Hey guys, we are closing on our first real estate deal this week. It is a 4-plex and we will be living in one of the units and renting out the other 3. We inherited 3 tenants. All 3 tenants signed year long leases about a month before we put in the offer on the property. We intend to self manage and are unsure about what we can do when it comes to new rules, or payment systems (we want to use avail), etc. Can we make a new lease agreement and have them sign it? I am assuming the rents cannot be raised until their previous lease expires, but can we change other things? We are fast approaching closing and I don't know the best way to make this transition. They all have newly signed lease agreements with the previous owner...and now we own the property. What is the hand off process like? Any advice on this issue would be greatly appreciated! Thank you.
This happens all the time. For some reason, landlords sign their existing tenants to long term leases right before selling the property, and often at below market rates.
I thank these landlords. They just lowered the value of their own property for me right before putting it on the market.
What you do here is honor the leases, but offer them a no fee lease break if they want to move out early, and their security deposit back (especially if you plan to remodel the unit after they leave).
Then you wait, and make it clear that rents will more up to market when the lease term ends. this gives them plenty of time to opt in or out.
Great points. I love the ones though that sign people up recently for $1,000 month then say market rent is $1250 so you can increase rents and are attempting to sell it off the $1250/mo. If it can get $1250 then why are you not getting it. They do look flabbergasted when I tell them i do not care what i "may" get.
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
4y
@Derick Hanna
You must honor the leases. Can you get them to sign new leases, yes but cannot force them too. If you want to add terms that are more restrictive they probably will not sign them.
For payments etc you will need to show them proof of ownership and coordinate with them where to send payments, how do they make maintenance requests and emergency numbers etc
First get copies of the current leases and make sure there is nothing in the lease you cannot live with if you close on the property. You are stuck with those terms. Also, double check the deposit amounts on the lease and make sure you collect these at closing from the PM company or the owner. You are not stuck with the management company. You can still self manage. As a management company when this happens we always assist the new owner with the notifications. If the management company says this is the new owner and you pay and contact them directly it really helps when you show up and say "I'm the new owner pay me now!". No one wants to feel like they are being scammed so this will help put them at ease. You will need to provide in writing to them the new process for payments and maintenance. Good Luck
Hey guys, we are closing on our first real estate deal this week. It is a 4-plex and we will be living in one of the units and renting out the other 3. We inherited 3 tenants. All 3 tenants signed year long leases about a month before we put in the offer on the property. We intend to self manage and are unsure about what we can do when it comes to new rules, or payment systems (we want to use avail), etc. Can we make a new lease agreement and have them sign it? I am assuming the rents cannot be raised until their previous lease expires, but can we change other things? We are fast approaching closing and I don't know the best way to make this transition. They all have newly signed lease agreements with the previous owner...and now we own the property. What is the hand off process like? Any advice on this issue would be greatly appreciated! Thank you.
Familiarize yourself with the current leases but don't change anything about them unless there's a glaringly obvious issue. have your new lease ready to go when the current ones expire.
As for hand-off, make sure the prorated rent and security deposits are transferred to you at closing. They should also provide copies of all tenant documents (applications, lease, addendum, payment records), spare keys, openers and codes, etc.
On the day of closing, take an introduction letter to the tenants. It should let them know who you are as the owner, how they can/should communicate with you (emergency and non-emergency), and how to pay rent. I also recommend you conduct an inspection within the first week of ownership to document the condition at the time of purchase so you can compare that to when they vacate.
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
4y
@Derick Hanna you can make new rules about things that are related to upkeep and storage around the property. So you can say look as of x date no stuff in the hallway etc because in most leases there is something about maintaining the property. You can clean up your parking situation etc. You cannot make new rules about late fees etc. that are specified or should be in the lease. You can't decrease services so if you pay a utility per the lease you have to pay it until there is a new lease.
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
4y
This happens all the time. For some reason, landlords sign their existing tenants to long term leases right before selling the property, and often at below market rates.
I thank these landlords. They just lowered the value of their own property for me right before putting it on the market.
What you do here is honor the leases, but offer them a no fee lease break if they want to move out early, and their security deposit back (especially if you plan to remodel the unit after they leave).
Then you wait, and make it clear that rents will more up to market when the lease term ends. this gives them plenty of time to opt in or out.
This happens all the time. For some reason, landlords sign their existing tenants to long term leases right before selling the property, and often at below market rates.
I thank these landlords. They just lowered the value of their own property for me right before putting it on the market.
What you do here is honor the leases, but offer them a no fee lease break if they want to move out early, and their security deposit back (especially if you plan to remodel the unit after they leave).
Then you wait, and make it clear that rents will more up to market when the lease term ends. this gives them plenty of time to opt in or out.
Great points. I love the ones though that sign people up recently for $1,000 month then say market rent is $1250 so you can increase rents and are attempting to sell it off the $1250/mo. If it can get $1250 then why are you not getting it. They do look flabbergasted when I tell them i do not care what i "may" get.