All Forum Posts by: Wesley W.

If your lease is silent on it, it would default to your local or state statute.  I would research that and see what the requirements are.  In many locations, the important aspects are method of notice and the time between the notice and the rate going into effect.

As others have said, I would double check the above, but then send two copies of the notice - one first class and one certified.  That way, if they are not BOTH returned you have a reasonable assumption that they have been notified.  (Again, check your local laws to make sure this is sufficient.)

Also - unless the laws under which you operate say otherwise - you are "notfying" them of the increase.  You do not need them to agree.  You are changing the terms of the contract with proper notice.  If that doesn't work for them, they are free to give a norice to vacate.  (Practically, expect an eviction proceeding with this situation, and be pleasantly suprised if it doesn't come to that.)

Lastly, make it a point to make each mistake only once, so tighten up your leases moving forward so everything is crystal-clear for the next time.

Good luck!

In my experience, inherited tenants almost never work out.  My acquisitions have been from mis-managed/tired landlords of C+/B- small multis, so as @Bjorn Ahlblad and others have said, the type of asset class and quality of the management are probably the primary indicators.

I would offer them a month-to-month lease with my own terms, and see of they presented a generally agreeable/compliant kind of demeanor in the near term before proceeding to a term contract.

FWIW I only offer MTM leases because I believe term leases often favor the tenant more than the landlord in tenant-friendly areas.

It's almost never a good idea to have tenants do their own improvements, for the reasons mentioned as well as the potential liability exposure you'll have to a personal injury claim.

If the improvement the tenant wants is something you think will be valuable in marketing the unit in the future, you should sign a written MOA with the tenant, outlining the terms.  I typically have the tenants pay me for the retail price of the materials, and I contribute the labor.  But upon completion, the improvement becomes part of the building and the tenant concedes any ownership.  Here's an example:

THIS ADDENDUM IS HEREBY MADE A PART OF THAT CERTAIN LEASE AGREEMENT EXECUTED ON March 1, 2015 BETWEEN John Smith (“Tenants”) AND Joe Jones (“Agent for Owner”)

Rental Unit Address: (here)

At Tenants’ request, Property Manager will install a screen door on rear doorway of Tenants’ unit (Apartment 1S).

Tenant will submit payment in advance for materials purchase, and Property Manager will purchase materials after payment is made. Labor for installation will be provided by Property Manager.

Upon installation by the Property Manager, the screen door becomes the sole property of the Landlord. If/when Tenants vacate the rental unit, the installed screen door will remain as part of the Premises and no reimbursement to Tenants will be issued.

The seller should have sent a letter naming you as the new owner and informing them of the pending transaction.

Here's the letter I use as the buyer, which should complement the seller's letter:

Dear (tenant):

We are excited to announce that our company is in the final stages of purchasing the building within which you reside, and I’ll begin managing the property on August 12, 2022. Being a local company, providing quality housing and great service is very important to us.  I look forward to continuing to maintain your address with the same pride and quality that Ms. Peterson has taken in it over the past 19 years.

We are hereby cancelling your existing month-to-month tenancy effective September 31, 2022. Enclosed in this envelope is a new month-to-month lease agreement for you to sign, effective for October 1, 2022. In the meantime, please completely fill out both the Rental Application (included with this letter) and the Lease Agreement. I will make arrangements to come by and go over the lease with you sometime next week.

This new lease will provide you with important information regarding our company’s policies. This lease does not change the length of your lease term (month-to-month); it simply updates relevant matters now that I will be assisting you with your housing needs.

Beginning with rent for the month of September, please pay your rent by depositing the entire amount into the following bank account at (your) Bank: account # 123456; routing # 123456. We do not accept rent checks at our P.O. Box; rent can only be paid by bank deposit.

For your convenience, the nearest location to your home is 123 Main Street, (City), or you can execute a bank-to-bank transfer using the routing number provided.

If you have any questions, concerns or maintenance issues, you may call or text my cell phone at (your business number), or you may email me at the address listed at the top of this notice.

Please don’t hesitate to contact me with any questions about this transition or any other pertinent issue.

Sincerely,

(you)

I was listening to what I consider a reputable finance podcast this week, and they were saying that there were already some ways for third parties to "end around" and retrieve that information. One need only look at some of the recent news stories in the last couple of years to see that abuse of sensitive data and personal information is rife, including inside the government. Needless to say, anytime I am providing yet another government agency with such information, it does not instill me with much comfort that they will excerise the appropriate stewardship of that data. To your point, if the DOS already has that information, why am I being asked to hand it over again?

You can ask the seller to deliver the property vacant, but almost no one will agree to that these days.  Instead you can offer a lower purchase price, articulating the business risk you are taking on based on the dynamics.

My sense is this is a tired landlord situation, so any way you can make the deal more "clean" (e.g. cash offer, no contingencies) might increase your chances.  Also, if your agent is any good, have them probe the seller's agent to see what their pain points are.  If you know what the seller's "problem" is, you can craft an offer with a solution, thus making it more attractive.

Maybe you can explain to them that your LLC is your management entity, and it exposes you to personal liability if the LLC is named in a lawsuit?

I would tread lightly with the lender, as with this climate of higher lending rates, they just might bite on a "due on sale clause" to get a better return on their money.

Alternately, you can transfer ownership back into your personal name, and then get a commercial umbrella policy.

With this new FINCen reporting rule that just went into effect, I wonder aloud how corporate veils might now be more easily pierced, thus mitigating the advantage of the entity?

Good Luck!

They are probably valuing the property at market rents.  To that, I would retort, "well, stabilize the property at market rents, then give me a call."

You will have your work cut out for you with the inherited tenants at below market and a pittance of SD.  That tells me a lot about the tenant screening and current management style.  I would factor in 2 evictions to be conservative in your numbers, as well as the associated holding costs during such.  Even odds they will just stop paying once ownership changes hands and you inform them of the repositioning.  I would not try very hard to keep them; the writing is on the wall.

Your rehab budget is always going to be more than you project.  Until you start digging into the update, you really don't know what more needs to be done.

Make sure you factor in an increase in taxes based on the purchase price.  It could be significant, based on your jurisduction.  Where is the property located?  

Good Luck!

For your own deal analysis purposes, I would count her rent payments, if that's what you're asking.  In terms of accounting, her repayment of acquisition costs probably are not considered income, because they were paid by you at closing and you are just settling up between the owners of the property (I assume she will be on the note.).  I'm not a CPA, but from my understanding I think you can deduct half the expenses and declare half the income of the property (assuming units are similar in square footage), since only half of it is in service as a business venture.  If her rent is substantially lower than market, I think that muddies the water a bit.  What is your goal?  To try and mitigate the tax liability of the property?

I wish they would.  How do I get off Mr. Toad's ride?