About to Buy First Rental House. Already Trouble In Paradise

[Andrew Dial]

First time poster and investment real estate buyer!   I am 30 years old with 2 kids and my wife stays at home.  Decided to get into rental real estate to supplement my advertising sales job.   Located in Effingham IL

Looked a few house and made offers but were rejected. I am thankful I found the bigger pockets calculator otherwise I would have overpaid for one of them.  $-0.42 a month cash flow would have not been good.  

We made an offer on a house and after some counters we were agreed on 51500. Current owner paid $55k in 2013 and put a roof and HVAC in it. He has multiple poorly managed rentals which is why he is selling at a loss. It is 3 bedroom, 1 bath, 900 square foot ranch house. Worst looking house in the neighborhood so plenty of forced appreciation possible. Minor stuff like a dead tree in the yard, 1980s carpet, walls need painted, 2 broke down cars in the driveway. Loan is approved, waiting on the inspection and appraisal. I have already opened a business checking account and I have a meeting with a lawyer about an LLC and drafting a lease. No closing date has been set.

Anyway MLS listing noted renters wanted to stay in the house. Selling realtor said they had been renting it for years and the amount of clutter suggested they have been there a while. House was clean and odor free despite the pets. I was told they paid on time, $650 a month, and were on government aid so the money flow was reliable. It is an elderly lady, her 2 adult sons, 3 cats and a dog. One son is mentally handicap and the other is just a bumn as far as I can tell. No one can produce a lease though. Land lord said they are month to month and rent says they have a lease until the end of October.

I went to the house yesterday to take pictures for insurance and I introduced myself. The mother informed me she only makes $750 a month and they do not plan to stay. They said the house is not worth$650 a month (which I think is incorrect)  and they cannot afford it.  After knowing this information now the selling realtor is not actually sure how long they have been there. Years of on time payment has now become "im not sure"  and the renter says they have only lived there less than a year.   Both realtors are telling me the renters are lying about not being able to afford the house.  I have asked for proof of on time payment otherwise they must vacate before closing.  I am worried 3 adults and 4 pets will never find another place to live for under $650 a month.  

The house was attractive because it would be instant cash flow. If they move out it probably needs $2500 worth of paint and carpet and some yard work to get rent-able which isn't the end of the world. 

I realize I have already made some mistakes already by not verifying what I was told by the realtors. I guess I was being too trustworthy.  What would every suggest I do moving forward to avoid having to do an eviction or getting burned right from the get go?