Talk to tenants during showings and inspections

[Jeff Schemmel]

When buying your first property, especially multi-family, you're bound to frequently come across occupied units and often while the tenants are home.  It's a fact of life in a multi-family property search, and while it may seem uncomfortable for both you and the tenants, you should view it as an opportunity.  I'll explain...

When you purchase a property with existing tenants, who have a lease in place (in MN you can also have verbal leases), you'll inherit those tenants and the leases they signed with the seller on closing day.  It goes without saying that you should get the lease agreements as soon as possible so that you can have some transparency into the number of occupants, the rent, any agreements, utilities paid/not paid by the tenant, parking, storage, responsibilities like lawn/snow, expiration dates, special clauses, etc.  This will undoubtedly be one of the most important steps you take to start your due diligence into a property you like, but there are many things you can't learn from a lease.  Aside from that, if the seller didn't live in the property, and isn't a licensed agent, they don't need to use a full seller's disclosure (in MN).  As you can imagine, this almost completely leaves the burden of due diligence on the buyer, and a lot can go "unmentioned".

You'll often encounter tenants while on showings, and you should take every opportunity to politely introduce yourself (first name) and ask them about their experience there.  You will learn things you could never have expected, and 90% of tenants are happy and willing to discuss, and maybe even show you some things that will help you out later.  If they're happy living there, or not, you'll find out very quickly.  It's also helpful to get a read on someone you have to be neighbors with if you're a house hacker.

Here are the questions I typically ask a tenant at a showing/inspection, and a number of the wild/helpful/interesting answers I've received over the years as an investor/agent.  Sometimes they don't want to talk and perhaps don't want us there, but most of the time it's well received.

1.) What do you love/not love about living here? 
A: "Oh, I don't actually live here, I'm just staying here for a few weeks with a friend"
A: "The seller just asked me to stay here because people kept breaking in and vandalizing the place, that's why the appliances are gone"
A: "I love all the neighborhood pets, but I absolutely hate the business next store because their air conditioner squeals when it runs ALL SUMMER!"
A: "I love it here, you better not make me leave."
A: "I love being able to work on my bikes in the garage."

2.) How do you like your landlord, do they take care of you?
A: "I don't, the basement flooded the day after we moved-in and we wanted out of the lease because he took forever to fix it and we've hated living here ever since."
A: "He's fine, but his kid lives in the other unit and is kind of a terror".
A: "Yeah" (*quickly covers ash tray*) they don't come around much, and leave me alone, and I like that."
A: "That window over there is broken"..... (hadn't told landlord)

3.) How do you like your neighbors (including other tenants)?
A: "they have a dog that will NOT shut up."
A: "The lady downstairs goes outside to smoke (nice), but her smoke lofts up to my open window."
A: "neighbors are super cool, they come over all the time to have fires in the backyard."
A: "they fight a lot, unfortunately." (lower tenant said the same thing about them)

4.) Have you been dealing with any water leaks, drain issues, or delayed repairs? (water is your worst enemy outside of vacancy)
A: "funny you ask, as you can see the wall is patched but not finished or painted from a leak that happened upstairs, it's been that way for... 6-7 months."
A: "YES, PLEASE FIX THE SHOWER"
A: "yeah ever since my landlord was tiling the shower and put some grout mixture down the drain we've been having consistent drain backups (2nd floor!)"
A: *Silence*.....*motions to follow*.....*flushes toilet*....*motions to follow to the basement*....*points at ceiling*.... water dripping through subfloor.

5.) How are you doing? (this is my favorite one, it's such a wildcard)
A: "Actually not too great, my friend moved out on me and left me to pay the rent on my own."
A: "lost my job, so we'll see how that goes I guess."
A: "my eviction court date is coming up."
A: "don't F***ING talk to me."

You may have laughed a bit.  I can't believe some of the things I've heard, but that's the point.  You can learn a lot from someone who's spent a lot of time on the property, and it doesn't cost you anything as long as you're polite and respectful.

Lastly, you'll want to be ready for the tenants to ask YOU some questions as the buyer or agent.  Here are some things you may want to prepare an answer for so you're not caught off guard and so you don't reveal potentially sensitive info.

Q: "are you going to kick me out?"
Q: "when are they going to stop showings?"
Q: "are you the buyer?"
Q: "are you going to live here?"
Q: "are you going to raise the rent?"

Generally, I try to deflect most of these questions.  Simply replying "I am just looking for now" is honest, and enough to stop the questions.  Sometimes you may not want to be recognized as the buyer, or you may not want to reveal that you plan to move in; especially if it means you have to non-renew a tenant.  Being ready for this line of questioning can save you from an awkward conversation.

I've been on many hundreds of showings to compile this, so don't let these wild answers discourage you or make you think all tenants are up to something.  95% of the conversations I've had are extremely pleasant and forthcoming, and I'm positive your experience will be the same. 

Happy house-search!

[Andrew Freed]

@Jeff Schemmel - Solid points! Asking tenants about their experience, any issues with their units, and the building is imperitive for buying properties. I purchase multifamily all the time and when I walk properties, I always inquire with the tenants to gain an understanding of the property. They live here 24/7 hene they honestly would know best. Definitely something investors should add to the tool belt to enhance their level of due diligence. Fantastic post.