General Landlording & Rental Properties

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Jimmy L.
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New Landlord - Qs on Tenant Lease Strategies

Jimmy L.
  • New to Real Estate
  • Bay Area
Posted Jul 10 2022, 19:35

Hi Everyone,

New to the community and glad a resource like this exists. My wife and I recently purchased our first property in Oakland, CA by the MacArthur BART train station if anyone is familiar. It's a duplex so we're occupying one of the units (~2month now) and inherited tenants that have been month-to-month for nearly year (was on a year lease while with the previous owner). It's worth mentioning that our tenants are a roommate situation (3 total) and 1 of the original tenants was replaced shortly after the original lease expired. We have a sneaking suspicion that another of the original tenants is planning to leave and we're curious about what strategies there are to best protect ourselves (ie. should we ask the current occupants to resign a year lease? can they stay MTM indefinitely given Oakland's tenant protection laws?).

Besides the specific question above, looking to connect with fellow Oakland landlords in seek of advice/mentorship. My wife and I (and 8 month old) are excited and curious to begin our real estate journey.

Thank you!

Jim

Oakland, California

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Bjorn Ahlblad
  • Investor
  • Shelton, WA
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Bjorn Ahlblad
  • Investor
  • Shelton, WA
Replied Jul 10 2022, 19:44

@Jimmy L. I would not offer longer leases to any of them. Longer leases protect the tenant not the LL. Finding other LL's in your area is an excellent idea. It will greatly accelerate your learning and give you confidence. Being a LL can be daunting especially in such a tenant friendly jurisdiction!

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Richard F.
  • Property Manager
  • Honolulu, HI
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Richard F.
  • Property Manager
  • Honolulu, HI
Replied Jul 10 2022, 21:05
Aloha,

I know nothing about Oakland's LL/Tenant laws, you need to research and understand those first and foremost.

If the tenants are month to month ( or for that matter have several months remaining on existing agreement), whenever we take over as new management for any property, the first thing we do is schedule a meeting with each tenant to inspect the unit visually, taking photos to document current condition, checking under sinks for unreported leak issues, and then we discuss their intentions (how long would you LIKE to remain?) and ours (addressing noted repairs or deferred maintenance; owner planning to sell soon or never). The first item on our list is informing them we will be terminating any/all current written or verbal agreements with prior management/prior owner immediately when the existing term ends. This requires written notice, typically 28 - 45 days in advance of the termination date based on local landlord tenant laws and the current written agreement. We may re-rent to them, maybe even at the same rent and terms, but only after they have completed a new application (which we provide them at the meeting) with all necessary documentation, including current paystubs or bank statements if applicable, and you have approved them. Assuming you obtained current rental agreements before closing, you should already know the timeframe you need to give notice, and have the termination letter ready to hand them at your meeting if they are already on month to month or have less than three months remaining.

The other item we want to discuss with them is simply asking if there are any maintenance issues that have not been addressed or that are recent and perhaps not reported. It is amazing sometimes what repairs and maintenance PM's and Investors alike will simply ignore. We took over 2 properties just this month...one tenant has an extension cord from the living room to the bathroom because outlets are not working. "It's been like this nearly two years". Absolutely unconscionable if true.

I normally inform all tenants that I will contact them about a month before their new term is up to schedule another brief walk through inspection similar to what I described above. Once I have inspected the property, I will evaluate the then current market, and discuss all of the gathered info with the property owner, prior to offering tenants any renewal. If there is to be a change in terms, we use a simple addendum rather than a complete new agreement.

When you do prepare new rental agreements, you are asking for a lot of additional work to have separate agreements for each person/room. It is much simpler to have one agreement for the entire unit, naming all adults (that you have approved), and let them deal with partial security deposit issues when (not IF) one or more individuals decide to move out. You should have a "Substitution Addendum" to add OR remove (two separate documents) anyone from the agreement, with all parties signing each addendum. When the unit goes completely vacant, then, and only then, do you have to deal with returning and/or accounting for the entire Security Deposit as per your local laws.

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Jimmy L.
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Jimmy L.
  • New to Real Estate
  • Bay Area
Replied Jul 11 2022, 22:29
Quote from @Bjorn Ahlblad:

@Jimmy Ly I would not offer longer leases to any of them. Longer leases protect the tenant not the LL. Finding other LL's in your area is an excellent idea. It will greatly accelerate your learning and give you confidence. Being a LL can be daunting especially in such a tenant friendly jurisdiction!


 Daunting for sure. Appreciate it!

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Nathan G.
  • Real Estate Broker
  • Cody, WY
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Nathan G.
  • Real Estate Broker
  • Cody, WY
ModeratorReplied Jul 11 2022, 22:47
Quote from @Jimmy Ly:

Your standard should be that all adult occupants (18 or older) must be screened and approved before occupying the rental. Once they are approved, they should be added to the lease and 100% subject to the terms. This is referred to as "joint and several liability" which is an important clause to understand and have in your lease.

I use a form any time a tenant wants to leave or they want to add a tenant. This spells out exactly what is happening and when, and is signed by all participants so there's full agreement. I charge a fee any time I am making a tenant-requested change to the lease.

Finally, I have higher standards for three or more roommates because there is about an 80% chance that someone will want to leave at some point. For this reason, I require each individual to earn 2x rent. If the third person decides to leave, the remaining two tenants will still have a combined income of 4x the rent or greater, reducing the likelihood of problems.

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Osazee Edebiri#5 General Real Estate Investing Contributor
  • Realtor
  • San Jose, CA
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Osazee Edebiri#5 General Real Estate Investing Contributor
  • Realtor
  • San Jose, CA
Replied Jul 12 2022, 13:47

Hey @Jimmy L. Congratz on the new duplex for your family.

I own property and rent multifamily in the Oakland area. 

I would say Oakland is one of the best learning experiences as investor. 

Normally in Oakland leases automatically become Month to Month once they end. You can require them to sign a new lease that is of similar terms and a rent increase if the last rent increase was over a year. However, the current moratorium has put a change to the norm. They don't really have to do anything at the moment.

Rentals property owners are hoping the moratorium will get lifted asap. 

I would say if you tenants are paying and not causing issues provided them a new lease that all the tenants sign. Keep in mind you can't increase the rent right now unless they are under Section 8. After they sign, let them know that you must approve any new tenants or changes in who lives in the home and only those on the lease are allowed to be residents. 

Then hope they are not familiar with the current climate of the law of renting. 

One the main things you want to do is establish a relationship with your tenants which doesn't have to be you bending over backwards, but just showing human quality. Most tenants resonate to that and generally will be responsive even if they are not perfect.

Hope that helps and I am available to connect.

Osazee

Real Estate Agent CA (#02145259)

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Jimmy L.
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Jimmy L.
  • New to Real Estate
  • Bay Area
Replied Jul 17 2022, 19:28
Quote from @Osazee Edebiri:

Hey @Jimmy Ly Congratz on the new duplex for your family.

I own property and rent multifamily in the Oakland area. 

I would say Oakland is one of the best learning experiences as investor. 

Normally in Oakland leases automatically become Month to Month once they end. You can require them to sign a new lease that is of similar terms and a rent increase if the last rent increase was over a year. However, the current moratorium has put a change to the norm. They don't really have to do anything at the moment.

Rentals property owners are hoping the moratorium will get lifted asap. 

I would say if you tenants are paying and not causing issues provided them a new lease that all the tenants sign. Keep in mind you can't increase the rent right now unless they are under Section 8. After they sign, let them know that you must approve any new tenants or changes in who lives in the home and only those on the lease are allowed to be residents. 

Then hope they are not familiar with the current climate of the law of renting. 

One the main things you want to do is establish a relationship with your tenants which doesn't have to be you bending over backwards, but just showing human quality. Most tenants resonate to that and generally will be responsive even if they are not perfect.

Hope that helps and I am available to connect.

Osazee

This is exactly what I was looking for so thank you for that. So, it sounds like my options are limited in terms of offering a new contract with local and state moratoriums in effect. Do you know if owners are allowed to approve roommate substitutions on MTM leases or can point me to the appropriate resource?

Would love to connect with a fellow Bay Area/Oakland LL - I'll message you.

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Jimmy L.
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Jimmy L.
  • New to Real Estate
  • Bay Area
Replied Jul 17 2022, 19:30
Quote from @Nathan G.:
Quote from @Jimmy Ly:

Your standard should be that all adult occupants (18 or older) must be screened and approved before occupying the rental. Once they are approved, they should be added to the lease and 100% subject to the terms. This is referred to as "joint and several liability" which is an important clause to understand and have in your lease.

I use a form any time a tenant wants to leave or they want to add a tenant. This spells out exactly what is happening and when, and is signed by all participants so there's full agreement. I charge a fee any time I am making a tenant-requested change to the lease.

Finally, I have higher standards for three or more roommates because there is about an 80% chance that someone will want to leave at some point. For this reason, I require each individual to earn 2x rent. If the third person decides to leave, the remaining two tenants will still have a combined income of 4x the rent or greater, reducing the likelihood of problems.


 Thanks Nathan - will definitely add this to my toolkit!

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Osazee Edebiri#5 General Real Estate Investing Contributor
  • Realtor
  • San Jose, CA
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Osazee Edebiri#5 General Real Estate Investing Contributor
  • Realtor
  • San Jose, CA
Replied Jul 18 2022, 09:20
Quote from @Jimmy L.:
Quote from @Osazee Edebiri:

Hey @Jimmy Ly Congratz on the new duplex for your family.

I own property and rent multifamily in the Oakland area. 

I would say Oakland is one of the best learning experiences as investor. 

Normally in Oakland leases automatically become Month to Month once they end. You can require them to sign a new lease that is of similar terms and a rent increase if the last rent increase was over a year. However, the current moratorium has put a change to the norm. They don't really have to do anything at the moment.

Rentals property owners are hoping the moratorium will get lifted asap. 

I would say if you tenants are paying and not causing issues provided them a new lease that all the tenants sign. Keep in mind you can't increase the rent right now unless they are under Section 8. After they sign, let them know that you must approve any new tenants or changes in who lives in the home and only those on the lease are allowed to be residents. 

Then hope they are not familiar with the current climate of the law of renting. 

One the main things you want to do is establish a relationship with your tenants which doesn't have to be you bending over backwards, but just showing human quality. Most tenants resonate to that and generally will be responsive even if they are not perfect.

Hope that helps and I am available to connect.

Osazee

This is exactly what I was looking for so thank you for that. So, it sounds like my options are limited in terms of offering a new contract with local and state moratoriums in effect. Do you know if owners are allowed to approve roommate substitutions on MTM leases or can point me to the appropriate resource?

Would love to connect with a fellow Bay Area/Oakland LL - I'll message you.
Under normal circumstances yes, but I don’t know if you can currently fight someone who swaps roommates. There are actually some people who are in homes that are protected with a master lease policy. There would definitely be less ability to choose who moves in with those.

The moratorium is being reviewed tomorrow and hopefully they will start the process of removing it. 

Real Estate Agent CA (#02145259)

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Latriece Rene
  • Real Estate Agent
  • Oakland, CA
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Latriece Rene
  • Real Estate Agent
  • Oakland, CA
Replied Sep 13 2022, 15:07

Hi Jim,

I wouldn't offer any additional leases, yearly or month to month until the moratorium is over.  

Also, to connect with other landlords, maybe join EBRHA.  It's a good resource.

https://www.ebrha.com/

Hope this helps.

Latriece