We are in the process of buying our first investment property, it is a 3 unit, and all the tenants just signed a new lease prior to us (hopefully) closing on the property. However all 3 of the units are being rented below market and should definitely be increased.
What is the lease transfer process? Am I as the new landlord stuck with their current lease? Can I update it to add additional language to further protect my self? And most importantly can I increase their rent?
Any info would be greatly appreciated. (this is my first time ever posting on here! so thanks for the support!)
Hey Dylan if you purchase the property and the leases then yes you will have to assume and adhere to the lease agreements. Often times people will quickly fill their properties with tenants even if below market just to be able to sell it. Be aware of this before you go to closing. Also check and see what the lease terms are. Is it just one year or is it more, in case you're looking to raise rents later on? You're gonna wanna know all of these things before you actually sign the agreement of sale. Hope this helps a little bit. If you need more, feel free to reach out.
Hey Dylan if you purchase the property and the leases then yes you will have to assume and adhere to the lease agreements. Often times people will quickly fill their properties with tenants even if below market just to be able to sell it. Be aware of this before you go to closing. Also check and see what the lease terms are. Is it just one year or is it more, in case you're looking to raise rents later on? You're gonna wanna know all of these things before you actually sign the agreement of sale. Hope this helps a little bit. If you need more, feel free to reach out.
@Robert Masucci thanks! Really appreciate the clarification. They signed a 1 year lease, and I was advised that I can't see the full lease agreement until I'm under contract... should be submitting our bid this week though, so fingers crossed.
@Dylan Mortman - Makes sense to me that you wouldn't be able to see the full lease until contract, but I highly advise to read the entire lease. Also, be sure to confirm the status of the security deposits with the owner and tenants (via estoppel letter). I bought a quad where two of the tenants used their security deposit for rent at some point (which you shouldn't do), so I made sure to have in writing that the previous owner and tenant were in agreement so when they left we didn't have to pay out any security deposit. Good Luck!
Make sure you have a contingency that allows you to back out of the contract if you don't like the lease terms. Once purchased, get new leases ready so you can have them sign over to new ones when their current ones go month-to-month.
Thanks everyone for the very useful feedback and pointers. Unfortunately our bid on this property did not get accepted. But now we get to move on to the next one with more wisdom! Thanks again!