Author Topic: Inheriting tenants  (Read 1892 times)

ForeverBlue73

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Inheriting tenants
« on: November 04, 2019, 10:30:51 AM »
I am considering a 2-unit building. Both units are currently occupied, and both tenants would like to stay on, if possible. I like the idea of instant cash flow upon purchase, but I am also very weary of inheriting deadbeat tenants. I'd like the existing tenants to submit an application, credit check, and income verification. But right now, I have no contract and no standing. I am unsure of the timing of when to bake this in.

The rents are about market. The asking price is right, especially if I have two viable tenants from day 1. November/December is a very slow time of year in my town to be looking for renters, and I'd likely be looking at vacant units until the new year, if I request that the seller deliver the building vacant.

Have any members bought buildings with tenants, and if so, what kind of precautions and procedures did you take to protect yourself?

Jon Bon

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Re: Inheriting tenants
« Reply #1 on: November 04, 2019, 11:40:23 AM »
What leases does current ownership have? They should be VERY up front wtih you about this becuase obviously its a huge factor in your decision to buy. All of the credit/background checks should be already done by prior/current ownership.

Usually I get all this provided to me in so many words and then in writing after a signed contract.

FWIW requiring existing tenants to submit to all that you listed is a good way to make them pissed off angry tenants. Tenants are generally binary. On time with rent and good to good enough. Or terrible and you want them gone yesterday.

Seller should be able to give you all this info, pretty standard practice.


Kierun

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Re: Inheriting tenants
« Reply #2 on: November 04, 2019, 11:42:16 AM »
Go talk to the current PM. Hopefully they should be able to answer your questions and concerns. Do you think the current PM hasn't already done a background check, credit check, and income verification?  Why reinvent the wheel and duplicate effort if it's already been done?  If you do get a new application, checks and verification and they're not up to your standard what will you do?  Start the eviction process?  On what grounds?

ForeverBlue73

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Re: Inheriting tenants
« Reply #3 on: November 04, 2019, 12:51:45 PM »
The current leases are month-to-month. I have requested leases and any other information the seller has on the tenants (application, payment history, etc). If the tenants look solid, then I'll inherit them. If the seller cannot produce a paper trail that puts me at ease, then I'll request to take the building vacant.

Kierun

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Re: Inheriting tenants
« Reply #4 on: November 04, 2019, 02:01:42 PM »
Sounds like you've got a handle on the situation and a decision on the path forward. Knowing they're month-to-month makes it easier to get a vacant building if you want. Just a waiting game on requested documents it would seem.

SndcxxJ

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Re: Inheriting tenants
« Reply #5 on: November 05, 2019, 09:21:52 PM »
I've inherited tenants numerous times.  My general approach is to look at how the residents are taking care of the property, and ask the current owner for a rent history for each tenant.  If they are taking care of the place and have been paying their rent on time that is a better background check than a credit report can ever deliver.  Very rarely are you going to have the ability to see how the occupant keeps their home before they are in a contract with you.

PGSD

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Re: Inheriting tenants
« Reply #6 on: November 07, 2019, 03:43:47 PM »
Remember to get documentation on the deposits the tenants made to avoid future issues (and, obviously, the current owner will give you that deposit money as part of the purchase). I'd also want the signed rental agreements, if there are any, as that should cover the "rules" like smoking, pets...


ForeverBlue73

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Re: Inheriting tenants
« Reply #7 on: November 08, 2019, 01:45:44 PM »
The seller is stating that he is unable to provide me with documentation showing the current tenants have been paying rent. He says he owns some 30+ properties, and cannot parse out the rent payments from this building within his bank statements. He has offered instead to provide me with a signed affadavit stating the tenants have been paying on time. This is, of course completely useless.

In light of this, I am going to write in as a contingency that the building be delivered vacant unless the current tenants submit an application and proof of income, and sign a new lease with me during the attorney review process.

Jon Bon

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Re: Inheriting tenants
« Reply #8 on: November 08, 2019, 09:10:31 PM »
Yeah there are LOTS of lazy/bad/old landlords out there. Lots of guys have made lots of money just by screening tenants by gut feeling and a handshake.

That being said Sndcxxj is right. If they are on time, and the place looks to be in good shape. That will likely tell you more than a credit check ever would.

But yeah the current landlord not being able to give you proof they are on time is pretty silly.  I mean your not asking for access to his bank accounts or anything. A few cashed checks or something from the bank would take him all of 20 mins to produce. He uses one account for 30 rental properties? Yikes!

Asking for a vacant building is not how I would handle it, but different strokes for different folks and all.

Now judging from the sellers side, I would most likely take a different offer. (again markets are different etc) but your deal is not set in stone. I don't know you (the buyer) your offer might be trash, your credit might be trash, you might get hit by a bus tomorrow. So I am not going to throw out perfectly good tenants (in my mind) to satisfy a deal that might be shaky to begin with.

Either way, you have an interesting one here. Let us know how this turns out for you.

ForeverBlue73

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Re: Inheriting tenants
« Reply #9 on: November 10, 2019, 05:48:55 PM »
The most the seller is willing to provide is paycheck stubs. Still not entirely satisfactory for me since I want to absolutely avoid discovering that they are not responsible tenants after I buy the building, and have to evict them as the first order of business. At this point, I am considering going through with the deal to buy the building with the tenants in place. I will have them sign a new lease as soon as I close on the building. Hopefully, they will be amenable to it and turn out to be good tenants.

PoutineLover

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Re: Inheriting tenants
« Reply #10 on: November 10, 2019, 06:07:46 PM »
What you are trying to do is mostly illegal where I live, and I'm glad that as a tenant I have protection from purchasers like you. If you have seen the condition the apartments are in, that's a good clue, and if you can also get some documents to satisfy your mind that should be good enough. Tossing out likely perfectly good tenants to put in unknown tenants who might be just as bad or worse seems unnecessarily cruel and pointless.

Cassie

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Re: Inheriting tenants
« Reply #11 on: November 10, 2019, 06:12:20 PM »
We inherited tenants and it was fine.

rocketpj

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Re: Inheriting tenants
« Reply #12 on: November 11, 2019, 06:59:59 AM »
I inherited about 20 tenants and got a mixed bag.  Over the last couple years I've been able to get most of the bad ones out, not without some pain though.

Have a good look at the units and tenants before buying.  You might be getting a great setup, but YMMV for sure.

Archipelago

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Re: Inheriting tenants
« Reply #13 on: November 11, 2019, 09:23:01 PM »
The seller is stating that he is unable to provide me with documentation showing the current tenants have been paying rent. He says he owns some 30+ properties, and cannot parse out the rent payments from this building within his bank statements. He has offered instead to provide me with a signed affadavit stating the tenants have been paying on time. This is, of course completely useless.

In light of this, I am going to write in as a contingency that the building be delivered vacant unless the current tenants submit an application and proof of income, and sign a new lease with me during the attorney review process.

If the seller is so confident the tenants are paying their rent, take his word for it and hold it to him. Have him put the next 6-12 months of rents in escrow for you. If the tenants don't pay rent, you get the escrow. If they do pay rent, the seller gets the escrow. Simple and reasonable enough.
« Last Edit: November 13, 2019, 07:40:37 PM by Archipelago »

happy

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Re: Inheriting tenants
« Reply #14 on: November 12, 2019, 03:15:14 AM »
I inherited a tenant and it was fine. The previous owner of the property vouched for her. She requested a 12 months lease: it all worked out.

cchrissyy

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Re: Inheriting tenants
« Reply #15 on: November 12, 2019, 10:04:24 AM »
If you can get proof from the current owner that the tenants have always paid as scheduled, and if you can see that they take good care of the place, that is worth EVERYTHING and you don't need a credit score or other application steps.

The part about the current owner not being able to provide that proof is very worrying though! It could suggest trouble with the tenants but more likely it suggests that owner is sketchy and misrepresenting, or at the least, disorganized. I wouldn't want a business deal with such a person.

ForeverBlue73

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Re: Inheriting tenants
« Reply #16 on: November 18, 2019, 11:56:59 AM »
*Update: So after much back and forth, the seller has produced exactly nothing. He cannot produce paycheck stubs from his current tenants, nor deposited checks to verify the rents in place as well as prove that the existing tenants are up to date. He has no leases. I'm told that for buildings of this type (small multi-unit buildings), oral guarantees are the norm and that is all I'll get.

I am inclinded to walk away from the deal at this point. IF the rents and tenants are accurate as the seller represents, then it would be a good deal for me. But the fact that he can't produce any independent verification at all, and is simply asking that I take everything he contends about the building and tenants as an article of faith, well that doesn't really sit well with me.

Wrenchturner

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Re: Inheriting tenants
« Reply #17 on: November 19, 2019, 02:47:43 PM »
I'd be more concerned about the allegation that lease-free tenancies are the norm.  Might want to do more market research for the area to ensure this is sensible as a rental property.
You're right to be skeptical at this point, and the present landlord is at best disorganized, and at worst trying to sell you a losing arrangement.