Inherited Tenants: How I Dealt With an Occupant Paying $295/Mo With No Lease

Inherited Tenants: How I Dealt With an Occupant Paying $295/Mo With No Lease

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Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

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Considering buying a rental property with inherited tenants? Here’s how a recent acquisition by one of my partners and I went.

Good old inherited tenants—if you’ve purchased a property from a tired landlord or mom and pop owner, you understand that dealing with them can oftentimes be a pain. Sometimes the reason the owner is selling the property is due to the troubled tenants. Once you buy it, that problem becomes yours to solve.

My Inherited Tenant Deal

Just recently, my partner and I purchased a property where the tenant was paying just $295 a month in rent. They had been living there for 20+ years. Talk about a landlord afraid to raise the rent! The property had no lease in place. Instead, there was a handshake agreement between the tenant and the old landlord, allowing the occupant to live there. The fair market rent on the house should have easily been $700+ per month. The numbers worked at the current rent, but they would be even more appealing if the tenant moved out and we renovated the property to get higher rents.

tenant-funnel

Related: 4 Steps to Pre-Screen Prospective Tenants Over the Phone

Working it Out

We got in contact with the current tenant to notify them that we were the new owners. We let them know that we planned to offer a discount in rent to them, but it would need to be nearer the fair market price. Unfortunately, the individual was on a fixed income and was barely making enough to cover the current rent. In these scenarios, my partner and I always do our best to work with inherited tenants. Still, in my experience, 40-50% of them just do not work out. That is a high percentage, but that’s just how it works out.

Make the Call

As much as we wanted to keep the current tenant, it just didn’t work. We mailed them a 30-day non-renewal notice, which is a requirement in my state, even if a tenant does not have a lease. This may be different for your market. Just make sure you know your local laws. The tenant will now be moving out shortly (hopefully). 

elements_tenants_want

Related: 13 Things Tenants Don’t Understand About the Rental Process

Summary

It is not easy dealing with these tenants. It’s best to do what you can for them because some of them do work out. They can be great tenants and may prefer paying more to moving. If you feel they’re stringing you along, then they probably are, and it is best to act fast to get them out and replace them with a fresh renter at better rates.

Have you ever dealt with troublesome inherited tenants? How did you handle the situation?

Let me know your experiences with a comment!

Good old inherited tenants—if you’ve purchased a property from a tired landlord, you understand that dealing with them can oftentimes be a pain.