Keep the inherited tenants until summer?

Question

Here's the background:

I made an offer to purchase a Duplex in Indianapolis for $65k.  Seller was asking $75k, but accepted the offer.  Advertised rent was $600 per side, average in the area is $620 to $650 for updated units.  One unit is updated, one is not.

We both signed the PA, and I got copies of the current leases.  That show:

Unit A: Father

$500 rent / month to month lease

No security Deposit and he agreed to fix some things.

Unit B: Unit A's daughter and two kids

$250 twice a month ($500) rent / 6 mth lease ends in April

$300 deposit

Pet that's not allowed in lease

Both pay on time with no issues.

Unit A is updated and could rent for $650 a side with minor cosmetic fixes like paint.  Unit B needs some work, including updating the 1950's kitchen and might be harder to rent until summer demand.  The neighborhood usually rents easily but most units are updated.

Would you try to keep the current tenants until summer and then up the rents and screen new tenants?  Or would you ask for deposits and long term leases at closing?

Thank you!

Account Closed · Answer

When obtaining a new rental building that has tenants in it,  you should right away introduce yourself in writing or in person, that's number one.

Then if the tenants are "questionable",( things you state above)  I would send them another letter in the Spring or about 60 days before their lease is ready to expire that the rents will be such and such and a deposit is required,  if one was not collected before, or enough.

Chances are they won't pay their rent once they receive that letter, but that is something that you have to accept.  But keep in mind, you will be getting the correct tenant pool into the building that YOU screened and who are COLLECTIBLE, etc., according to your Criteria. AND....a big AND....the losses you face by not being able to collect rents on these units at that time, can be written off as a Write Off Expense at the end of the year, if you can't collect the money owed to you by these tenants.

FOOT NOTE:

I had to weed out a lot of people when I took over several rentals.  But it was worth it. Tenants weren't paying rent anyway, and it had to be done in order for us to make a profit, and start fresh.  Sometimes you need to clean house, but that entails money loss, but keep in mind, a tax deduction at the end of the year.  Make sure you get a Judgment whenever you lose money on an eviction or a tenant owing you money.

Nancy Neville

Wade Sikkink · Answer

Depends on your market.  If there is decent rental demand I would serve them notice at closing that the rent is going up and that Unit A needs to pay a deposit.  If they don't like it they can move out.  It will also depend on your situation.  If you can't withstand some vacancy then you might be stuck waiting a while.

We've had to weed out some undesirable inherited tenants  which isn't too big of a deal if you are willing to have a unit vacant for a month or two.  Life if much easier if you can operate from a position of strength.  Our tenants know that we aren't afraid of vacancy and there is a lot of rental demand in our area.  We rarely get any push back on this kind of stuff.

Good luck.

Ryan Mullin · Answer

I would try to keep the tenants and I wouldn't raise rent.  One thing about doubles is the tenants have to get along.  If they don't its a nightmare for everyone involved.   Since you have family members in both sides this might be an ideal situation.  When we "inherit" tenants I always give them the chance to pay rent (that was agreed upon with previous owner) and stay.  My reasoning is this:  If you don't give them a chance they will probably feel like they have been wronged and some rich guy is kicking them out of there home.  Much more likely to take a hammer to the drywall or steal the kitchen cabinets on the way out.  If you haven't seen a credit report and full rental application you really don't know who you are dealing with.   Just be up front with them and let them know that you expect them to pay every month (or every 2 weeks if thats what the lease says) or you will be forced to file an eviction.  If/when they don't pay thats when we file an eviction, get them out, spruce the units back up and then raise the rent.   The cost of a vacancy during winter and the repairs it will take to be able to raise the rent almost negates the extra 150 or 300 per month.  If they are good paying tenants I wouldn't rock the boat with raising rents and asking for a deposit on a place thats not fully updated.  If they don't pay then you will find out real quick and you will need to deal with getting rid of them regardless.

The other way that my wife and I have dealt with this issue (it happens quite a bit) is just to put in the PA that closing is continent upon tenants vacating so you can take possession at close.  For us it can be a drain on our property management to deal with to many inherited tenants.  They can be quite frustrated by any change in their living situation.

- Just some thoughts.     Its an interesting dilemma.   Thanks for posting!

Dick Rosen · Answer

Not sure what winter is like in Arlington? If it were in Minnesota I'd wait until spring, if it were here in Phoenix take action in December so any fallout would be after the holidays.

Colleen F. · Answer

Here you keep the tenants under lease so you are obligated to the one with the lease until it is over.  I would have side A put a deposit and give a notice of some rent increase but not to 650. See where that goes.   It is an updated unit. For unit B you have to decide if you allow the pet or will evict best to go in dealing with that issue.

Keep the inherited tenants until summer?

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