Inherited Tenant(s) Questions - Season and Dog....

[Jennifer McElliott]

Hi everyone,

We just closed on a triplex - and are of facing those same issues of inherited tenants... i.e. below market rents (by about $400,) questionable histories since we didn't vet them ourselves etc etc... but besides those 'normal' issues that comes w/ the existing tenants I have a question to gather some opinions on what you more seasoned investors might do...

We are in Oct, one tenant is month to month... I spoke w/ them last night and discovered that they have 2 adults and 3 children (ages 8, 4, and 1) and 2 dogs living in a 2bd 1 ba.... their existing lease didn't specify the dog breed... but she answered honestly and told me that one was an American Stafford pit bull (terrier)... i.e. it's not a dangerous dog, but comes from the pit bull blood line and insurance companies still ban it, so I told her this would be a problem.  She, of course, is not going to get rid of the dog, and their renter's ins policy does not cover dog bites (the upstairs tenant also has a 1 y.o.). So she's asked how soon do they need to be out.  We're coming into a rough season to try to find tenants (i.e. winter in WA State and the holidays)... what would you guys do in this situation?

Tenant #2 - these were the friends of the previous owner and they are below market by a little over $400 and have only left a security deposit of $250!  (rents in this area for a 2bd 1 ba would be around $1500.). I'm going to speak to them tonight and obviously I need to raise their rent... do most people just do it a percentage at a time so as not to lose the tenant right off the bat?  Obviously I'm concerned w/ the security deposit amount too... when I have them resign w/ us (their lease w/ the previous landlord expires 10/31 - i.e. this month anyway) can I include a bump to that security deposit?

We're also managing from a distance now - we used to the live in the area, so we did all of our placement and management ourselves... it's the first time I'm considering have a PM help us show the unit(s) and place the tenant... is it common to also ask them to help w/ coordinating any 'rent ready' activities that might be necessary - like new flooring and cleaners?

Phew - that's a long winded post - thanks for getting this far if you're still reading!!!  Would really really appreciate any suggestions!!!

[Marcia Maynard]

My thoughts....

Tenant #1.  

Negotiate a move-out plan with the tenant. She's receptive to moving out, so move forward. Don't worry about the time of year. You may find it easy to rent your unit regardless of the time of year. People look for safe, clean and affordable places year round. If you can't re-rent the unit right away, use the time to rehab/refresh the unit. In the winter many contractors have greater availability and lower pricing. In this business you need to have enough funds to cover inevitable times of vacancy. Two aspects other about this scenario that also need attention: Occupancy Limits & Animals. 

Occupancy Limits: You need to establish reasonable occupancy limits. Two per bedroom plus one works for HUD. But two per bedroom is also quite acceptable, especially for a one bathroom unit.

Animals: you need to establish reasonable policies regarding animals (pets and service/assistance animals). You need to take into account the type of dwelling, the neighbors, the city ordinances, non-discrimination laws, insurance limitations, etc. If you choose to accept pets, make sure the tenant is a responsible pet owner. There are many people who do not provide adequately for their animals and/or do not consider the risk their animals may pose.

Tenant #2

Anything's negotiable. You need to decide what you ultimately want for this investment and identify the steps necessary to get there. The current tenant is most likely keenly aware they are currently paying significantly under market. They are probably fearful because of the change of ownership and understand they risk losing their home. They are in a vulnerable position. You on the other hand have the opportunity and responsibility to make the transition for your tenants as easy as possible. I've posted before about the process we take when acquiring properties that are already tenanted. So I don't want to take the time this morning to go into detail about that. But the first thing we do is introduce ourselves, our rental agreement and our management style. We also don't raise rents right away, even if they are below market. We first focus on getting to know our tenants, transitioning them to our rental agreement (M2M), and addressing deferred maintenance and repair.  We want to win them over and gain their trust. We meet with them in their unit and do a walk through to document the condition of the unit at the time we took possession. We carefully time our rent raises and consider how that may impact our tenants. Our goal is to save tenancies when possible, but if it doesn't work out that's okay too. Everyone eventually moves out at some point. Make the changes you need to make, a step at a time, the tenants will either choose to stay or choose to go. If you act with integrity, are approachable, polite, firm, fair and professional you will be likely to do well. You may do well to bump the security deposit up when they sign with you and make your first rent raise effective January 1, 2018. You can write all of that into the agreement. This sets it up for a bit of a win-win. The money that would go for an immediate rent raise instead becomes part of their refundable security deposit.... easier for the tenant to accept and fulfills a need of yours as well.

If you get a chance, listen to BP podcast #83 where I share some of our landlording tips and strategies. Peruse the list of other podcasts as well. Also, use the search tool and read other forum discussions about this topic. All the best to you!

Marcia Maynard