I purchased my first rental property now what?

Question

Ok, so I have put in a contract on a 4-unit all with 2 bedrooms and 1 bath in Washington, d.c. and I am very excited. There are currently two tenants in the building and I am requesting the rent roll from the last twelve months etc. My question is once you have purchased your property with tenants what should you be doing before the contract is accepted and after the contract is excepted. Should I be sending letter to the current tenants about the change of ownership, what do you do to set the tone for your tenants such as sending out rules and guide lines. What are some things to watch out for, I know this is all general just trying to pick everyone's mind.

I know one thing that I haven't seen talked about is closing cost, the property I am purchasing is 420k and when you talk about a 3% down payment plus possibly is 3% for closing cost. I say possibly because most of the time I believe sellers pay closing cost, but if they don't pay it you have to pay it.

I currently setting up a LLC with an attorney, and have a cpa. If any more information is needed just let me know

Benjamin Pekarek · Answer

Jon,

Congratulations on your first purchase! If you plan on self managing, you have a lot of initial paperwork involved in your setup.

I'll be happy to provide you a copy of my change of management form, just e-mail me a request and I'll shoot over a copy for your attorney to review, just don't do anything until after everything has closed!

In the meantime, what management software have you decided on? Have you figured out renter's insurance requirements? How many leases have you reviewed with your attorney? Have you figured out your late fee structure?

Remember, your current tenants are on a lease, and their current rules and regs run with the building. Set the tone for your two new tenants, and once your inherited tenant's leases are up, enforce the same rules for them as well.

If you're not wanting to play manager day in and day out, start interviewing management companies NOW, as you'll want them to take over on day one - the two biggest management "chains" are Real Property Management, and All County, but I don't know if either one has an office in D.C.

Good luck!

-Ben

JR T. · Answer

You shouldn't make an offer on this type of property until you have examined their rent roll, P&L and other financials for the past 3-5 years, minimum. If you are still in a study period make sure you review this information carefully as it is the basis for your investment. You should be paying only for what the property has done, not what you think it will do someday.

If you wind up closing make sure you get credit for the pro-rated rents and security deposits on occupied units. You'll need to review the tenants leases carefully as you are now bound by them. Post and mail notices advising tenants where to pay rent and who to contact for maintenance issues the day after closing.

In my experience closing costs are split between buyer and seller. If your seller is offering to pay 100% of closing costs I'd say your offer price is too high.

Good luck!

Elizabeth Nourse · Answer

@Jon Sheffield

First of all, congrats. That's a big first step.  Just for reference, I'm a licensed Real Estate Broker in DC, but I don't do property management in the District.  I'd do the following asap:

1. Read the information recommended by @Linval T. and other sources on this site.  Get the rent roll, leases, and operating expenses ASAP.  If you don't like what you see, get out- in the future never buy without seeing these things first.

2. Get an estimate of your closing expenses ASAP from your title company/ lender/ agent. Your agent should have provided you with an estimate of your cost to close. If you dont' have an agent, try to get your mortgage lender or title company to get you an estimate quickly.  Closing costs vary considerably and lots of the costs are not paid by the seller. You will have to bring money to cover thousands in closing costs.

3. Get some help to find out what you have to provide to the tenants. The current owner by law, in DC has to supply their tenants with notice and it is in your best interested to make sure these notices are delivered as scheduled.  Request a copy of the notices.

4. Read up on property management in DC (or hire a manager).  It is complex and if you don't service notices promptly you could be setting yourself up for pain.  DC is EXTREMELY tenant-friendly. Good landlords can sometimes take 6 months or more to evict in this jurisdiction.  You need to be on top of your game if you ever need to get someone out, bear that in mind as you do your research.

I hope this helps you! Good luck!

Patricio P. · Answer

You make an excellent point. Price should always be negotiated on the current situation. It is the potential to improve where you can add value and increase rents and/or equity.

Another thing I recommend that people do, which I learned listening to Ben Leybovich, is to verify the property expenses. During the due dillegence period confirm direct with the utility companies what the monthly expenses are for the utilities that you will be paying as the landlord.

Linval T. · Answer

@Jon Sheffield

Congrats on your initial step to your 1st acquisition and signing of contract.

below is a link with some tips from a previous thread that you can review.

https://www.biggerpockets.com/forums/52/topics/180051-steps-to-take-right-after-closing-on-a-rental-property

I purchased my first rental property now what?

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