will link to one of his posts I read about his experience with a shared multi. With my rentals I always mention that I own the home with "partners" or that I "manage the rental with some partners" so that I can let the partners be the bad cop in certain situations like late rent or lease violations.Welcome to RE investing and have fun!!!!

Sean Tagge · Answer

Congratulations @Reed A. on your first duplex. First off make sure to read through the current contract that the tenant is in and make sure to be aware of everything in it. When I moved into my duplex that I bought a year ago the other unit had tenants on a month to month contract. What I did is that the week I closed on the house I got to know the tenants that have been living there for 3 years. I found out they were wanting to stay there at least another year. Their current rent was $900/mo and rent was not raised for the 3 years they were there (about $250 below market rent). I let them know that I would be making a new 1 year lease with them and would be raising rents. So the beginning of the next month I got them on a new 1 year lease and raised the rent to market rent of $1150/mo.So you will probably have to wait until their lease is over then you can start a completely new contract. My tenants were already on a mo to mo contract so I could've just changed it at any month (when the contract ends). I also put in my contract that it would be $1150/mo rent for 1 year then a month to month lease at market rent (giving me the option to raise the rent like $25-50/mo after the year contract is over). This will give them the impression right off the get go that rents will increase slightly every year.

Reed A. · Answer

Thanks @Mindy Jensen, yes I will be moving in on the other side. I like the idea of waiting to get to know them. You shared some good information to consider, thanks!

Becca Summers · Answer

I would make sure they are renters that you would want. If they applied in the future are they the type of renters you'd want? Just screen them like you would any other applicant. If they don't pass then keep them month to month until you have your reserve set and are ready to make a change. Unless you can afford to have turn over in the first month don't renew their contract give them proper notice and move them on. $1,200 for a duplex in Provo sounds pretty close to top unless its a four bedroom side by side. Good job jumping in and getting in to investing!

Tim Mellor · Answer

In Utah, when a contract ends it does become a month-to-month contract automatically (or at least it did the lats time I checked). However, I would always have them sign a new contract. Not all contracts are created equally. I had to evict a tenant once and had an attorney handle it. They read over my contract and strongly encouraged me to use the contract provided by the Utah Apartment Association (with membership costs of course) as mine had many holes. If you only use them for their forms, their rates are a bit pricey, but they have other benefits as well that could make it worth your money. If you have to try to enforce the contract that they made with a previous owner you may find yourself on shaky legal ground. You could still start them off with a month-to-month lease until you get to know them better and know you want them around long term. Since I live and work in Provo, I'm interested to know where the property is. If you want another set of eyes on your deal, I'd be happy to look at it with you. Just PM me more info. Otherwise, congratulations and best of luck.

Sabi Const · Answer

Getting to know the tenants and their habits is very important. Just because they are paying market rents or that they are keeping the place nice isn't enough. What if they cook food that has a strong smell, play music louder, etc... Anyone can pay market rents, it about getting the right type of tenant than when/if you move out, your property will be worth more because of the people you have living there. That's my thought about taking on existing tenants.

Reed A. · Answer

Thanks @Sean Tagge! I'll for sure look over what their contract says, it ends at the end of the month. They are paying $1200 in rent which I believe is at market value right now, so I wouldn't plan on raising it just yet, but I for sure would want to add in the new contract that rent with increase as the market goes up. Good tip, that helps.

Mindy Jensen · Answer

Check your landlord tenant laws. Some states automatically switch to month-to-month at lease end unless the tenant signs a new lease. Other states automatically renew for another year unless the tenant specifically gives notice to vacate the property.Since you are living next door to them, perhaps keeping them month to month for a short time while you get to know them is key. If you renew for a year, and they are horribly annoying, you're stuck with them. If they violate lease terms you can evict, but being annoying is not an evictable offense. Have you introduced yourself to them yet? Are you moving into the other side of the duplex? I wrote that above assuming you would be...

Reed A. · Answer

That's Omar, I was not meaning making them sign a contract before I take ownership. I was just wanting to know if I am allowed to ask them to sign another contract after I took ownership, thanks!

Omar Ruiz · Answer

I don't think you can have them sign your contract before you take ownership. Most contracts have a clause stating that after the lease period ends, it turns month to month - verify this. After you take ownership you can have them sign your new contract.