Buying a property with tenants, Month to month without contract

[Matt Laird]

I'm a few weeks away from the closing table, deal looks good, 3 units on one property, 2 units are leased $450 month(which is below market value) current owners didn't do background checks or sign leases. They have been on a month to month basis, one near 3 yrs. and one just over 1 year. One tenant has an aggressive bred puppy, looks like a pit/boxer cross, & I do not allow pets in my other rentals.

My question to the experts is; can I force the seller to do a background check and get a lease signed before closing or have them vacate, should I go talk to the tenants myself. I'm afraid once I sign on the property I may be locked in a deal with squatters and spend my first few months in the hole working on evictions..

Thanks in advance Matt...

[Marcia Maynard]

Get signed estoppel documents from all parties regarding the verbal agreement. I would not ask the seller to obtain a written lease at this point with the tenants, it would complicate the matter. But I certainly would enter into my own signed written rental agreement with all of the tenants as soon as I had possession of the property. Make it a month-to-month rental agreement, which gives you more flexibility if the tenant doesn't work out. I also would not ask the seller to evict the current tenants, as it may cause unnecessary delay.

We bought an 8-plex and two units had pit bulls. Both of those tenants moved on their own soon after we bought the property. Partially because we manage our own properties, set in place new rules, and in the beginning were very "present", unlike the previous owner. We generally have a no pet policy, but did grandfather in the existing pets with the understanding the tenant demonstrate they are a responsible pet owner and follow our rules about pets. The cat owners stayed and the pit bull owners left.

One way to encourage existing tenants to move on their own is to gradually increase their rent. When you buy a new property, you can jump the rent to whatever level you want for the new leasing period. Follow applicable laws for doing so. But if you want to give the tenants a chance to stay and conform to your expectations, be reasonable.

Be fair and firm. Treat the tenants respectfully and give them reasonable time to adjust to your changes or move. The squatter scenario is rare and is less likely to happen in a multiplex. The tenants have been paying rent to the previous owner, yes? They did have a verbal rental agreement, yes? So, they are not squatters.

Don't be fearful, but do be cautious and surely set clear expectations from the beginning. Also, make sure you get security deposits that are adequate to cover your risk. Transfer of the existing security deposits should happen at closing, but if there are no security deposits or they are inadequate, ask for more when you enter into your new rental agreement with the tenants.

Check the legal history of each tenant to make sure you do not have any serious criminals residing there. Rental history and credit history is not necessary to check, as you will know soon enough how they perform as tenants.

All the best to you! Good luck!