Inherited Tenant - how to navigate?

[Keely Aldinger]

Apologies for length, rookie advice requested

My partner and I closed on a great 3-family house hack at the end of July, the most updated (4 bedroom) delivered empty. The two units that are occupied are very under market rent and have leases that end on August 31, 2021.

The plan was:
. requalify the tenants of both units
. rent unit 3 at market rent
. occupy unit 2 and if they were interested and qualified, offer unit 3 to the tenants in unit 2
. announce rent increases >30 days prior to the lease ending since rents were very below market.

Unit 1 is a 3 bedroom, partially updated, occupied for 4 yrs @1850
. Tenants are qualified and accepted the rent increase to $2100
. Expressed they weren't happy with the big jump in rent but understood we had higher expenses and congratulated us on the purchase.
. Expressed wanting to have a good landlord/tenant relationship and mailed the applications and rent check for August promptly.

Unit 2 is a 4 bedroom, well maintained by not updated in probably 20-25 yrs, occupied by tenant for 7 yrs @ $2050
. We were told by the seller that the tenant had expressed interest in moving into the updated-Unit 3 and would pay more. The seller told her it would be at least $2400 and asked the seller to inform us of this prior to our close -- so tentatively this sounded good despite that being under market.
. Tenant would like to be the only person on the lease because she rents the other bedrooms month to month to roommates
. Would not be able to fill out our application because she is paid cash only as a house keeper -- there is a language barrier so her sister facilitated the conversation
. Needs to pay rent in cash so asked us to switch our bank to make it easy to make a cash deposit by walking to same bank as prior owner
. Does not have an email nor will get an email (has a smart phone) 
. Claims to not have a bank account -- which since we have been given almost zero information has us confused on how to store the security deposit in escrow according to MA law.
. Told us she wanted to stay in unit 2 and could not afford the proposed $2500 rent for unit 3, claims to have not told the (fluent) seller that she wanted to move upstairs.

Tenant of #2 returned the applications as she filled them out but seems her roommates work off the books as well. She did not include a salary estimate or references as requested, and no other tenant included salary estimate. Have no birthdates or anything but generic names. 

Our seller's agent who told us she would help a tenant relocate if they did not qualify etc is pushing us to keep this tenant to the extent that it is uncomfortable. She essentially feels that any qualification of her "roommates" is unnecessary and that we should allow the tenant to be the only person on the lease -- but she has no reported income etc.

My partner and I discussed the situation and decided to be compassionate and offer her to stay in unit #2 with a rent increase to $2350, live in the fully updated unit -- and while still costing us at least $1000 in living expenses monthly it would be a savings to our current living costs. We would work to buy our next house hack in 1 yr, and rent unit 3 out at market rate then..the property would cash flow. 

When we informed the tenant of the new rent for unit 2 we were asked to meet in person to discuss it. We replied that there was not room for negotiation on the rent price. They replied the rent was fine but they wanted to point out a few things. While he and I were discussing this we got this message:

The broken window was noticed during our informational inspection and I already have MassSave scheduled to come out for an energy audit and measure/price things like windows etc. The tenant never reported it broken but the lower portion of the double hung is secured by packing tape. The steam radiators were inspected during our inspection and all work properly. This unit does not have hardwood flooring - even under carpet - and our plans were to do LVP prior to our move in. The carpets are probably 6-10 yrs old and look clean but would be replaced. The bathroom has what appears to be peel/stick tiles but no tiles missing or broken (would tile during reno).

I was concerned about this being the potential direction the relationship would go but compromised with partner on keeping the tenant. We now both feel that it was a mistake, but no lease is signed and we could give notice now which I believe would entitle the tenant to stay until 9/30/21 since there is no new lease in place?

I posted the updated unit 3 a few nights ago for $2900 and it has good interest and a few Zillow applications for Oct 1 start date filled out. 

How would you suggest we move forward with this? What would you caution about?