Tricky Tenant Situation In A Flip

8 Replies

How would you resolve this issue?

I recently came across a flip-style deal in Cincinnati, OH where the numbers looked excellent. All-in to buy and rehab the property at $160k with a conservative ARV of $220k and the possibility of selling as high as the 230s. Good neighborhood, would've sold quickly. House just needs light updating (within the $160k) and the numbers are solid.

Here's the rub:  The house was occupied by a former owner. He was facing foreclosure and had deeded the property to an investor who paid off all the liens, let him stay in the property for a year, making payments, so that he could resolve his credit issues and buy the house back (at a profit to the investor of course). After six months the tenant hadn't made a single payment to the investor, who wanted to go ahead and cash out to put his capital to work in another deal.

So if you buy the house, it comes with the tenant. The tenant will have to be incentivized to leave. 

What do you do? How much would you be willing to do/give to get the tenant out?

Would you evict and take the risk of the tenant doing extensive damage to the house (eviction takes about 45 days and $400 in attorney fees)? Would you offer to pay the tenant to leave? And if so, how much would you pay? Do you have another solution? Or would you just pass on the deal without meeting with the tenant because of the risk of inheriting a non-paying tenant who used to own the property and doesn't want to leave?

I wouldn't pay the tenant anything.  It was his house, it has emotional attachment to him.  I don't think they will move without the sheriff kicking them out.  Start eviction day 1!  Do you have reason to believe they would damage the place further?  Are you sure that investor is the only one with a lien on the property?

during the foreclosure heyday it was common to hear banks offer "cash for keys", usually around 2500 bucks,  or enough to pay first, security etc on a decent apt.

I would attempt a face to face with the person living there, tell him you are open to them renting from you if they can provide security deposit. That meeting will tell you all you need to know... is the property being cared for, are they acting respectfully to you or being defensive etc

Is there a lease in place?  I would think that if there is no lease, and the investor has sold the property, there is no further understanding...and no money has exchanged hands.  What is to stop you from calling the police to remove the squatter?  That's what it sounds like you have here.

Obviously I am somewhat kidding.  You obviously have a Tenant at Sufferage, but it seems rediculous that a person not making any payments for that many months AFTER being foreclosed on, expects to continue that behavior.  That is just crazy.

I would go through eviction process.  There ARE usually quicker options if there is a threat.  In your case, you are concerned about damage.  This may be enough to get on the streamlined eviction process.  You will have to check with your area courthouse, OR call a good eviction attorney.  Let them figure it out.

Hopefully you have good liability insurance that covers proeprties during vacancy.rehab period.  THey usually cover theft and/or vandalism that may come from a situation like the one you are concerned about being in.

$500 cash for keys and sign something that says you will receive this money upon visual inspection that the property is not further damaged than what it was when you first saw it. I represented a company once and passed along a letter to the tenant that something to that effect. 

@Russ Draper   No reason to believe that the tenant will damage the house, except that he has no intention of leaving. Tenant may get vengeful, though, if a notice of eviction gets posted without him having been given any other (recent) alternatives. No liens on property, investor has owned it outright since April 2017. So you take the risk of Tenant tearing the place up out of vengeance and get him out ASAP via eviction?

@Will G.   Are you saying that you'd offer $2,500 "cash for keys" if the meeting went well? Tenant hasn't made any of his rent payments for the past six months, I wouldn't suspect that he'd start paying in full on time just because a new owner was in place.

@Cara Lonsdale   Great question! I don't know if there's a paper lease in place, but that would certainly help with the eviction. The squatter would still have to be evicted (given notice of eviction, then my attorney goes to court, then Tenant has 30 days to get out before the sheriff shows up). Also a good point about the insurance.

@Adam Curry So you wouldn't pay any more than $500? Why not? Also, if I were going the cash-for-keys route, it would include a signed document stating that tenancy would be terminated by an effective date with the Tenant and all of his stuff moved out by that date, which would be when I paid him.

Thanks for the answers y'all! Unfortunately the deal fell through before I really had a chance at it (intermediary waited too long to bring it to me, investor found another buyer), but this deal still felt like a good mental exercise so I wanted to share it with the BP community.

I can't really say what I would give on a cash for keys, without much more background info.

I do think if you can arrange a face to face, regardless of whether you want to rent to current occupant or not, you will learn if you want to take the risk of dealing with him. Plus hopefully you get him on your side and find out what the house needs, what his situation is etc.

@Slocomb Reed

Here's what I would do

Option A) Offer tenant $300 cash for keys. If they agree to sign the agreement and are out by the time agreed upon without damaging the property they get the money

Give them a day to think about it, if they don't want cash for keys

Option B) Start the eviction process.

I would go in with a couple of friends, tell him he has 7 days to leave. Be intimidating. In 7 days I would return with friends and clear out the property of all remainimg contents. Furniture, appliances, animals , people, etc.

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