Miami Beach, FL · Member since 2013 · 12 posts · 7 votes
Hello All,
I went under contract on a Fourplex in Miami this past week with the following stats: two 2/1's rented at $900 per month and two 1/1's rented at $700 per month. I figured these numbers were fabricated, so I ran my purchase multiples at lower rates. I think I have a solid purchase price, particularly as I'm financing the purchase while the vast majority of deals in Miami are going for cash.
There is a language barrier with the owner, but my wife speaks Spainish and has been communicating with him. His story regarding his tenants has changed after I sent him the estoppel letter that I need his tenants to sign in front of me. I have a terrific inspector, but I'm hesitant to spend the $900 prior to getting this tenant issue resolved.
I'm interested in feedback from the BP community to debate various ideas for moving forward. Let me know if more information would help.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
12y
Hopefully your contract was contingent on the leases and rental rate information. That gives you the upper hand if you need to either back out of the contract or negotiate a new offer. I assume this is not listed with a selling broker... they would have (or should have) verified the lease information up front.
You need them notarized, not just signed in front of you. If the tenants do not speak English make sure you hire a third party interpreter to translate them for the tenant. You should video record this as well.
To your specific question, It really depends on how hard you want to play.
If it really is just a communication issue, work through it and explain you are unable to do your due diligence without the certificates and copies of any leases and would be unable to close the sale due to the seller's deficiency.
That is the softball way.
If you want to go hardball you can send him formal notice reminding him you relied solely on his representation of the condition of the leases. You expended resources and time which has cost you actual dollars and that without the certificates and the leases you will be forced to reprice your offer assuming all of the tenants live there rent free or back out and seek reimbursement for your costs due to the seller withholding material facts.
However, I am making a REALLY big assumption here based on what you posted. I am assuming there is no broker involved and you received the information about the leases DIRECTLY from the seller. Through and interpreter is still considered direct. If that is not the case, your only recourse would be back out if they don't provide the certificates.
The bottom line is no professional inspector will produce a final report without knowing the details about the current leases and tenants. There is no point in even starting your due diligence until you have the notarized certificates.
Miami Beach, FL · Member since 2013 · 12 posts · 7 votes
12y
The information is coming from the listing agent who is also the owner. If I need to evict all four tenants, I'm okay with that, but I'd prefer to accept the building empty as opposed to dealing with his potentially deadbeat tenants.
Regarding Joe's comment, are you suggesting establishing escrow to collect tenant rent payments until the contract closes?
Jason
Real Estate Broker · Orange, CA · Member since 2008 · 380 posts · 87 votes
12y
What story changed with the landlord? What are you particular piece of information from the estoppel are you looking for? Property condition, tenant history, gross income?
If it is income I'm guessing there are a few ways to verify this I like having a few sources so I can verify the information.
1. Lease agreements. Besides the income on the lease agreements you'll looking at who is on the lease vs who is living there, you also verify that there are no potential remembrances written in the lease verbage, extreme scenario but what if one of the leases has a lease option clause.
2. Knock on the door and have a casual conversation.
3. For income you can ask for a copy of the sellers most recent 2 years schedule E's provided by his CPA. And if you still don't believe that you can as the seller to sign a 4506T and pull the transcripts from the IRS.
A few things you want to know besides income I've found are things that will effect returning the deposit. Things like how old the carpet is (effects what you can withhold for carpet when returning the deposit) and the property condition when the tenants moved in.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
12y
Regarding "The information is coming from the listing agent who is also the owner..." Is no one else seeing a big red flag here? Self dealing with false information? I'd tread really lightly. Disclosure should be first and foremost with a licensed RE person.
You need them notarized, not just signed in front of you. If the tenants do not speak English make sure you hire a third party interpreter to translate them for the tenant. You should video record this as well.
... There is no point in even starting your due diligence until you have the notarized certificates.
Definitely have the signatures on the estoppel notarized.
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
12y
@Jason Clemens , if the owner's main language is Spanish and his English is limited, then I'd assume that the tenants are Spanish speaking as well.
What exactly is changing in regards to the tenants story?
Maybe the tenants are undocumented and they might not be able to notarize anything, because they might not have Florida licenses. They might be perfectly able to afford the rent, but simply aren't able to jump through the legal hoops, that you might require or they are simply afraid.
I personally would have not problem with undocumented tenants, as long as we can communicate, and if you would even be willing to take the property vacant, then maybe it would be helpful to take your wife and knock on the doors and have a conversation with the tenants and get a gut feeling.
Sometimes it's worthwhile to go outside the box and away from strict rules.
Real Estate Investor · WI · Member since 2013 · 125 posts · 33 votes
12y
I just caught a prospective seller in 2 lies this morning, one about taxes and one about furnaces. This afternoon I found a third lie, about rent totals and reporting them.
I wish I would have walked away after the first lie.
Miami Beach, FL · Member since 2013 · 12 posts · 7 votes
12y
Tenants are all month to month and no formal lease exists. As an aside, I find it very interesting that the respondents to this post are suggesting simple answers like "read the lease" and "verify the W-2 income". Miami must be a very different market from the rest of the country in that it's a very fast paced an transient rental market with a lot of cash month-to-month tenants without much to verify.
I'm meeting three of the tenants tomorrow to sign my estoppel letter.
How does the BP community feel about accepting the risk of these random tenants versus pushing for an empty property upon close? Perhaps seller cash contribution to account for evicting a portion of the tenants?
Thanks for all the great ideas...
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
12y
@Jason Clemens How fair is it to push the seller to evict all tenants? How many properties, that are under contract, actually close? Many fall through.
So, if I were the seller, the only way I'd get rid of my tenants is , if you were to put down a huge chunk of cash, that is not refundable.
Without that I would not take the risk of you potentially not closing and I then having a vacant property.
That's written by an attorney for commercial real estate. I wouldn't really look at a 4-plex as commercial real estate. Mortgages look at 4-plex as residential. So, I'm not sure that you have to be so 'by the book' for smaller residential homes.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
If it's a great deal then it would not stop me from buying it even with the undocumented tenant income. This issue could be adjusted soon to your favor.
Miami Beach, FL · Member since 2013 · 12 posts · 7 votes
12y
Hi All,
Im enjoying sharing the story of this deal as I've learned a lot from this site and this situation will hopefully help others. Feel free to share your thoughts and recommendations...
Here's my update after today's meeting: definitely worth the time to have the tenants sign my estoppel letter. I'm gaining some confidence in the total picture of what's going on.
Unit 1: 2/1 quoted at $900 per month. The tenant was expected to move in on Jan 1st and had supposedly submitted a security deposit already. As of today, the tenant has disappeared, so the owner asked (through my wife the translator) if he should keep recruiting tenants. I told him that he should continue to operate the property as if there won't be a deal, in case something falls through. He made mention of potentially having no security deposit to transfer if there's no tenant. Our contract specifically states that $900 security deposit will be transferred for this unit. I decided not to push the issue today, but I intend to hold him to the contract. Looks like I'll take ownership of this empty unit with $1500-2000 of rehab required prior to recruiting tenants.
Unit 2: 1/1 quoted at $700 per month. The tenant is a handyman and apparently does much of the rehab work at the property. He was very pleasant and communicated in broken, but understandable, English. He signed the estoppel letter indicating that he paid a security deposit, and is on a month to month term due on the first of each month. He has lived in the property for four years, and claims to be the property "watchdog". This is highly concerning since the original owner stopped paying the bank, racked up unsafe structure liens with the bank, and ultimately transferred title via shortsale to current owner. The tenant wants to stay on for an indefinite period. I think this tenant hasn't paid rent for a long time, and I think he and the current owner are on a work-for-rent agreement that the tenant hopes to replicate with me. I suppose I'll wait and see what happens, but I'm very focused on cash flow. Overall, the unit presented well and doesn't need any work.
Unit 3: 1/1 quoted at $700 per month. Unit is in fair shape, but missing closet doors and electrical lines (for example, the bedroom doesn't have a light switch or an overhead outlet). The tenant was clearly not happy to see us, or to sign the letter. She said she only wants to stay until February, and she had a bad attitude the entire time. This tenant is the bad egg of the bunch, and she's either going to leave quickly, or she'll be out in 45 days. The chemistry between her and the owner was odd/combative, and I'm having a hard time figuring her out. The owner bought the property in October, so I'm guessing she was living rent free as well, although the owner is suggesting she moved in on Dec 1st. Why she would leave after just three months, I have no idea, but she'll be my biggest problem upon closing.
Unit 4: 2/1 quoted at $900 per month. Very pleasant young man and his girlfriend have put their touches on this unit by painting the walls and the cabinets, and they seem very artistic. There was a clearly active hookah on the living room table, but this is Miami, and to each their own is my attitude. The tenant works at a live music venue/bar that I frequent, and I suspect he's earning a descent wage there. I asked him about signing a one year lease, and he was very agreeable to that idea. Looks like the best of the four units.
I have a terrific inspector that is scheduled for Friday, so we'll see what else turns up. There is still rehab work to be completed (I cited each item in the purchase contract), so I'll likely be back at the property next week to inspect.
Miami Beach, FL · Member since 2013 · 12 posts · 7 votes
12y
Thanks for asking for an update, Kristin.
The situation has turned out quite well. Units 1, 3, and 4 are all paying on time, and following my "training" to deposit into my Bank of America account prior to the 5th of each month.
Unit 2 stopped paying a few months go, so we had to move through an eviction process (another long story as I switched eviction companies halfway through). It wasn't a fun process, but we finished two weeks ago. I paid about $700 to turn the apartment over (painting and repairs), posted a for-rent add on Craigslist and the MLS, and had over 30 applicants 24 hours later - I've never seen anything like it, huge demand... we're refinishing the bathroom and replacing windows throughout the unit. Also replacing some damaged tile in the bathroom, so the unit will be good as new by next weekend.
Decided to sign a 1-year lease with a nice couple with verifiable income 3x rent. Overall, the property is beating proforma expectations, and I'm very happy with the results.