First House hack- Inheriting tenants

[Stephanie DeBerry]

Hi everyone,

I'm closing on my first house hack on Monday, Nov 1. First time landlord.

The garage apartment has 2 tenants on a month to month lease- they want to stay. They're paying $650, market rent is $800-900, which I was OK with due to them keeping the apartment in great condition and appearing to be good tenants. The seller is friends with the tenants, so no background check was done and no security deposit was collected. I spoke with one of the tenants on the phone about those items- both tenants have now submitted their background checks after a phone conversation and are aware that I am requiring a $650 security deposit.

Tenant 1 will be moving out Nov 24. Has excellent credit and income.

Tenant 2 wants to stay. Makes $1500/mo (2.3x the rent) through self-employment. I spoke to Tenant 1 on the phone who had a story about Tenant 2 being newer to the country (long story about background, lack of education, lack of credit, etc.) Background check shows credit card existing for a year that is paid on time. Says SSN may not be valid and to verify identity.

I'm concerned that the tenant who is well-qualified is moving out, and the tenant who wants to stay is not qualified (the income concerns me, as well as Tenant 1 telling me on the phone that she's willing to help Tenant 2 which makes me think Tenant 2 really can't afford the place solo).

Tenant 1 also told me that while the garage apartment is separately metered for utilities, the seller kept those utilities in his own name and has tenants venmo him for the utility bills. Seller is sharing the main house internet with tenants and splitting the cost with them.

Do I decline the applications related to Tenant 2's income and give them 30 day notice to vacate, ask Tenant 1 to co-sign for Tenant 2 upon move out Nov. 24, or am I too worried? If I proceed, I feel like the utility situation is strange, but I'm open to advice.

Would like advice from those experienced with tenants, inherited or otherwise.

Thanks in advance!

[Ken Dunn]

@Stephanie DeBerry - It’s late and I’m about to sign off but saw your post and wanted to give you some things to consider. 

Since we are getting so close to Thanksgiving and the Holidays/winter it will be more difficult to find a tenant.

Since the tenant will be on a month to month it gives you a lot more flexibility to decide when they need to leave - see my recent response to the post “Mostly Month to Month Tenants in Multifamily - Big Red Flag?”.

I would let the 2nd tenant stay. Even with only 2.3x rent for income, they may never miss a payment. Some folks know how to stretch a dollar. They may also have friends/family willing to help them out.

I would also encourage them to find a well qualified replacement roommate for the tenant that is moving out on Nov 24th. That should easily push them above the 3x rent rule.

On the other hand, if you’re in a hot market, you could give them a 30 day notice so you can get full market rent… or talk to them about making preparations to move out on Jan 1st or Feb/March. 

It really just depends on how flexible you want to be. 

For a tenant that takes good care of the property, is respectful to you, and pays rent on time I tend to be pretty flexible.

I also recommend getting Brandon & Heather Turner’s book on managing rental properties, listening to podcasts /watching YouTube videos on the topic, and building a reference library of books and CD’s so you will be well informed and prepared to manage your property and your tenants.

Hope this helps,

Ken :)