Purchasing Duplex with current tenants

[Lidia Bowers]

Hello everyone!

I’m super new here. I’m excited to learn more on rental properties from you all.

I have a quick question on a property that we are purchasing. The property has current tenants. One family has been there for 8 years and the other for 2 years. They don’t have a lease agreement. They go month to month. They want to stay and they know that the rent might increase.

I would like for them to stay but with a lease agreement in place. I’m thinking about requesting an application to run a background and credit check.

When do you think I should approach them? We don’t close until 12/22.

I appreciate your input.

[Johnny Hastings]

I had a similar issue once regarding when to approach the existing tenants. I was purchasing a through a broker, so the communication with the seller was tedious. I ended up mailing everyone a letter a month before the close, and the seller was not pleased. Apparently several of the tenants were behind on rent (this wasn't previously disclosed to me), and the seller thought they'd never get any of what they were owed because the tenants knew the building was changing hands. I'm not really sure how that worked out on their side, but they were upset at me for it. I sent those letters only after asking my agent to confirm it was OK; I was given the go ahead before I sent them. If your seller is OK with you doing it, I'd say do it now!

You're well within your rights to request an application from them. Tell them it's just part of your tenant screening process. You can make them aware that neither of them is in risk of being ousted, you just want to make sure that you've followed your business procedures. 

Regarding getting them on a lease, it doesn't hurt to ask. You can even try and twist their arms a bit by saying you need them to get on some kind of term lease; giving the indication that you won't allow them to stay if they don't sign. However, if they're good tenants, it doesn't make sense to be jerky to them. 

I have a few ideas here. What I typically do is when a lease expires, I'll send a MtM notice (that's Wisconsin law, must be sent 30 days from lease expiration if the contract will go MtM). In that letter I note that they can resign if they want (if they were good tenants), and I list the benefits of them signing a new lease (can't be asked to leave, rent can't increase, etc).  Some of them take it, some of them don't. My lease has a clause that states that if the contract should roll month to month, a 60 day move out notice is required. That's noted on the MtM notice. That gives me some extra time to get everything handled, and has worked out well for me. 

One other thing you can do is to cut them a rent break to sign a term lease. When I send rent increase notices (to good tenants), there's always a rent break in there if they resign for one year. So, for instance, the rent increase notice will raise their rent by $25 per month. There's a paragraph at the bottom of the notice that says that if they want to resign for a one year lease, the increase will only be $15 per month. If they contact me when the receive the notice, which they do about 2/3 of the time, then I set them up with a new lease and less of a rent increase. 

Congrats on your purchase!