Vacancy or focus on M2M tenant?

Question

I'm looking into purchasing a duplex strictly for investment purposes (not going to be a owner occupant.)  Currently, one side of the duplex is vacant and the other side has a tenant on a month to month lease.  If all goes well and I acquire the property, should I look to fill the vacant unit first?  Or should I worry about properly screening the month to month renter?  I'm posing this question assuming that the month to month tenant pays their full rent on time and is not a "problem tenant."  I would think that I should focus first on filling the vacant unit and then put my efforts towards screening the month to month tenant but I'm looking to hear what YOU would do?

Thomas S. · Answer

Screening new and existing tenant only requires a couple of hours in total of your time.  You can easily complete the M2M tenant screening long before you have completed accepting new applications on the vacant unit and before you begin screening any of those.

On the other hand the existing tenant is not that important since they are already in place. You will quickly find out the quality of tenant they are and if necessary you simply do not renew their lease. M2M is the absolute best lease to have tenants on allowing landlords full control over their properties.

I strongly suggest you put all new tenants on M2M as well. Term leases place control of your property in the hands of your tenants.

Marcia Maynard · Answer

We too favor M2M rental agreements. No fuss with renewals or non-renewals. The M2M agreement continues for however long both parties wish. Our longest term tenant has been M2M for 28 years, another tenant has been M2M for 24 years!

To end a M2M in our jurisdiction simply requires a 30-day "Notice to Terminate." To change the terms of a M2M in our jurisdiction simply requires a 30-day "Notice to Change the Terms of Tenancy." Check the landlord-tenant laws for your jurisdiction to see what you can do.

We don't screen existing tenants to our current new tenant screening requirements. They are grandfathered in, but put onto our rental agreement as soon as possible. We hold all tenants accountable to the same performance standards, whether they are existing tenants or new.

It will soon become evident if the existing tenant performs well or not. Best thing to do is establish a really good rental agreement that covers what you need (include property rules) and enforce the terms with consistent management.

Jeff B. · Answer

IMO, the M2M makes the tenant & LL sit on equal footing.  I know I have lost a FEW applicants who wanted a years lease and that's fine with me.  I refuse to have the tenant manage me and MY property.  On the flip side, I've and many on M2M stay more than one year and in one case, over EIGHT years.  I has be rare that any tenant stayed less than a year.

Other point;  NEVER take prepaid rents into the future - - to me this says the tenant him/herself is doubtful of there prospect for continued employment - - but that's just me.

Jeff B. · Answer

Agree with Greg on all points.  Long Term lease gives more control to the tenant and does not ensure twelve months of bliss as so many first time landlords finally come to understand.  Once the tenant is on a lease, the eviction process gets more difficult and in some cases, you will need to buy-out their remaining rights.  The M2M is a simple Notes of Non-Renewal.

Christopher Giannino · Answer

Thomas S.  Great advice from the both of you!  Many thanks for your input.  Do you find that potential tenants are put off or nervous of signing a M2M lease because of the uncertainty?  If so, how do you deal with that?  Also, do you find that you have higher turnover from setting up M2M tenants or is it on average all the same?

When I think of a lease, I automatically think of 1 year leases but I like the thought of having more control as a landlord with the M2M.

Marcia Maynard · Answer

It's indeed easier to rectify problems when tenants are on M2M rental agreements, because in our jurisdiction we can give Notice to Terminate for "no cause" even if there is a cause. The "no cause" termination is easily upheld by the courts as long as the landlord is not illegally discriminating against the tenant. No need to prove anything.

The key is to have a solid rental agreement with clear terms and property rules.  Get it into place as soon as possible and guide the existing tenants to perform as you would like them to. Then enforce the terms. Tenants will come into line quicker if you treat them fairly and are polite, even when you need to enforce a term of the rental agreement that they've violated.

I haven't had any tenants whom I couldn't handle, inherited or chosen by me. I'm not intimidated by the prospect of inheriting tenants. In the 20+ years I've been in this business, I've never had to evict an inherited tenant, but I've had to evict three of my own choosing. If you have the time, listen to BP Podcast #83 where I share some of our landlording tips and strategies. Good luck!

Christopher Giannino · Answer

@Marcia Maynard that's amazing how long some of your tenants have stayed. Congrats!  Also, great advice on handling existing tenants.  Overall, do you find that you have issues/problems with your inherited tenants?  Being that you have them on M2M leases, I would assume that its probably easier to rectify the problem opposed to a lease with longer terms.

Vacancy or focus on M2M tenant?

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