I'm closing next week, and I have never taken over a unit with tenants and leases before. It's a 3 unit in the town where I grew up. One unit is partially paid for a low income tenant. My realtor is helping me, but I want to ask if there are any other resources out there for beginning landlords. I have rented out rooms in a house before, and rented out an entire house before, but we didn't use leases.
I will send a letter to the tenants to introduce the LLC/myself, with new address for checks, phone for problems, etc.
Beyond that, I'm in new territory. Do I write new leases or keep the old ones?
My realtor has done this before and will help me property manage it for a year so that I can decide if I want to hire a company or keep doing it myself.
I also have a LLC that I've started for this and future properties, but I'll ask about that in another posting.
I would do all new leases if you and tenants can come to an agreement to throw out the old leases and create your own.
Have you looked at the current leases that are in place?
You must honor the existing leases and the security deposits will be transferred to you at closing. In your intro letter, I would also state how much their deposit was and where it got deposited, also mention the rent amount and lease ending date, that way they can let you know if they have some different idea of what those amounts or dates are.
Try to get their applications and any other information from the seller- do they pay on time? any complaints or other communication? any open maintenance issues? If you can't get the tenants' contact info from the previous owner, ask the tenants for it as well.
I like to wait a bit to see how they pay and then let them know what the rent will be if they choose to renew. They will expect an increase and the advanced notice will give them time to decide what they want to do. Give them a deadline to let you know so that you have time to plan to start marketing the place if they aren't staying.
Yes, you don't have the option to throw out the old leases. You are legally bound by the existing lease- that is a detail that doesn't differ from state to state. You should get copies of all the existing leases from the current landlord- hopefully that is already in your contract? Otherwise you'll have to ask for them and hope for the best, lol. You'll find some great basic landlording info under the "learn" tab at the top of the Biggerpockets page. Look for the free "how-to" guides.
Good luck and congrats!
You should have an estoppel statement from every tenant as part of your due diligence before purchasing. This is how you verify that what the seller is providing is what they actually agreed with the tenant. It also precludes any "but they said my rent would be 50% off for the first year after a sale" scenarios.
Unless otherwise stated in their lease, you are buying their agreement and must honor it. Start building your own lease and other documentation now because you may need it sooner rather than later and will want it ready.
Having owned two four-plex's in the past I would recommend you use a P.O. Box for your address so you never have a tenant just show up at your place. I always used a P.O. Box and it worked fine.
I managed them myself as the prior management company made far to many costly mistakes with maintenance issues. I also found for me that by removing the large dumpster and installing garbage cans I was able to lower my costs and keep others from throwing their garbage in a dumpster I was paying for. You may find some tenants who have been there for a while are paying lower than current rent rates which you might want to bring up slowly with each lease renewal. By making small changes I was able to net over $1,000 per month within six months until I sold them sixteen months later.
Why did I sell them you ask. Because I paid $265,000 each and after sixteen months I was able to sell them for $400,00 each at the market peak. I saw deferred maintenance issues which were going to cost to repair like new roofs, stairs and decks looming in the near future which would provide no return on investment so decided to just get out.
Good luck to you, have fun and learn from this venture.
P.S. I read somewhere that the new thing for ownership is to take possession in a trust as opposed to an LLC because banks and financial institutions view a trust as an individual and not a business and will offer faster and better financing to you and whoever your buyer is in the future. So if your new properties are on XYZ street you name the trust XYZ Trust, but do not use your name. Also, an LLC is public record while a trust is a file in your file cabinet at home that no one ever sees but you. This is considered a good way to separate you from your assets if anyone should go looking. Food for thought and I hope some of this helps you along your way.
Thanks, everyone for your advice. My deal is stalled/dead, however. Owner reluctantly agreed to fix 2K worth of repairs by a certain date (in contract), but then he did not. He discovered more repairs that legally have to be done before sale and now is asking for more money from me. I don't believe that this will close without more time and money than I'm willing to invest in it.
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