new lease for existing tenant?

Question

Hi everyone,I am looking into buying my first multi-family rental property. Currently, there is a family occupying the upstairs unit. The current owner leases (month to month) the upstairs apt. to a family who has been there for two years. He said he chooses not to have them renew their yearly lease (and just have them pay/live month to month) because they have no intention of leaving, pay their rent on time every month (sometimes needing an occasional reminder), have family in the area, and he wants them to be at liberty to leave whenever they please (giving him 30 days notice and vice versa). Whether or not I end up purchasing this property, I'm just curious about feelings from current land lords on this subject matter. Would it be in my best interest to have them sign a new lease? Should I run my own credit/background checks? I would like to make the transition as smooth as possible (for both of us) while looking out for my best interests. As long as they are good tenants, them staying is ideal for me. Just wondering if I should follow the current owner's management style. Thanks for your input,Julia

Marcia Maynard · Answer

Have them sign a month-to-month rental agreement with you as soon as you can. That will give you more flexibility than locking yourself into a year long lease. Introduce them to your management style and your terms. Then wait and see if they are good tenants or not. You will know soon enough. We bought an 8-plex fully occupied, lower income occupants, and the previous owner had no tenant files to share with us, except the rental agreements and security deposits. The seller did lie to us about deferred maintenance and did lie to us about the tenants. We just went with what we got and introduced ourselves, clearly communicated our expectations, and observed the property and the people carefully. The best tenants stayed and the undesirable ones chose to leave on their own (and took their pit bulls with them!) No evictions necessary. We didn't need to shake it up by requiring full background checks and putting everyone through a re-qualification process. They were already our tenants, so it's not like we would be able to just turn them down and ask them to leave. To put current tenants through a re-qualification process could be very upsetting to the tenant pysche and shake their sense of security. Not a good way to start off. Not to mention the extra effort, time, and money involved. If you start off by treating the tenants with courtesy and respect, instead of suspicion, you all will fair much better.If you are still determining whether to buy the property or not, do your due diligence with inspections (insist on seeing the inside of every unit) and drive by the property at all times of the day and night to get a feel for the status quo. Walk the neighborhood and talk to neighbors about their impression of the property and the neighborhood. Then take that for what it's worth. It you uncover something negative, take that to the bargaining table and see if you can get a concession from the seller to compensate.

Stanley Okazaki · Answer

Account Closed Take Ben Leybovich's advice & assume everything the owner told you is a lie. Try your best to independently verify all the info he's telling you & figure out why they want to sell the property (good motive or bad). Try to get copies of cancelled checks to show that they paid the rent, ask the neighbors if they know anything, see if you can call the tenants previous landlords / job for references. It's not unlikely for the rent to be below market rent in these sort of situations so you'll also want to check that out. If the rents are below market value you have to be sure if rent control will be an issue in your area. All in all, if you do purchase the property I would say YES, get a new lease signed. If they have no intention of moving as the landlord claims then I don't see how signing an additional 1 year lease will hurt.

Colleen F. · Answer

I agree with @Marcia Maynard I would draw up an agreement probably month to month to see how it goes. In addition to a new lease in whatever format you want I would also collect an application or contact information. It will be good information to have when you have a concern about what is going on with a tenant or you need to know if they will be at work. I have a question on my form saying anything special I should know about your schedule or anything you would like to add. I have some split shift and night workers who I try to consider when I need to enter their apartments. It also helps to have an emergency contact and some information in case they don't pay.

Ryan Haase · Answer

I would just draft up a new month to month lease. That way you are comfortable with the terms of the lease and they still get to be month to month. I don't like operating under someone else's contract. If the previous landlord didn't enforce some clauses, they'll just assume you won't either. By giving them a new lease, they'll look it over and (hopefully) reacquaint themselves with the lease.

Account Closed · Answer

Thank all of y'all so much! This has been really helpful!

Nicole A. · Answer

Yes, especially since the lease is month to month, might as well go ahead and draw up a new one between you and the tenants. If they want to stay, it shouldn't be an issue. Be sure the seller brings you the security deposit(s) that he holds at closing.

Lynn McGeein · Answer

I would definitely want to evaluate them myself, requalify them, credit checks, employment, background, etc. In addition, they might be causing problems in keeping the downstairs unit rented if they are too loud or causing problems that you don't know about, and the current owner is unlikely to tell you if there is an issue as it doesn't help his position. Maybe talk to neighbors or other tenants in the building. I always like to talk to neighbors if possible as you'd be surprised what you learn (police show up all the time, the kids tear the place up constantly, etc.).

Andrew Syrios · Answer

There's a lot of truth in what Stanley said. My father has a saying, "buyers are liars and sellers are... liars." Verify, verify, verify.That being said, month-to-month lease's aren't the end of the world. We will let tenants stay on a month-to-month lease after their year lease is up if they are willing to pay extra. It does seem that sometimes tenants will stay forever unless you make them sign and annual lease and then they get a fear of commitment. I would still probably have these tenants sign a lease, but I would probably wait until I got the other unit leased first.