Inherting Smoking Tenants and No Security Deposit

[Cody DeLong]

Long story short I’m purchasing an 11 unit that currently are all month to month with no security deposits. The current landlord is giving me a great price (cash flows $1400 a month after all expenses, prop mgmt,and %). It needs some outside upkeep but that’s beside he point. I went for inspections today and everything was great BUT, 7 of the 11 apartments were smoked in. This was news to me. Current owner said that he just didn’t care/ thought they’d smoke regardless so he didn’t enforce it. Also a few apartments have animals. I will say the animals actually were all very good and the apartments clean of crap. 

What would you do in this situation? I plan on raising rent to a little below market as it’s way below. I do not however want to evict as I need the cash flow to start out and not blow my reserve while I clean, refloor, and paint units. Should I essentially just keep as is and as new people come in explain no smoking, add a pet deposit that’s non refundable, and year lease?

If this was any other deal I’d run but this is a property that if turned around with some general upkeep will grow into a cash cow.