My first rental property - updating the lease agreement

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My first rental property - updating the lease agreement

Jonathan Mulkey
Investor · Chattanooga, TN · Member since 2020 · 3 posts · 0 votes

I'm a new investor based in Chattanooga, TN. I just closed on my first rental property and it is tenant occupied. I'm in the process of setting up the new lease agreement and I want to keep the terms the same as the previous owner. They have been there for 2 months already and they paid the security deposit and this month's rent to the previous owner. What is the best way to update the lease agreement and should I ask the previous owner to transfer the funds for the security deposit and pro-rated rent for this month?

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Andrew Kougl
Chula Vista, CA · Member since 2017 · 195 posts · 104 votes
5y

@Jonathan Mulkey

Pro-rated rent should have been provided to you at the closing table. Check with your agent and contact the sellers agent as necessary.

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  • Louie Joles
    Rental Property Investor · Baton Rouge, LA · Member since 2020 · 11 posts · 2 votes
    5y

    @Jonathan Mulkey

    this is a good question I was also wondering the same thing I’m in the same position

    Please keep me updated if you find any good advice and I’ll keep checking back in on the post

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  • Andrew Kougl
    Chula Vista, CA · Member since 2017 · 195 posts · 104 votes
    5y

    @Jonathan Mulkey

    Pro-rated rent should have been provided to you at the closing table. Check with your agent and contact the sellers agent as necessary.

    1Reply
  • Jacob Simpson
    Member since 2020 · 38 posts · 26 votes
    5y

    @Jonathan Mulkey, you may end up having to eat the Safety Deposit and partial month's rent if you didn't negotiate those as part of the purchase agreement. You can ask for them, but you may not have much a leg to stand on, legally.

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  • Jonathan Mulkey
    OP
    Investor · Chattanooga, TN · Member since 2020 · 3 posts · 0 votes
    5y

    @Jacob Simpson that’s what I was afraid of. Rookie mistake. Thanks for the help.

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  • Julie Hartman
    Property Manager · Denver, CO · Member since 2021 · 667 posts · 587 votes
    5y

    I think it depends on the laws of your state but I know here we can't change a lease that is already in play unless the tenants agree to do so. If you are keeping everything the same then I would leave it alone until it's time to renew them. Then they can sign a new lease through you. If you just closed, I would reach out to your agent or the title company and let them know what happened. Surely there was a sign-off about this at the closing table. If the sellers didn't notice they were paid in error, they aren't very observant. Or they were hoping you wouldn't notice. Were the tenants notified that there was a change in ownership/management coming? By law, at least here in CO, that is a requirement ahead of time so the tenants know exactly where to pay rent going forward. 

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  • Todd Rasmussen
    Rental Property Investor · Clarksville, TN · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    @Jonathan Mulkey

    You should ask for prorated rents and the security deposit, although next time handle that through the closing process. Since the transaction is closed the seller has very little motivation to send you money that is in their bank account. I'd just ask the tenant if they want to lock in their rent for 1 year or two and have them sign your lease.

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  • Jonathan Mulkey
    OP
    Investor · Chattanooga, TN · Member since 2020 · 3 posts · 0 votes
    5y

    Thanks for all the thoughtful and helpful replies to my first post. I know mistakes will be made in this new venture but it really helps to have a community of experts available to guide me along the way. Very much appreciated.

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  • David Hanson
    Real Estate Agent · Chattanooga, TN · Member since 2017 · 71 posts · 39 votes
    5y
    Originally posted by @Jonathan Mulkey:

    I'm a new investor based in Chattanooga, TN. I just closed on my first rental property and it is tenant occupied. I'm in the process of setting up the new lease agreement and I want to keep the terms the same as the previous owner. They have been there for 2 months already and they paid the security deposit and this month's rent to the previous owner. What is the best way to update the lease agreement and should I ask the previous owner to transfer the funds for the security deposit and pro-rated rent for this month?

    Great Questions!!

    I typically ask for the following. 

    Seller to provide all leases to buyer within 7 days of binding agreement date.
    Seller to provide all security deposits to buyer on closing date.
    Seller to provide any prorated rents to buyer on closing date.
    Seller to order and provide a clear termite letter with receipt during the buyer's inspection period.


    You can get even more specific as well like seller owned appliances at no value etc. 

    If you don't ask don't expect to get those it is not automatic. I see agents making this mistake all the time. Could cost you hundreds $$$. 

    Happy to help if you ever need it. I am local and work with several investors. 

    1Reply
  • Mike Mocek
    Property Manager / Licensed Realtor · Toledo/Columbus, OH · Member since 2019 · 244 posts · 262 votes
    5y

    Hey @Jonathan Mulkey I am sure this has been repeated but I am curious, why didn't your agent write in the agreement to transfer pro-rated rent and security deposit to you at closing?  Also, if you are keeping the same terms, why not just keep the current lease in place?  Sounds like a bunch of extra work to me.

    When I write an offer for any of my clients, rent is pro-rated and security deposit is transferred to buyer at closing, in check form.  The reason I do this is for accounting purposes.  Some title companies will just give a credit at closing however, at the end of the year you may find difficulty.  Also, in the State of Ohio, security deposits have to be kept in individual interest bearing account.  

    If you did not write in the contract for deposit to be transferred to you at closing, I would most certainly get on the phone with the sellers agent, or the seller, and have them write you the check for deposit.  Should be simple and painless as long as they are reachable :)

    If you have any other questions I will be more than happy to assist!

    1Reply
  • Brandon SturgillBusiness Member
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
    5y

    @Jonathan Mulkey Money does not exchange hands for rents and deposits when you close...you'll get a credit on your side of the settlement statement...where this will matter is the purchase price bottom line. 

    Was this a traditional sale? Do you have a copy of the settlement statement you can provide...and are you sure the credit is not there?...

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