1st Multi-Family Investment Property Purchase- Inheriting Tenants

[Michael D.]

Good morning,

I am a newly licensed Massachusetts Realtor and I've done some single family flips years ago.  I am currently under contract to purchase my first multi-family buy & hold property in Western Massachusetts.  It's mostly renovated and updated with newer mechanicals and major items taken care of.  The first 2 floors are occupied with month to month tenants, and the 3rd floor is renovated and vacant, ready to be rented out to my own tenants once I obtain title.

Purchase price is going to be $201,000 and gross annual income should be around 31-33k or so.

What I am very nervous about going into this is inheriting tenants and screening tenants.  I am afraid of getting burned as I have heard many horror stories of inheriting tenants, and given that I'm new to this, afraid I am going to miss something since I don't know what I'm doing.

It was discovered that the 2nd floor tenant has a pitbull puppy living on the premises during my showing at the property.  I put an extension on my offer for the property and asked that the sellers have the tenant remove the puppy.  I felt bad doing it, but I can't get homeowner's insurance with a pitbull living there.  The listing agent has stated that the tenant wants to stay, and the dog will be removed by tomorrow.  My concern is that now I'm potentially inheriting a tenant that is not going to be happy with me from the start.  Would you do any screening on tenants that you're inheriting, even if they are month to month and have already been screened by current owners?  I keep thinking to myself, "what's stopping this guy from just bringing the dog back in a few weeks..."

The first floor tenants are sisters, and one of them is moving out soon.  The other sister wants to move in and have the apt under her name.  She is "assuming" she's moving in.  I still will screen her and do a full background check.  

Do you normally have tenants sign new leases with you when you inherit them?  If they're already month to month should I try to just keep it as a month to month lease or would you try to get them into a 1 year lease?  Has anyone inherited tenants and just honored an existing month to month agreement without having them sign anything new or additional?  

I'm so new to this that I feel like I'm at the point where I don't know what I don't know.  Any insight is appreciated!

[Josane Cumandala]

I would say above all else study the landlord-tenant laws of your state. In general my understanding is that you must honor any leases encumbering the property while they are in effect but you are not obligated to renew them. Have they been otherwise good tenants? I would get to the truth of that asap. Don't just take the seller's word for it, get hard documented evidence.

Are you planning to self-manage this property? If not I would be screening rock star property managers to deal with this property asap. It can be an awkward situation with inherited tenants and you want to take your emotions out of it as much as possible and just run it like a business. 

If they are otherwise clean tenants who are paying market rate rents on time every month it could all work out for the best. In general though I'm leery of inherited tenants because of the landlord tenant laws in my state of residence. 

I think overall you're doing everything right. Good luck and keep us posted on how everything goes. :)