4-plex, tenants, and partial payments/evictions.

[Andrew Adam]

I close on a 4-plex next week. It is fully rented and the expenses are low, and even though the rents are low it is cash flowing nicely. We met with the landlord last week and found out that 2 of the 4 tenants are behind on rent, and All 4 are paying weekly or biweekly and call/text when they have another payment. I do not want to go down that road, On my duplex rent must be paid in full, due on the first, late on the 5th and I will start eviction proceedings if they still don't pay. What am I to do?

   My lawyer said we have to give them 30 days notice so if we notify them by the end of this month that we are not renewing their leases then they must be gone by the end of next month. Because we are not super desperate for cash, and don't have to make a mortgage payment till April  we can handle the turn over. Should I...?

  1. Offer 1 year leases to All 4 tenants under the condition that they pay in full on the 1st and if they don't then I might just have 4 evictions to do in April? Or even next month?

2. A:  Tell the two tenants that are behind in rent that we are not offering them a lease and give them 30 days to move ( do I still try to collect from them next month?) ??

    B: Offer the other two tenants a year lease and if they do not pay in full on the first start evictions?

Here is the thing. 1. I do not want bad tenants.   2. I do not want to collect rent on a weekly/biweekly basis.  3. I am ok with turning over the tenants    and 4. I want to stay legal.

My hope is that by summer I have 4 tenants that pay in full on time and are in a year lease. 

I plan on calling the tenants today or tomorrow to ask them about their income/ ability to pay rent on the first and then possibly after interviewing them to offer them a year long lease. 

Any thoughts?  

[Mike Wood]

@Andrew AdamOnce you close, I would meet/talk to the tenants and let them know that you will need a new application (I would not charge them) and vet them like any new tenant.  Its likely they will not meet your requirements, and once you decided that, kindly tell them you are not renewing their lease, assuming they are all month to month tenants.

You really have no idea why they are behind, maybe the previous owner let them know he was selling and they think they do not have to pay for some reason.

Tenants late on the rent should be given a pay or quit notice (with the number of days per your local laws).  If they are very far behind, I would offer them cash for keys, just so the whole thing is easy for all.

I would focus on the tenants that are behind first.  Not sure I would want to evict everyone at the same time, simply due to the fact that tenants could talk and get very frustrated that everyone is getting tossed out.  Unhappy tenants could lead to damages and other unpleasantness's.

[Dana Dunford]

@Andrew Adam-- Does the existing landlord have one? It may dictate what has been agreed and for how long. It will be a good starting point to see when / how you can set a precedent that rent is due on the 1st and late on the 5th.

[Michael Boyer]

You could take a couple of approaches... (1) a full (or partial) tenant change out with notices you mention; (2) let them all revert to month to month (or do new month to month leases with your terms is better). So you are on short term trial basis with them all.

With option #2, clearly communicate "new landlord, new rules". And articulate the new payment policy. 

All (or none) may follow it. My guess, some will, some won't at which time you can give the poor payers the 30 days notices (essentially giving them a probationary period with the month to month and new rules to see which tenants can handle the new format and which can't ).  Keep the good payers who follow other rules, too.

They earn their way in. It also prevents an all out 100% vacancy. I like my fourplex because one vacancy still gets you 75% rents. You gradually cycle the poor payers out then in this model.

Also, I would probably more apt to do the 30 day right notices now if I needed or wanted to get into  a unit for heavy rehab or refurbishing (with a poor paying tenant it is an ideal time , too, and it probably won't be habitable/convenient when you are remodeling anyway, so good timing there).. Best of luck.

[Andrew Adam]

Thanks for the responses!

    I have copies of the current leases and rent is supposed to be due in full on the first but the landlord has NEVER enforced that and just collects partial payments when they have it. Even lets them get behind and then catch up. So this could be hard for these tenants to follow the now Enforced rules.

I think If I talk to them in the next few days and see if they think they can pay on the first in full. And I think that the ones that are behind should go. If I tell them that this next week IE give them a 30 day notice that I am not renewing their lease then does that mean they get a month of free rent? cause I think if I do try to accept partial payments then it could get messy If I have to evict. 

 @Mike Wood

@Dana Dunford

[Dana Dunford]

@Andrew Adam-- Follow what is in the lease, and then the formal eviction process. You can find information here on Bigger Pockets. Partial payments is not acceptable, according to your lease, so you have the ability to say pay all of it by the 1st or you will also get hit with the late fee. My gut feeling says you probably won't get all of the rent, and they'll be out by the first.

The most costly expense is a bad tenant, so once they are gone, make sure to screen your next tenants properly.

[Mike Wood]

@Andrew AdamThe 30 days notice your lawyer noted is likely due to your tenant laws for termination of a month to month lease.  No they should not be staying for free. 

If they stop paying rent, then give them a quit or pay notice with the required days per your local tenant laws (for my in Louisiana its 5 days).  If after the 5 days (or what ever is required) then file for an eviction. In the mean time, try cash for keys to get them out faster.  Evictions can be long drawn out processes and a pain.

Keep in mind, the tenants might tell you want you want to hear.  They may pay on the first once, but then are likely to slip into old habits.  Its likely they dont have the money to pay rent on time, thus the partial payments.

[Robert White]

I might suggest that you go back to the current owner and ask for a reduction in the purchase price, especially if he represented the units as full.  There will be some sort of cost for handling the new situation and that should be the sellers cost.  

[Leslie Cambre]

I would make myself very clear to tenants how you will proceed in collecting in the future and that you will follow through with evictions as needed. They may make partial payments because they are allowed too. You may be surprised and they will want to stay and pay on time. Good luck!

[Scott Weaner]

I have a couple of tenants that have had similar issues. One of them is paying 1/4 of the rent weekly. While this may seem inconvenient, I actually get 1 full month of extra rent/year this way. If you can keep the tenant from falling more than a couple of weeks behind, and collect a late fee, that can also add to your bottom line. Many of these tenants have no idea how to manage their finances.

[Harriet Baldwin]

Assuming all tenants are in a month-to-month status (not sure if that is the case?) and you already have copies of the leases, I would:

-make sure you get adjustment at closing for full partial month's rent from seller (it doesn't matter if tenants are on time, seller owes buyer rent due buyer for stub of month, unless you close on the last day of the month)

-give all tenants a 'hello, I'm the new landlord' letter - note where to send payment and what the payment terms are ("according to your lease, your rent of $xxx is due each month on the first; if payment is not received by the xth a late fee of y will apply")

-pursue nonpayment eviction against anyone who doesn't pay on time.  

-to avoid the whole building vacant at once, for paying tenants (if any) you may want to take 30 day notices (end of tenancy) one unit at a time (start with most under-market rent or least well kept apt) - some folks may start to pay more promptly given your actions!  Also this gives you a chance to refresh the units one at a time.