How to take over an occupied property?

Question

Hello BP,

I am under contract with a small 2 family  in a desirable location in Northern CT B+ neighborhood. The Units are rented at 650 per side and are well below market rent of 850 (1bed 1 bath per unit 630 sqft). The Home has electric heat and the landlord pays for the water/ sewer 110$ per month. One of the tenants is very elderly (88 years old) and the other is late 50's.  I fell horrible raising the rent 200$ on a 88 year old tenant but the property won't cashflow well if I don't raise the rent.  What would you do if the 88 year old tenant who has occupied the unit for 20 years can't afford a 200 dollar rent increase? I am currently using Cozy/Aprtments.com for rent collection on my other properties and like the system.  How should I collect the rent from the 88 year old tenant. I'm almost positive she isn't up to date with technology.  I need advice on how to approach this ownership transition. I feel that I should ask for and verify their financial information to get a better understanding if they can afford the rent increase or not? Leases expire 01/22. What information do you collect from the tenants after you take ownership of the property and what do you tell the tenants during your first conversation with them?

Charles Carillo · Answer

Account Closed

I imagine you were aware of their age and their length of time at the property when you made an offer on the property. The reason you probably got a deal on the property was because of the undervalued rents of the current tenants.

In regards to collecting rent I would just have them continue sending checks (I imagine this is what they were doing); it really does not take much time to deposit a check compared to the training required to teach a possibly technology illiterate person how to; create accounts, link accounts and pay rent.

I am not sure if a tenant will hand over their financial information to a new landlord; really no good could ever come to the tenant who provided this; unless they were honestly unable to pay rent and begging to break a lease or renegotiate.

When we are acquiring a new property we perform a lease audit on the tenants that you are inheriting. You review the lease and run checks (eviction checks) while reviewing their employment and we "grade" the tenant. The grade really shows the strength of the tenant to pay rent and stay in the property. A low grade means that you are most likley going to evict them in the near future while a higher grade says that they are a solid tenant that you will most likley not need to evicted and possibly renew their lease. This allows us to budget the funds needed to handle possible tenant issues.

After we acquire the property we will hand the tenant a form that is really a shorter application where they will fill in their current contact information, employer etc. We do not run an credit checks but it gives you an updated overview of their situation.

Raising rent by over 30% is probably not the best route. What happens if they do not agree? There are federal and state moratoriums in place; I doubt a judge is going to kick out a 88 year old tenant (who is paying rent) because a new landlord purchased the place. Maybe start with a ~5% increase after you do some work around the property. The next year you can increase it again; a little higher than what market rent is increasing by. Landlords that increase rent on elderly people in these situations by 30%+ (all at once) make it onto the evening news.

Nathan Gesner · Answer

It's a business. Just because someone is 88 years old doesn't mean they are immune from inflation. For all you know, she's smart as a whip and can easily afford $1800 but hasn't bothered to move because she enjoys her simple life.

When you purchase with existing tenants, you should introduce yourself as the new Landlord on the day of closing. Hand them a letter with information on how to pay rent, report maintenance issues, etc. I also recommend you provide them with a simple form to collect their contact information in case the Seller had outdated info. I include a request for an "emergency contact" that the Tenant authorizes to act on their behalf in case of death, incarceration, or incapacitation. Highly recommended for the 88-year-old renter.

I also schedule an inspection within one week of ownership so I can document condition with photos, answer questions for the tenant, and identify any maintenance issues.

Jonathan Oh · Answer

Tough spot to be in. Try to find ways to make this a win win? Maybe it’s only raising it to $750. Maybe you can assist finding her a new place?

Patricia Steiner · Answer

You have to honor the lease in place until expiration.  Review your purchase contract; most have language in it that requires the seller to provide the buyer with all tenant records within five days after executed contract.  You should have their contact information, rent roll, etc.  At closing, send a New Owner Introduction Letter and let them know that at the expiration of their current leases, a new lease will need to be signed and the rent will increase to $x.  Don't apologize.  Just state it.  The kindness thing you can do is to provide so much notice as possible so they can make a decision and plans as well.

The fact is:  you're running a business.  It's not personal.  And, don't be surprised if the 88-year old is the least resistant.  Everything has gone up in price and rent is no different.

Congrats on your soon-to-be acquisition. Don't close until you have all the information you're entitled to have on the tenants and property.

William Collins · Answer

We have our property manager deliver a welcome package on the day of turnover.  This includes payment policy, how to register work orders, and our lease- so they can review it for when/ if they renew it.