Offer accepted...now what?

Question

OMG!!! The time has finally come...after hundreds of homes analyzed...several offers beat out by cash offers...fighting the temptation to give into the insanity...

Our offer has been accepted!!!

Currently being rented.

Out of state deal.

Home needs work.

Tenants have lived there for 7 years.

General Contractor quoted us $20-25K to fix up.

So, what do we do next? We are waiting for escrow/title to clear...is there a template on the things we need to do? Help. 😅

Drew Sygit · Answer

Congrats!

Use below what works for you:

Purchase Agreement Clauses for Buying Tenant-Occupied Rental

If you’re considering buying a tenant occupied rental property, there are some documents you want to acquire for review prior to the closing. Once the closing takes place, the seller has zero incentive to cooperate with supplying them.

Not only do you want to obtain these documents, you also want time to review them well before the closing because unfortunately, there’s always the potential that one, or several, of the documents may be fraudulent.

So, let’s go over each document and why it’s important:

• Lease: this one should be obvious. A lease is a contract between the landlord and tenant. It spells out the monthly rent, when it’s due, the length of the lease (or term), should contain clauses required by the federal and state governments, and much more. Without the lease a buyer has no legal means to collect rent from a tenant or evict them for nonpayment.
• Rent Ledger: this is a record of all tenant charges and payments. It proves if the tenant is current on their rent and their history of whether they’ve paid on time or not. It should also show any security deposit collected, pet fees, cleaning fees etc.
• Tenant Contact Information: current phone number and email address are needed to be able to communicate with tenants.
• Tenant(s) Government Issued ID: typically, this will be a driver’s license to prove the identity of the tenant(s). Without, you have no way of confirming the occupants of the property are those named on the lease. Proper identification of tenants is also needed if you want any chance of having local code enforcement write tickets against the tenant and not the owner.
• Any Legal Action Documents: you’ll definitely want to know if the current landlord is evicting or suing the current tenant(s).
• Tenant(s) Social Security Number: this should have been obtained by the current landlord to do a background check during the application process. A new owner will need it if they want to pursue collection and garnishment for unpaid rent and/or property damages.
• Tenant(s) Employment & Bank Information: additional information useful for garnishment actions to collect unpaid rent and/or property damages. Usually collected as part of the application process.

Fraud: let’s not pretend it doesn’t happen. Desperate sellers do desperate things. We’ve seen fake leases and rent ledgers, even fake tenants - who were placed by the seller to backup the fake lease and ledger. So. it’s not uncommon to request proof of rent deposits via bank statements and corporate/LLC tax returns. Of course, it can be almost impossible to validate any rents the seller claims they collected in cash. So, sellers can also be asked to sign notarized affidavits personally guaranteeing the validity of leases and ledgers.

So now, let’s get to the clause to include on your purchase agreement to make sure you get all this information in enough time to review it.

Seller(s) agrees to provide the following to the buyer within X days of buyer’s satisfactory inspection, but in any case at least X days before closing: All rental leases, rent ledgers, tenant(s) valid phone numbers and email addresses, rental applications & supporting tenant identification, income and asset information, any documents corresponding to any ongoing legal actions pertaining to the property, leases, service contracts, etc., at least three (3) months of the most recent bank statements for any account(s) rental funds were paid into and any company or corporate tax returns for proof of income and expenses. Seller(s) also agree to sign an affidavit at closing personally guaranteeing the validity of all leases and rent ledgers.

Now that may seem like a lot for a seller to agree to, but if they have nothing to hide, why would they not agree?

As always, none of this should be construed as legal advice and we recommend you consult a real estate attorney.

Crystal Smith · Answer

1. Verify the GC license with the state

2. Request and review current leases and rent roll (Determine if current tenants are paying on time. If not develop a plan to remove tenants who are not paying after you close)

3. Prepare scope of work for GC & contract

4. Escrow $ w/ 3rd party, Title company or attorney, to pay GC once work is complete

5. Hire independent inspector to check on GC's work (You've said this will be an out of town purchase. Trust buy verify work is complete using independent inspector)

6. If you're going to manage the property yourself then you need to decide what system(s) you're going to use to manage the property. This would include collecting rent, screening tenants, taking care of maintenance requests...

7. If you're going to hire a property management company then you need to start interviewing companies

8. Study & become familiar with the Tenant and Landlord laws for the area or hire someone familiar

Angela Smith · Answer

How much time is left on the current lease?  Are you allowing the tenants to stay?

First steps is to decide the answers to those 2 questions.  If the lease is due for renewal, take a look at the fair market rent and adjust accordingly.  It they are good tenants and you want to keep them, you may need to increase the rent incrementally as opposed to all at once.  But, it they are paying the same rent as they were 7 years ago, then adjustments will need to be made.  Also, analyze the current lease very closely.  make necessary addendums as you are taking over as owner.

Other immediate steps.  Determine repairs that are needed and attend to them right away.  If the tenants are vacating, this will be easier, otherwise will need to work with the current tenants to schedule the work.

Congratulations and good luck.

Dan Carquille · Answer

Congratulation for your offer being accepted.

I don't have a lot to help you as I am also looking for our 1st Home purchase. But Congrat's for not having gave up..

Charlie MacPherson · Answer

@Mark Gaskins  This sounds like it's your first deal - and it's out of state???  That seems like a lot of risk, but it's your party.

As @Crystal Smith wisely pointed out, you need to understand the landlord/tenant laws in that state.  You also need to drill down on what evictions are like, especially whether there's a COVID moratorium still in effect.

Get an estoppel certificate from the tenant(s).  That way they can't come after you 5 years from now saying that you're holding a security deposit or last month's rent when you really aren't.

Make the seller show you a rent ledger and match it up with bank statements, showing that rent really is being paid on time.  You don't want to inherit anybody else's deadbeat tenant.

Presumably your title company is doing a search for liens, but you might want to check on your own.

Call the town and order a municipal lien certificate and see what their procedure for a final water / sewer / trash reading is.  Order those for final adjustments at closing.

Between now and closing, stay in touch with your lender.  When they ask for documentation, jump on it and get it done without delay.

Good luck!

Mark Gaskins · Answer

@Crystal Smith question as I go back and review notes…..why do you suggest having escrow manage the money? What are the advantages to that?

Andre Galaviz · Answer

Wow. Congrats! I am just getting started. Reading the BRRRR Book now and gathering information. Very nice to see people jumping in to answer questions. I am in Denver, so I thought it might be best to start in Denver, but the downside is property is more expensive here than elsewhere, so I see why looking outside SF CA would be your choice.

I haven't really started looking yet. Information and study as quickly as possible and move towards my first property. This is great incentive for me to see someone getting it done and the community helping.

Good luck closing! I'll definitely stay tuned to see how it went!

Mark Gaskins · Answer

@Drew Sygit that last clause would have been golden to add to this thing before signing it! Major plus! Thanks  😊

Mark Gaskins · Answer

@Charlie MacPherson thank you! Obtaining a final water, sewer and trash reading is new...I will look that up

Mark Gaskins · Answer

@Corey Frank thank you! Still in the thick of it and certainly know that it’s not perfect...but, learning every step of the way

Offer accepted...now what?

Most Popular Reply