Buying Property With Tenants In Place: What To Do?

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I have had the situation of buying property with tenants twice. The first time it was a duplex and the owner was out of state. He was self-managing, although he said he wanted to sell because he was looking to retire. He claimed all was well and good with the tenants, they always paid, etc. and they were both on month-to-month verbal leases. (This was before I knew about estoppel letters.) I met the one set of tenants and they were really nice. I wasn't able to meet the other tenant before buying the building. I asked both sets of tenants to sign a new lease with me which they did. I kept the rents the same. (I did get the pro-rated rent and security deposits from the prior owner.) The one set I had met paid on time, and everything was great. The other one, she was a character. She paid the first month on time, but then the next month was late. I then found out from the other side that the owner would ask HIM to collect the other tenant's rent if she was late. And sometimes she wouldn't pay. Well, I think the owner didn't have the guts to collect from her, and now she was trying to test ME. Well, that 5 day notice was served QUICKLY. She must have seen that she wasn't going to get away with anything there, so she paid the rent then announced that she was leaving. I was okay with that, because I had her security deposit so I took out the late fee and the damages, and re-rented the unit for $25 more per month. The second time I met the tenants ahead of time and purchased on Nov. 27th and collected rent the very next month. The tenants are great and they have only been late once since and it was only by a day. I have actually gotten compliments on the property and on the tenants from the head of the local landlord association. So I would definitely say that meeting the tenants ahead of time is a good thing, and it did all work out for me.

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Clay, I just closed on a fully occupied 5-unit MF. You are right that no one likes change, and so my first goal was to reassure them that things would continue business as usual (at least at first). I bought from a seller who is a well-known and well-reputed landlord in the city, and I did so specifically because his property management philosophy and mine are well aligned. As soon as we closed, I sent all tenants an introductory letter with a little bit of information about myself, my contact information, and I told them I'd be following up by phone to arrange a brief in-person meeting so we each would have faces to put with names. Within a few days of them receiving the letter, I met with each tenant and brought them a small gift. When we met, the conversations were cordial. I asked them if they had any questions or concerns. If they did, I addressed them. I also asked each tenant, diplomatically and without throwing the door open to requests for major upgrades, if there were any small items in the unit that they felt required attention. Most had nothing. A couple had small items that I agreed would be good to tend to. And even if I did not agree, my intent was to reassure them that I will be as responsive as the previous owner. I've been working through the short list of items, and everyone seems fine with the transition. Good luck to you!

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Jermaine here On the day of my inspection I always try to meet with the tenants,I always try to set my inspections for the first thing in the morning so that I can catch most of the tenants there, actually meeting the tenants and sending them a letter is not my biggest concern my biggest concern is usually the property management companies contract and how long does it last. Tenants lease are usually year to year so in the event you inherit a bad tenant you only have them for one year if you inherit a bad property management company you can have them for many years

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@Clay Manship - I acquired my first MF recently with tenants occupied. I followed the same steps pretty much exactly as described by @Nancy H. and it worked really well. Although before buying the property I had an opportunity to meet with the tenants. This is because the seller was really helpful during the transition process. Anyways I wish you all the best.

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what is an estopell?

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I agree with Brenda on this one. I have been working for a property management company and everytime our clients purchase new properties, we always send out welcome letters introducing ourselves, and we schedule an appointment to do a walk through and make sure there are no pending issues with maintenece and so on. The estoppel is also a good idea if they dont have a rental agreement with the previous landlord. Tenants will normally respond really well when they are notified. We have had a pretty good experience with the letter and meetings with the occpants. Good luck!

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Clay, I know a lot of owners don't like this but if I find myself in a situation like yours, I meet the tenant's before considering purchase, caveat being value of property. During meeting in casual conversation if you like tenant, ask a few questions like: How do you like it. Do you plan on living here longer than lease. If not what can I do to keep you. Just general questions like that will better help you understand what situation your tenant is in. To get back to my earlier point, I met with current tenant asked a few general conversation question and discovered the person living there had signed a lease from a different state and was not familiar with the neighborhood she was moving into. To make a long story short, by doing the due diligence I found out that even though for the next 7 months I would have made roughly 70% ROI on initial investment. The property was in a very undesirable area and finding another quality tenant to rent the property would be tough so passed. Hope this helps Zech

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Definitely introduce yourself to your tenants. A letter would be nice, followed up by a personal visit so that you can see for yourself the condition of the units when you took ownership. Make sure the property management company knows that you are on top of this and are clear on your expectations from them.