How should i handle inheriting tenants

Question

I just went under agreement on a duplex, but it comes with tenants in both sides.  This is the first time ive inherited tenants and wondered what everyones process is with new tenants.  They both have leases that ended and are now month to month.  Also the rent is well under market value so i would like to bring that up to market.  Also there is not any security deposit as the last landlord did not require it.  Any and all advice that you have would be great.

Matt Bertsch · Answer

@Ben Wenger, I just found myself in a similar situation. I recently purchased a triplex that was fully occupied. I sent new landlord letters to all of them informing them of the change in management and advised them how to pay rent, when rent was due, who to contact for maintenance issues, and upgrades we planned to carryout on the property. I also informed them that their rent would be going up and that, should they stay, they would be shifted into 1 year leases. However, I gave them 2 months before the rate increase and lease signings took place. This 2 month window gave them an opportunity to look for a new place if they couldn't afford the rent, but more importantly, it allowed me to get a read on the tenants before being tied to them for an entire year. Luckily I did because one of the tenants didn't pay rent, had too many people living in his unit and created non-stop problems for the other tenants. Because he was still on a M2M I didn't have to go through the eviction process. I simply served him a Notice To Quit informing him we weren't renewing his lease and that he had to be out within 30 days. (Your'e bound by the lease and/or state on the amount of time you have to give. Do your research!)

All in all it took a little longer than I would have liked but at least I wasn't contractually obligated to lease to him before I realized what kind of tenant he was. This also gave me the opportunity to renovate the now vacant unit and put my own tenant in at a higher rent than the original tenant was going to be paying.

I didn't collect a security deposit from my remaining 2 tenants only because they have lived there for 20 and 8 years respectively and their units were very well kept. That said, I will be collecting one from the tenant I place into the 3rd unit.

Lastly, don't be afraid to raise rents, your business depends on that income! And your tenants are probably expecting it. (Again, check your local laws on rent control. I am not an attorney)

Best of luck!

-MB

Dennis M. · Answer

Well Get your eviction papers and notices all printed and ready to go because your going to need them here soon !  Most inherited tenants are bad ..especially ones laying way below market rents .

Anthony Wick · Answer

@Ben Wenger  In the situation you described, I would have written in the Purchase Agreement that the duplex needs to be delivered empty, and "broom clean". Now, it appears we are past that situation. Also, the PA always includes security deposits in XXX amount, and prorated rents, are to be handed over at closing.

Barring that, do what Nathan says.

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.

I would get this done so everyone is in agreement regarding what you are buying. On the day of closing, I would verbally let the tenants know that I will require them to pass my screening, rents will go up to market rate, and that I will require a security deposit equal to a month's rent. The new rent rate and security deposit will be due on the first day of the first full month after notice.

I would do this verbally to see if they intend to try and stay. If they don't want to participate or pay the new price, hand them a form letter to give their 30-Day Notice and bid them goodbye. If they intend to apply and try to stay, give them 72 hours to complete the application process or hit them with a 30-Day Notice. If they apply and pass, give them the new lease agreement with the new terms and hold them to it.

Ben Wenger · Answer

Matt- thanks for the insight. I am thinking about giving them a 2 month notice on rent increase and signing the lease, that way i can make sure they are tenants i want to have

Ben Wenger · Answer

Michael- also borg units were rehabbed in 2018 and in great condition

Ben Wenger · Answer

Michael- yes i am sure they dont have deposits, it turns out that one tenant was the son of the last owner and the other tenant was a employee of the owner. Also why the rents are so low

Michael Peters · Answer

First off are you 100% sure the tenants do not have deposits?  If you are assuming their lease it doesn't matter what the owner says or didn't receive.  If its in the lease your on the hook.  Been burned once and never again.

Not having a deposit is a major liability.  If they break anything or move out without notice you have zero security.  What kind of condition is this unit in?  Just curious if you plan on doing work in the near future or if its great as is.  Deferred maintenance typically comes up as soon as ownership ends so make sure you account for that.

Larry Berry · Answer

@Ben Wenger Do a meet and greet. Also, send out communication about current lease, ending date, rent increase and post the units for rent online.

How should i handle inheriting tenants

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