I am planning on buying a house in Texas with tenants and an existing lease that will end in late 2014. Seller has a property management co XYZ they use to manage this property.
What I want to find out are what should I be asking for before or at closing.
Here are the things I have asked for before option period expires (I have a 10 day option period where I can walk away from the contract for any reason)a) Application criteria that was used to rent this property b) Signed Inventory and Condition Form c) Rent payment history (copies of checks or statements that renter paid on time) Additionally I will require before closing a) Seller to terminate any property management agreement with XYZ and provide this written signed termination agreed to by seller andXYZ at closing or before. b) Seller to execute an amendment to the lease or a new lease showing that starting on closing day lease will be between new owners and tenant plus where the payment should be made to. This amendment to existing lease or new lease will need to be executed between seller and tenant as a condition to close. c) Rent for month to be prorated d) Security deposit of $xxxx (as shown in lease) to be transferred/credited to Buyer at closing. Is the above appropriate and am I missing anything? Any help provided would be greatly appreciated. Thanks
If your purchase is a a significant discount I wouldn't get hung up with the details. I probably wouldn't request the security deposit to be transferred to you. Inventory? The simpler you make the contract the more risk you might have but at the same time it will be reflected in the purchase price.
I think everything you are asking is reasonable. These are things any smart investor would do. About the security deposit: You absolutely want that transferred to you. You don't want the seller to execute a new lease though. You will want to do your own. Just have them send a certified letter (amendment) to the tenants with your information and you can then let the tenants know how to pay you rent. Good luck.
I think the application criteria, rent payment history, and seller-executed lease addendum are overkill.
When the tenants' existing lease expires, re-vet them using your criteria. You may find that the time period between closing and lease renewal is enough for you to make your own determination on their suitability as tenants.
Same for rent payment history.
Write in your contract that Seller assigns all right under existing lease to Buyer.
A good estoppel letter (examples in FilePlace) can address most of your concerns. I agree with Frank on not burdening your Seller with too many contingencies, especially on a good deal. Texas is landlord friendly anyhow, if things do not pan out despite your due diligence.
The only thing I'd take issue with is the leases. Usually the current lease will have a transfer of ownership clause. At any rate, the new owner is bound by the terms of the old lease(pretty sure this is law in all states) So you can't really go in and insist they change an existing legal contract mid-term.
Proration of rents and transfer of deposits is standard and should be credited at closing, but it's good to specify it!
I think you're smart to specify the termination of the PM agreement because some agencies have termination fees- you don't want to get caught with that!
Thank you for your guidance and advice. Sellers seems to be open to all the things I asked for. Yes not changing the existing contract. Just want to make sure the payment is changed from current landlord to new one . Again thanks to everyone taking the time to respond.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing