How to navigate buying a property with tenants in place

Question

Hello all! I am a real estate agent in Tulsa, Oklahoma. My wife and I are a couple weeks away from buying our first duplex and this duplex already has tenants in place. I am hoping to get some advice on how to navigate this transition the best for these tenants. If you’ve been in this situation, have you met with them face to face to go over new terms, expectations, and their concerns? Thanks in advance for your time and help! P.s. any recommendations on Managment software?

Nathan Gesner · Answer

Your offer to purchase should include a requirement that they provide all documentation and agree to sign an estoppel certificate (also called estoppel form or agreement). The estoppel certificate is a form filled out by the tenant and then confirmed by the Landlord. It's supposed to ensure there are no surprises after closing. For example, you buy the place and the tenant could claim the Seller allowed them to paint the walls black or that their security deposit was twice what the Seller claimed. How will you know? An estoppel certificate fixes this problem. Some things it may include: 1. Tenant name, contact information, and address 2. Occupancy date 3. Is there a written lease? If so, review it to ensure it matches the estoppel certificate 4. Are there any modifications to the written lease? 5. Are there any verbal agreements or arrangements between the current Landlord and Tenant? 6. Current lease term (expiration date, month-to-month) 7. Current rent rate 8. Rent due date 9. Security deposit amount You can find plenty of examples by searching for "tenant estoppel certificate doc" or exchange "doc" with "pdf" for more options. Here is an example and explanation: https://eforms.com/rental/esto... Some have a lot of legal jargon but this document does not need to be so detailed. This is an important tool for anyone buying a tenant-occupied property.

Brian Garlington · Answer

@Cylas Brooks Have YOUR agent give the listing agent an estoppel and have them fill it out before you close. You want to make sure that if the agent says they are paying $1,500/mo and that they have only one dog, etc. You don't want to close and then find out, oops,...they say the rent is only $1,350/mo....they have two pit bulls and there was a side deal with the previous owner that if the tenant cuts their own grass then they get a $50.00 break on the rent per month.

Cylas Brooks · Answer

@Brian GrahamThanks for the help Brian! I had a few other people recommend this also, so I got all set up with Cozy! Let’s connect some time!

John Kunick · Answer

Hi Cylas, first, congrats on your first property! Like @BrianGraham, I'm also a real estate investor in the Tulsa area and have been doing REI for many years. I've both bought and sold properties with tenants in them. Nathan gave a great explanation of the best "legal" way to handle this situation so I won't repeat it (spot on, Nathan!).I would like to offer the best "relational" way to handle this situation - which only supplements and doesn't substitute for Nathan's approach.First, have the persons you are buying property from notify tenants of change in ownership as soon as offer is accepted. Second, before closing, meet with the tenants at the property and let them know that you have been provided all of the lease information. This is your opportunity to confirm the lease with them and make sure what you have been provided is consistent with their understanding. This also gives you the opportunity to be in the house with them and see how they are taking care of it and if there are unapproved pets. Third, this will also serve as your opportunity to put them at ease that you will honor the lease and will be receiving the security deposit. This also gives you the opportunity to let them get to know you and how you manage your properties. Fourth, after closing, send them a letter or email letting them know that the closing has taken place so they know how to pay rent to you and to communicate with you any repairs needed, etc..Key to this whole topic is both communication and building a relationship based on mutual trust and respect. In my experience, whether that is inheriting a tenant or just getting a new one on an existing property, it is best to start immediately building a solid relationship with clear expectations.Best of luck!

Karen Higgins · Answer

We've acquired quite a few units with tenants in place at the time of purchase. We've found it best to get them on "your system" as quickly as possible. Make sure they know your rules, i.e. when rent is due, late fees, etc. and hold firm to them. You will quickly find out if this is a tenant that you would like to keep around for the long haul or not renew their lease when it comes time.

Riley Holt · Answer

My first property was a 2/1 SFH with a tenant already in there. During closing I was transferred the deposit and the prorated rent for the rest of the month. I know sometimes people just honor their existing lease until it expires but I went ahead and had them sign a new lease with me but kept their payment and deposits the same. She shared some of her issues and I was prompt to resolve them. I haven’t had any major issues thank goodness and she is happy as a lark.

Jim K. · Answer

@Nathan G.Stellar post, Nathan.

Brian Graham · Answer

@Cylas BrooksI would like that. We should definitely get together sometime. Didn't mean to spell your name wrong. Was in a hurry!Good luck with your situation!

Cylas Brooks · Answer

@John KunickThank you so much John! Thank you for such awesome advice, hopefully we can network sometime!

Cylas Brooks · Answer

@Karen HigginsGreat! I will definitely do this, thank you for the advice!