Questions from a Newbie, taking over property with existing renters

4 Replies

Hi all, first post.  I'm currently looking at acquiring a property that has a single family home, and a detached bungalow.  The units are occupied, and rent for $750 and $500 each.  (market level for my area)

My questions are:

  1. 1.  Currently the landlord pays the utilities, which concerns me.  I feel the tenants have no motivation to use resources efficiently.  I'd look to add a meter to the bungalow unit and make tenants responsible for utilities, or pay the utilities and bill them back to the tenants based on a formula, i.e. 1/3 2/3.  However, my understanding is the current tenants have both lived at the units for at least a  few years, and have expressed desire to stay.  So how would you handle this?  Would you make the change, or would you adjust the rent down a little to soften the blow?
  2. 2.  Have you bought property that is already occupied?  If so how is the security deposit typically handled, does the current owner/landlord transfer to new on closing?

It's always tough being the "New Owner", as you will be tested.  You will hear them say, "Well my other landlord never said I couldn't do this or do that.  My other landlord let me pay late".  And it will be tough for you to be patient with them, yet you kneed to be  firm by adhering to the lease agreement.  It will take time to win their confidence.  And if they are good people they will stay.  If they are controlling tenants, they will eventually leave.

A landlord, new or seasoned, should never be wishy washy.  It confuses tenants.  Without rules and rules that are  implemented comes Chaos.  When your tenants know what to expect they feel secure.  They may not like it, but they know the score, and they feel comfortable. 

Winter is coming, so I wouldn't say anything about putting in meters yet.  Let them get to know you, and then send out a letter to them stating you are thinking of installing electrical meters on the home, which could benefit them in the long run.  At least they would know how much electricity or Gas they used, and may end up saving them money.  

I had apartments and duplexes that shared Utilities and we had to divide it, and there was always a problem.  5 people in one apartment, and 3 in the other, and as much as you try to do the math, those 3 people may use in actuality more than the 5 people in the other apartment.

Utilities are based on how you use the utilities.  Is your thermostat on 90 and someone  else has it set for 68?  Do you take a shower three times a day, or a bath once a day?  I mean, one person could really use more than 5 people by their habits.  

So I would say that installing meters is a good idea, but wait until spring.  Winter is not a time to make waves at the moment.  

Nancy Neville

I would add meters and once their current lease is up, put in there that they have to pay utilities. Since they have been there a few years, they are probably on a month to month agreement. If that is the case, I agree with @Account Closed  , have them start paying in the spring. I would be afraid that if you do it right now, before winter, then they may get mad and move. You don't want to have to find new tenants in the winter.

The security deposit should be transferred to you at closing. Be sure to put it into a trust/escrow account at your bank.

Thanks, I've been looking and they make affordable in-line meters, so you don't have to go the route of having utlities install seperate meters, which can be very expensive (several thousand dollars).  Basically if you install in-line meters, then you have to read the meter and bill it back, but it also gives you a chance to keep an eye on the property.

I normally require my tenants to pay their own utilities...the unit has its own meter...but made an exception when I had tenants who were only going to be in the area and in the unit for a few months. Their tenancy was primarily during the Spring months so I figured, "no big deal, I'll just include utilities with their rent, it shouldn't be much." They even assured me they would watch stuff like not running the A/C when they were out, since I was covering the utilities. Big, big mistake! Their elec. bill should have been around $40 for that first month, it was $120!!! Ugh, ridiculous! Live and learn.

Although the house I ended up purchasing for my first REI ended up not having existing tenants, this was a concern of mine when I was first looking. My RA told me the security deposits are typically transferred to the buyer at closing. One house I did put an offer on (but didn't close on) had exisiting tenants and the security deposits part was written in the offer, just for good measure.

Assuming the tenants are not already bound by a lease that is in effect (ie middle of a 12 month lease) and they are on month-to-month, I would require them to sign a new lease with me to stay....though you may want to wait on the new leases until new meters are put in and then any new terms, such as utilties, can be included.