Keeping tenants after purchase?

Question

Hello BiggerPockets community!

I am new to rental property investing (looking to buy a multi-family unit in the coming months). I have been doing some research and the consensus I found is to not keep current tenants when you purchase a rental property. Do you agree with that?

I am planning to buy a multi-family and living in one unit. If the Cash-On-Cash return is adequate with the current tenants, is it a good idea to keep those tenants if I am not rehabbing those units? Or is it best practice to start fresh with tenants once you buy a property?

Thanks in advance for your opinion!

Jake

Pat L. · Answer

After all these years I still prefer vacant possession. The only tenants we kept were a long term elderly couple. Invariably after possession it's time to part ways as the previous LL/PM etc usually have/had a very different screening criteria.

For us it's just numbers & potential. We like to rehab on the go & max out the rents. The last 4 unit we took possession of had 3 tenants & within a year all were gone. The units were subsequently rehabbed & rents were immediate up $150-$200/month. After 4 years those rents are now 2-3x the original & climbing. The one original old, tired shabby unit that had sat vacant for 3 years is now pulling in $1000/month & all we did was paint, install new entry doors & a completely new kitchen with scratch/dent SS appliances for $1800.

Last year we stole a 3 unit on the condition we kept the old <mkt rent MTM tenants for a year. It was such a good deal we acquiesced Yet after taking possession all but one left & he remains to be one of our best tenants. The remaining units have since been rehabbed & rented for a much higher return.

Suzy Sevier · Answer

@Jake Marinko Have you already found this MFH? How much longer is their lease? I would ask the former landlord questions about why she/he is selling etc. It may give you bigger insight if it is because of the tenants or something else.

Nicole Heasley Beitenman · Answer

I second this. I wouldn't apply a blanket policy to all inherited tenants. Some will be great, some (well, maybe most) will be lousy, and some will be somewhere in the middle.

Ryan Howell · Answer

I typically buy small multifamily with inherited tenants.  My experience is mixed.  The first deal the tenants were destructive and not paying.  If that's the case, get them out ASAP.   Also, if the house is not "livable" I also would.  If it is livable and the tenants are paying and happy with the condition, then it comes down to strategy.  If I'm trying to BRRRR and I need to remodel to get my money back in 6 months, then maybe you need them to vacate.  If financing is not a factor and the current rents are cash flow positive, I would keep them there until they leave.  Rarely does pushing for market rents justify the vacancy expenses in my experience.

Michael Noto · Answer

@Jake Marinko These are the factors that should guide this decision in my opinion:

- What is the quality of the current tenant vs what the market can bear?

- Is there deferred maintenance you feel like you have to address in their unit ASAP? If so, typically doing this work is never smooth with a tenant in there.

- What is the rent they are paying vs what the market rent is? The bigger the discrepancy the more I would consider trying to get them out

- Are they actually paying the rent the landlord states currently? Sure, having a lease is nice but is worth nothing if the tenant isn't abiding by it. Have your lawyer write up assignment of lease documents and estoppel agreements to have the landlord and tenant sign off on the current financials of the property.

Dani Beit-Or · Answer

Why not keep the current tenant?

If rent is around market value, there's a signed lease and security deposit, and as much as you can tell there are no issues w/ current tenant why not keep'em?

And if the situation is the opposite . . . don't keep'em.

BTW, if the tenant has a valid lease most likely you can't just ask them to live if they are holding their end of the lease.

Colin Reid · Answer

I noticed a lot of listings I've seen recently are touting "Fully rented," and "long term tenants in place." It got me wondering if I could ask the seller for the information they used to vet the tenants. Is there any reason they couldn't or wouldn't keep the credit reports, background checks, references, etc, and any reason they couldn't provide that information to let a buyer decide if the vetting measured up to his or her standards?

Joe Splitrock · Answer

The answer is maybe. Very often the assumption is that the current owner did a bad job screening. The ironic part is first time investors who are inexperienced (full of confidence) assume they will do a better job screening than the experienced landlord who sold them the property. Maybe, maybe not. If the tenants are good, why get rid of them. Get more information before making a blanket decision like this.

Jake Marinko · Answer

@Suzanne Sevier I have not found the property yet. Good insight I will definitely ask those questions!

Keeping tenants after purchase?

Most Popular Reply