Here is what is going on:
I purchased a 4-plex on September 11, 2014. 2 of the 4 units came occupied, so I inherited two different families as tenants.
I am utilizing FHA 203k financing on this property, so I would ideally like to start with a clean slate, and have the place empty for the contractors to get their work done. That being said, there have already been some happenings with these tenants that have made the hair stand up on the back of my neck. So I wanted to see the best way to proceed:
With the lease that they are under, it clearly states NO PETS. However, when I was touring the property the day of closing, Unit 1 had a dog inside and Unit 2 had a dog cage on their back deck. Further, Unit 1 and Unit 2 have both been very difficult to reach when trying to get them to sign their estoppel. To date, neither tenant has signed one after multiple attempts and leaving documents in their mailboxes.
Now comes the fun stuff. The other day when I was around with a contractor, Unit 2 came outside and asked me who I was. I introduced myself and asked to speak with the person who was on the lease. Come to find out, the man who signed the lease DOES NOT LIVE AT THE PROPERTY, and only his sister does. She even stated "I am trying to figure out why his name is on there and you are looking for him..." Not to mention, the woman smelled greatly of marijuana.
When I attempted to walk next door to Unit 1, she informed me that "you won't find them there," and, "I think they said they are moving." If they are to leave, that is fine by me. One less person I have to take action against.
A day or two earlier I had spoken to a person who was at Unit 1, and that person would not give me a straight forward answer as to who he was and where the person who is supposed to be on the lease currently resides. ????????
I am considering approaching both and letting them know that they are in default of the lease, and therefore I can evict them. After doing that I would offer cash for keys, in an attempt to get them out and make both parties happy(ish) with the situation. I think this is the best way to proceed but am not sure. Would appreciate ANY insight...many thanks.
Have been there before but on a much larger level.
You should have counted ZERO cash flow in your purchase price. The fact that they will not sign an estoppel tells it all.
I would have factored in the average length of time for eviction and estimated repair costs and taken that off of the purchase price of the property or had the seller give a credit held in escrow. The options before closing are more limited with 4 units or less because it is residential and they put restrictions on how you can set things up. In commercial of 5 units or more you can get a lot more creative.
The fact is you have already closed. I would get them out right away unless the area is very high crime. You do not want a vacant building close to the holidays and 3,000 a unit rehab becomes 10,000 because someone breaks in and steals all the copper and plumbing etc.
Make sure you DO NOT over improve the units for the area thinking you will get higher rent. You can make it nicer but do not overspend as you will no get those back dollar for dollar with your investment. Being a 4 unit you will be at the mercy of the other quads around you. Hopefully you have investigated what those investors purchased those for, if there are foreclosures or short sale hitting the market, etc. All of that will affect your surroundings. The people buying for cheap will reduce market rent rates to lease up fast bringing the market down permanently or at least for 3 to 6 months. If other investors bought at the height of the market look for them to have shady tenants in where the rents are reduced rather than plowing thousands into the units. If the landlords are barely paying the mortgage they would rather reduce the rent by 100 a month then spend thousands on evictions and repairs.
Since you are rehabbing anyways and it's the slow time of the year with the holidays you might just want to evict them instead of giving them cash since you are repairing. Depends on if your area has long eviction times and landlord or tenant friendly laws for your state. If you have not sat in for eviction hearings yet for your county you need to take a few days. It's an enlightening experience and you will learn how the court system works.
No legal advice.
If they are paying and the dogs are not destructive then I might let it go if they continue to pay rent
Otherwise I'd ask them to leave and if they do not leave then proceed with eviction and keep an eye to see if they abandon the property before the court date
I'd also ask them to get rid of the pets if they are destructive and if they don't then post a cure or quit
If the person living at unit 1 has no lease and the tenant cannot be reached then you might be able to get them removed for trespassing
Clay check for your area if you need to put something in the eviction filing "and all others" so that any known and unknown people not on the lease will be evicted. Otherwise the tenants on the lease will be evicted you put on the filing but the others will not.
No legal advice.
Hey Clay! Sorry to hear you are starting out with some tenants who obviously got away with breaking the rules with the previous owner. Do you know why the previous owner wanted to sell? Does it seem all four units are occupied by "rule breakers"?
When purchasing a property with tenants in place, there are some common procedures to take that are discussed at length in other posts; use "search the site" in the right hand side of the blue bar at the top of this page to find more on this topic.
As @Joel Owens says, the best time to address some of these problems is before the closing. Many of us have also been in your situation, having a few surprises after purchase and some undesirable tenants. The good thing is, it is recent purchase and you are in a good position to establish your way of doing business with them and introducing to them your style of management.
You may not need to empty the place with eviction proceedings. That would be a costly approach. Instead, start by introducing yourself and spending time at the property to find out more about the tenants and the most pressing repair needs for each of the units. Read the rental agreements carefully and make an appointment with each household to go over the existing rental terms and to inspect the units. Fill out a "property condition report" for each unit in it's current state and have the tenants sign it.
Let your tenants know you understand that the previous owner let some things slide, but it is not your intention to continue in this manner. Ask the tenants if they are willing to abide by the terms of the agreement they have signed. If not, then allow them to "break the lease" with no penalty. Present your rental agreement to the tenants as soon as you can and ask them to sign it, then enforce it.
No need to offer "cash for keys". If you show the tenants how you intend to manage the business and are professional, polite, firm and fair in your approach, it is likely the undesirables will quietly move on their own. That happened to us when we bought an 8-plex that was fully occupied.... the two tenants with pit bulls and the stripper with all of her "guests" and the single mom who couldn't pay the rent all moved on their own... with no ill will and with no destructive "parting gifts" damaging the property. They also did not all move at once, which was good for maintaining our cash flow. We also liked being able to turnover one unit at a time, without leaving the property empty and vulnerable.
Some of the above advice sounds it's for keeping tenants and/or swapping rule breakers for better tenants, but is this is this actually your goal, @Clay Manship -- ? Or are you just needing them all out for an overall rehab?
As part of my strategy in updating the property, the goal is to bring in a better clientele of tenants. It just seems to be "aiding my cause" that they are rule breakers right now. I am simply looking for the best way to get them out of the property.
In my underwriting, I never counted on seeing one cent from these tenants. I am currently paying a debt service on a very favorable interest-only loan to a family member, so I will be fine to go without the income for a while. It makes the most sense to me to go this way--
1. Get them out now, allow for contractor ultimate control
2. Evict/cash for keys in order to prevent prolonged tenants, repairs not done, etc
3. Get the place the way I want it, increase rents, get better clientele.
Thoughts? How should I go about doing it? Do I have a case to evict them/bring a case against them? Just want to be sure of my stance if the person who is not on the lease does not reside in the property.
Hi Clay! When are the leases up? @Marcia Maynard
has some great advice above. The main thing that comes through in her post is that she is advocating approaching your new tenants with respect but also being clear about your expectations. Now, you may find out in time that they are not, as you see it, worthy of respect. But it's pretty crucial to start from the assumption that they are. People are people- they absolutely need and respond to respect, they fight back at being pushed. The old owner obviously wasn't serious about enforcing the details of leases, so in a way the current situation is his fault as much as the tenants'. Just let the new tenants know that you are,in fact, serious about enforcing the terms of the lease but that if those terms (such as the no pet clause) don't work for them then you will release them from the lease. They'll want to keep their dog, so they'll move. Probably. If not, you can move on to eviction.
Depending on the neighborhood it may be better to be rehabbing a unit or two at a time. Empty building are easy targets for vandals.
As others have said, you need to really evaluate how important it is to you to get the current tenants out so you can rehab. If they are not tearing up the property and paying their rent on time them it is probably worth keeping them around for a while. Are you simply not confortable with renovating one unit at a time or do you really just want to do it all over and done?
I followed your other forum and I am sad to hear that you are dealing with some problem tenants. I guess you will have an opportunity to learn from this as well. I know you may want to have all vacant units but why not collect some rent from these two units while rehabbing the other two? You could go either way with the pet issues but one way to get them to leave is to inform the tenant that since the initial lease stated no pets then you have to evict them for the violation, or you could ask for a pet deposit and increased rent for the pet.
I had this happen with the first 4-plex I bought. Today, meet with whoever is living in the units and tell them you now own the property (show them a copy of the deed) are going to be following the lease that was signed. In all likelihood, rent will be due tomorrow and no one will pay. When they don't pay, post notice of late rent. If they pay rent, post notice of the violations of the lease regarding pets and whatever else there is. These people will soon get the message that there is a new sheriff in town. They will move. If they don't move it's because they are dealing drugs and don't want to give up their "store front". In that case, don't renew their lease when it's up. If they follow the lease it's unlikely that you will be able to get them out. Your contractor will just have to work around them. On the bright side, you will collect rent.
Best case is they move out on their own after you let them know you mean business.
To back up a bit... I'm still confused about the amount of rehab you're doing? I guess given the 203k aspect -- (something I'm getting more interested in, so bear with me!) -- aren't the requirements of your 203k rehab completion schedule going to affect your decisions about tenants? I can't quite put this together in my head -- if as you say you're looking to rehab to the point where you'll reach a higher plateau of tenant clientele, then that sounds like a pretty big do-over, and tenants couldn't safely remain during construction -- how can the current tenants not have already been informed that on a given date they need to be gone?
If the plan is the other way, and the rehab is small enough in scale that the tenants can safely stay during the relatively minor construction / repair -- then how do you reach significantly bigger future rents with only minor improvement?
@Clay Manship I'm in Indianapolis. I'd be curious to hear about the neighborhood. Would you mind sharing where these units are located? Sorry to hear about your problems. It's stories like these that make me hesitant to purchase rental properties. Sounds like one big headache. I hope everything get's worked out for you.
@Clay Manship I'm sorry to hear about the problems but unfortunately, it's a textbook example of the problems you have with duplexes, especially in Indianapolis. I love the Indianapolis market but there are very few good areas where you can find duplexes in Indy. I am always telling people not to buy duplexes for this reason but people always get lured in by the false promises of high cash flow and ROI's that don't materialize. If you want to send me the address of the property, I'll be happy to take a look at it and give you my thoughts, although I suspect you won't like them.
Originally posted by @Ben G.
"It's stories like these that make me hesitant to purchase rental properties."
Don't let horror stories like this scare you away. Just be very cautious and know what you're buying. Unfortunately bad experiences like this because of the wrong property in the wrong area turn others off to the idea of investing or to a particular market. Indianapolis can be a very good market for SFR in the right area.
"I am considering approaching both and letting them know that they are in default of the lease, and therefore I can evict them. After doing that I would offer cash for keys, in an attempt to get them out and make both parties happy(ish) with the situation."
Get them out ASAP regardless of whether they are "happish" or not. It sounds like you have all kinds of people living in your property that you don't even know. People living there that are not on the lease are squatters, not tenants. Personally, unless you have experience as a landlord, I think you should have a property manager. This looks like a big mess.
I agree with everyone's comments. You need to get the tenants/squatters out immediately before they do additional damage. Regardless of who may be living in the units, the person's name on the lease is liable, even if they are not living there anymore.
It sounds like you have given all individuals advance notice to vacate. I would file for an eviction in small claims court. The filing should include any names on the executed lease agreements, along with any occupants. You may need to do a forced-move out with the constable once you granted the eviction if the individuals do not vacate.
As part of the damage hearing, you will want to seek restitution from any individuals named in the eviction proceeding. This is key to get a judgment so that you can start the collection process. However, I will warn you, the collection process can be a long process and, as we all know, you may never collect. In Indiana though, the law does allow you to collect 8% interest per annum until the judgment is satisfied or the statute of limitations has expired, providing you have not sought an extension.
Am happy to answer any questions. I file a lot of small claims evictions and represent a number of landlords in Indianapolis.
To follow up what @Kurt F. was stating -- I have done a 203K myself on my personal residence (thought it isn't a multifamily). I believe both for the streamline (< $35K) and the full 203k renovation, there are limitations that all rehab must be completed within 6 months from the date of close. I'm assuming in similar fashion to 1 unit dwellings, all planned renovations were planned out with quotes provided ahead of time. Therefore, it sounds like you're on a timetable to get the renovations completed. I've been interested in doing the same thing with a 203K but multifamily opportunities scare me in Indianapolis (with a majority being on the east side).
I'm going to monitor and hope to connect with you on your future progress. My opinion (and unfortunately its not based on experience) would be to start fresh. It seems you currently have some type of financial arrangement that would allow you to forgo the rent now to complete the renovations. If you wait for months from now for the tenant to bail, you might not be in the same financial standing then (a little unsure how you're doing interest only financing to a family member, yet have a 203k).
EVICT them both!
If you are doing a rehab anyway, I wouldn't even offer them cash for keys. Just evict.
I've tried 3 times this year "to do the right thing" and be nice and help someone out only to get ripped off and bad mouthed.
This level of life-form just doesn't care and the sooner they are out of your life the better.
Okay, so here is where we stand now. I posted 10-Day Pay or Quit notices yesterday to the tenants. I have since spoken with each. Here is what I now know:
NEITHER PERSON LIVING IN EITHER UNIT IS ON THE LEASE. As far as I know, legally, this is enough to constitute an eviction. I am proceeding this way currently.
Unit 1: This single mother and her children are in the process of moving out. Good, move on away. I will have her sign an affidavit with me this weekend stating that while she is not on the lease, she and the other occupants of the home will be moving out before the end of the month. HOWEVER, the man who is on the lease (the ex-boyfriend of the occupant) is wanted by the police, and no longer resides in the unit. Should I proceed with a formal, court room eviction, seeing as he is the only one on the lease? I have NO way of getting a hold of him.
Unit 2: This is another single mother who has three children. She also is not on the lease (her brother is) and she has made it clear to me that she will not be able to pay the applicable rent and late fees that will be due once the 10 Day Notice has expired. I offered her $200 cash for keys but she declined stating that she just doesn't have the money to move currently. I will be proceeding with a courtroom eviction in this case in order to flush out the bad tenant.
In most jurisdictions, the legal notices and eviction paperwork should state the name of the person(s) who signed the lease agreement and "all other occupants". If we know for a fact the names of the other occupants (age 18 and above), meaning we have proof of their identity, we name their name in the law suit as well.
One tenant moved out voluntarily after realizing there was a new sheriff in town. The other tenant expressed that they couldn't pay rent. So I charged a late fee. Then they couldn't pay a late fee. So they are being evicted on Nov. 18.
It amazes me that some tenants will let an eviction be stamped onto their record instead of taking cash out of my pocket and just GETTING OUT. But different ideas for different folks, I presume. At any rate, the building will be empty and a blank canvas for us starting by our construction date of December 1.
@Clay Manship - Since you are doing 203K loan, when are you moving in?
Wow, a Nov 18 eviction? That was fast! Good for you!
Strangely enough, the eviction WOULD have taken place yesterday. I filed for eviction on 10/22. But because these hearings only occur on Tuesdays in Marion County, IN, and yesterday was election day (closed) and next Tuesday is Veteran's Day (closed) my eviction was a 'perfect storm' of sorts and will end up happening on 11/18 instead.
Because of the condition my property is in, I will not be "moving in" until all of the construction for my unit is complete. At this rate I am hoping to start construction my December 1 and have MY unit completed in early 2015, but we will see. Some others have told me that they may have me wait to move in until after the whole project is complete--which was estimated at April 1.
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