Purchase a property with disgruntled tenants?

Question

Hi all,I'm considering looking at a property that's been on MLS in my area for a few months now, I'm assuming because my agent told me the current tenants are making all showings as difficult as possible.  I'm curious if you've been through this experience and if you have any advice or pointers for making this a success for everyone involved.  A few facts:-property is listed at retail but I believe seller will contribute to closing costs and accept at least 5% off market price (only way I'd do the deal)-current rent is below market and will need to be increased 15-20%-tenants are making showings "as miserable as possible" so I'm thinking they know what's coming their way-currently month-to-monthThe pics of the property don't show any obvious signs of damage or abuse but I'm not sure I'm willing to risk this happening once I become owner.  The last thing I want is to end up in court over a property I've owned for 30 days.Side question: if current landlord has used all or a portion of the security deposit on repairs, are they obligated to disclose that?  I wouldn't want to walk into this deal with no deposit being handed over.  Any other thoughts?  TIA

Nathan Gesner · Answer

This sounds like an opportunity to purchase below market if you have the ability to remove difficult tenants after purchase. I see it as an opportunity while other investors may shy away from the work required.

You should use an estoppel to verify exactly what you are purchasing. If the Landlord spend the deposit, that should definitely be disclosed and you can even ask for the Landlord to reinstate that as part of the agreement. If you're in a State that costs $5,000 and takes four months to evict, you can try asking for a price reduction or escrowed funds to help defray the cost of eviction. It's all negotiable.

Your offer to purchase should include a requirement that the Seller provide all documentation and agree to sign an estoppel certificate (also called estoppel form or agreement). The estoppel is a form filled out by the tenant, then confirmed by the Landlord, then accepted by the Buyer. It's supposed to ensure there are no surprises after closing. For example, I often see Buyers purchase property thinking there is a $1,000 deposit but then the tenant claims it was actually $2,000 because they paid the last month's rent. How will you know? An estoppel certificate fixes this problem. Some things it may include:1. Tenant name, contact information, and address2. Occupancy date3. Is there a written lease? If so, review it to ensure it matches the estoppel certificate4. Are there any modifications to the written lease?5. Are there any verbal agreements or arrangements between the current Landlord and Tenant?6. Current lease term (expiration date, month-to-month)7. Current rent rate8. Rent due date9. Security deposit amountYou can find plenty of examples by searching for "tenant estoppel certificate doc" or exchange "doc" with "pdf" for more options.Here is an example and explanation: Sample EstoppelSome have a lot of legal jargon but this document does not need to be so detailed. This is an important tool for anyone buying a tenant-occupied property.

Drew Sygit · Answer

@Troy P. will this be your first rental purchase?

If so, you're probably better off walking away from it.

Why? Because your naive in thinking that getting a 5% discount on the price covers the challenge of disgrunted tenants

You should "bake in" 6 months of nonpayment, legal costs of evictions and potential tenant retaliatory damages.

Either require seller to get rid of tenants by closing,

or

Ask for at least 30% discount

or

WALK AWAY!

Joe Suarez · Answer

It's not uncommon for tenants to make showings difficult, especially if they're not happy about having to move out. However, there are a few things you can do to try and make the process smoother:

• 1. Be respectful of the tenants and their privacy. Remember that they're still living in the property and may not want people coming in and out all the time.
• 2. Give the tenants as much notice as possible before any showings. This will allow them to prepare and make arrangements if necessary.
• 3. Offer some kind of incentive to the tenants for allowing showings. This could be a small gift card or discount on their rent.
• 4. Consider hiring a professional property management company to handle the showings. They may have more experience dealing with difficult tenants and can help ensure that the process goes smoothly.

Regarding the security deposit, the current landlord should disclose whether or not it has been used for repairs. If it has been used, they should also provide an itemized list of the repairs that were made. Make sure to review the lease agreement carefully to ensure that you understand your rights and obligations as the new owner.

Ash S. · Answer

I have gone thru this situation. I had a rental house in Phoenix AZ(remote management for me as I live in Dallas TX). As i cannot go there too often, I always signed up long term lease. In Sep 2019, I had a lease of 3.5 years to my new tenants at some what lower market rent($1725 for first 1.5 years and $1750 for remainder of 2 years). Market rent could be easily $1850 for that property. Fast forward, pandemic happened and price of that rental home goes up from $330K to $560K.  Buyer wanted to do 1031 exchange and willing to buy with the tenant. Buyer had few objections that rent is lower and it's another one year that tenants will be there(as he was buying it in Mar 2022). Then appraisal also came out lower, around $20K less. My side agent wanted this deal to go so pressurized that I reduce the price by at least $10K as monthly rent is at least $750 less. I didn't budged and in fact reduced the buyer and seller side's commission. Deal went thru and Buyer agreed for everything-it's a Seller's market. Security deposit was passed along with exact lease terms and conditions. Good part, I had been nice with my tenants so they cooperated in the showings to each and every Buyer(almost 8 Buyers that I was dealing with).  Checked with the tenants how much is the new owner(Buyer) has asked for renewal rent as the lease is getting over in Mar 2023? Tenants told me $2500 and they can't afford it so will be moving out.

My settlement agreement has the mention of everything like security deposit, home warranty, lawn/tree trimming etc...so that both the parties knew exactly what they are getting into.

I had overall a good experience selling a house with the tenants as I made sure that my relations with the tenants is more important than the monthly rent. There were times, when the tenant couldn't pay on time and I excused them from any late payments.

Looking at your scenario, it seems there is not very good relationship between current landlord and tenants for whatever reasons. If the lease term is ending in another 6-12 months and deal is good then go with that. Understand you cannot change the lease term till the time lease is not over. As you mentioned, it's month to month then you can terminate it immediately and you should go for it.  Evictions are stressful and not worth any landlord's time and energy so avoid it at all possible costs.

Hope this helps.

Brad Jacobson · Answer

If you get a deep enough discount on the property, it'll be worth it.  However, you're probably in for a lot of work.

The security deposits will be disclosed on the settlement statement.  As the lease will carry to you as the new owner, the deposits should as well but in this situation, who knows what the seller will and/or won't be able to do.

I would purchase the property with the understanding that you'll likely have to do an eviction.  Costs and timelines vary state by state but bank on at least three months and $5,000 and you should be good.

Again, if you get a screaming deal on the property and you're willing to put in the work, do it!  If you want a turnkey experience, I'd stay away.  Evictions are a lot of work.

Michele Fischer · Answer

Agree with others that this may be more hassle than it is worth.

One technique we deploy at times is to make the offer and negotiate sight unseen, and have the first time you see it be the inspection.  This is one less interuption to the existing tenant, and you can pull out if the place is not what you were expecting.

Purchase a property with disgruntled tenants?

Most Popular Reply