Need Urgent Advice: Red Flag Tenant

[Ashley Ernst]

Here's the scenario: In escrow on property, seller provides rent roll and tenant is 10 days late on first months' rent. Note, lease was signed right before listing property, so this is first time rent has become  (i.e. 11 more months left on lease). Under lease agreement, tenant has 3 day grace period before late payment. So effectively tenant is 7 days past grace period. Is this a red flag for those who are experienced investors? This is my first out of state investment property and i want to make sure i'm not buying a sour deal with a problem tenant. Would you run from this deal or continue?

[Dave Kush]

It is a red flag per se, but not a deal breaker on its own.

how a landlord manages their property plays a big role in the regularity of tenant payments. If this sort of thing has been tolerated in the past, it may not be a big deal to the tenant or the prior owner. It will take you some time to retrain them, but if you come in professionally and make it clear that there is a new owner, that will help.

if the property is a good deal based on all of the metrics, then it is a good deal. The tenant is temporary. If you can deal with some late payments for the rest of the lease and then get someone new, good deal. Of course, the reality is that the tenant is 10 days late and hasn't paid. I would be watching very closely to see when it gets paid. Can you get a record of payment history from the seller? Like literally the dates that they were paid?

Even good properties end up with a bad tenant from time to time. What you might do in this case is estimate the time and cost to get rid of the tenant, should it come to that, and then factor that into your calculations.  And obviously, you could be getting yourself into a headache while you deal with that tenant. Just be realistic about that and be honest with yourself about what you're willing to deal with. Determine the cost of the tenant for the rest of the lease if they suck, perhaps including an eviction, and then ask yourself if the property is worth it in the event that comes to pass. And of course, should that come to pass, can you survive it financially?