Advice regarding due diligence and existing tenants

[Megan Lawson]

Hi all. This is my first post, but I've been following the forums for a few months now. My husband and I are currently in negotiations on an offer for a triplex in Akron, Ohio. Prior to making an offer the seller's agent informed us that the units were currently rented with long-term tenants - two of the units at $575 each and the third for $375. As part of our initial offer, we included a clause requesting copies of the existing leases and proof of the past three months rent. The seller (via the real estate agent) replied that there are no leases - past or present - and that the rents are paid via money order so he has no record. Then, the next day he sent copies of checks for some months for two of the units. The checks for one of the unit were for $575 and $1000 (he mentioned that the tenant had paid ahead). The other unit had a check for $400 for one month, then two checks for $200 each for the next month (one which was paid halfway through the month) and then $400 for another month. The seller noted that the tenant had a $30 debt. This information has left us confused as to what actual rents are. We asked to speak directly with the seller to clear things up, but he has declined. He is still insisting that there are no leases and never have been. The lack of information and conflicting information are red flags and we are inclined to walk away from the deal. However, even based on our purchase price negotiations and even if rent on one of the units was $400 rather than $575 we would have an ROI of about 35% and net income of $450+/month, which to us is a very good deal. Should we add a clause to the contract that a lease must be in place before closing or the tenants must vacate the property? Or should we walk and wait for a property where everything lines up? The tour of the property suggests that they are good tenants - the place is in great shape, units are very clean and there is even a vegetable garden in the yard that the tenants maintain. We appreciate in advance any advice folks might have on how we could proceed with this deal while protecting ourselves.