Inheriting tenants with A LOT of occupants.

[Alexander Wardell]

Hello everyone, 

I am in the process of buying my first real estate investment property and I am hoping to gain some insight into a particular situation that I have found myself in today.

A little information about the property. It is a three family building all units with 3 bedrooms, 1 bathroom, 1 eat in kitchen and a living room and I would say the units are approximately 1050 sq ft each. 

As of now all tenants are TAW. I just received the schedule of leases and tenancy agreements and I was surprised to find out that the units are occupied by 6 (1 adult and 5 under 18) on the 1st floor, 9 on the second (2 adults and 7 under 18) and 6 on the third floor (3 adults and 3 children). 

We are planning to manage the property ourselves because we want to get the full experience before we start using a management company so we will have to address any issues ourselves. My question is obviously about the amount of occupants living in the building, in particular the 2nd floor which has 9 occupants. 

I guess I am looking for a "what would you do if you were in my shoes" kind of answer. We are going to purchase the property and we are very excited about it but we want to have a clear idea as to how we are going to handle the transfer of tenants and what will be the best course of action.

As a side note I call the water department for the town and I was told the building has an average water bill of $200 a month, yes that is $2,400 annually. I can assume this has something to do with the 21 occupants who are all bathing, flushing the toilet etc. 

Any insight will be greatly appreciated 

[Christopher Brainard]

@Alexander Wardell 

Before you get involved with this property too deep, you need to read up on federal fair housing guidelines. Just because you think there are too many people (in this case children) living there, doesn't mean that removing/evicting them is legal. This is discrimination based on familial status and is subject to enormous fines levied by HUD.

With that said, last I checked HUD guidelines allow two adults per bedroom, so it sounds like they're well within compliance with federal laws. You can check with local code compliance to see if there are any local limitations on occupancy. You can also select other reasons to evict them, but they can still file a complaint.

Also (don't quote me on this), I believe that landlords with three or less units are exempt from the HUD requirements and you may be able to skirt this issue, however, you should create a firm set of rules to run your business and I do not recommend starting off in this fashion, even if it may be allowable. My guess is they could still cause you a lot of trouble.

I agree with @Mark Bookhagen - take the property vacant at closing. If not, be willing to wait the tenants out and do not renew their lease. In the future, screen your own tenants. Don't allow situations like this to develop, but don't address them from an illegal viewpoint. 

-Christopher