Kirkland, WA · Member since 2014 · 2 posts · 1 vote
I am about to close on a 4plex in Washington state. I am looking for advice as it relates to the tenant leases and security deposits. I understand the prorated rents go on the HUD and are settled at closing. I need help on the formal way to transfer the leases and security deposits. What is the best way to do this? What have other people done?
As far as leases, they survive the sale. So you need to have a copy of the existing leases given to you by the seller. Also this is not required but a good idea, have all the tenant's sign "e stoppel" letters (search here on BP). Basicall it just reiterates the lease terms and what is and is not included. That way in 6 mo you don't have someone moving out and saying "no the stove was mine not the LL" ect.
For security deposits, have them credited at closing as well as the prorated rents.
Security deposit should transfer with escrow settlement unless you've decided to handle it outside of closing. I write my new tenants a letter letting them know where their deposit is being held and the amount I've received (which should be on their estoppel or leases. I let them know I've absorbed their current leases and in coming weeks will write them new ones (which I customize for each property). You can just keep the old leases as well as you've absorbed them, but it's nice to have what you want on them.
When we bought our 8-plex, here in Washington State, the security deposits were transferred to us at escrow. We also asked for the tenant files, which included the month-to-month rental agreements. We double checked the security deposit list with what was written in the rental agreements to make sure they jived. The security deposits were placed in a separate account at our credit union.
As soon as the sale was final, we wrote a letter to the tenants to introduce ourselves. We also told the tenants we would not be raising the rent at this time, which immediately put the tenants at ease.
Being that they were on month-to-month rental agreements, we were able to change over to our rental agreements fairly easily and quickly. We used a 20-day notice to terminate the prior rental agreement and gave each tenant a copy of our rental agreement for them to review. Then we made appointments with each tenant to sign new agreements and educate them on the new terms and our property rules. It was also a great opportunity to get to know the people in each household.
Then we started working on property repair and improvements. This was a big hit with the tenants, as we asked them for their input on which things we should address first and took care of their requests quickly. By being at the property a fair amount of time while doing the repairs and improvements, we were able to get a good handle on how the property worked and the character of our tenants.
We didn't need to evict anyone, but one tenant (a female stripper with a pit bull) moved on her own. She didn't like our no-smoking policy, no drugs policy and our partnership with law enforcement. She also became aware that we could not be easily manipulated.