Buying a Six House Package Deal -- Need Transition Advice

4 Replies

Hi  all -

I am a relatively new landlord who currently owns two rentals.  I'm off to a good start with these rentals--I ran background checks on my tenants, collected a full month's security deposit, setup online bill pay and have good tenants who are paying on time.  So far so good!

However, I am buying six houses from an investor who is moving to another city and is ready to  sell.  Four of the six houses are section 8 and the owner has already told me that he has put effort into collecting rent from the current tenants.  His handyman goes around every month and persistently knocks on doors until the tenants pay.  The good news is that the tenants portion is around $50 and section 8 pays $950+.  Even though it's a small amount I still planning on collecting it.  He also only collected a $200 security deposit from each tenants.  All leases have expired on the six houses by the way.

Here's my question...how would you handle the transition process once I close on these houses?  I want to sign new leases but don't want to sign leases with tenants who are slow to pay.  On the other hand, 95% of the rent is paid by the city so I don't want to lose the tenants either.  I was thinking I would send change of ownership letters and then give each tenants a three month trial before allowing them to sign new leases.  I wasn't planning on making them fill out rental applications and running the usual checks on them since they are already tenants.  

Thanks!

Ehab

Hi @Ehab Shoukry

Yep, you're going to need to re-train the slow paying tenants or move them out. No way around it. I'm not optimistic about re-training them. Once they have bad habits, they need a hard reboot.

Factor full transitions into your budget.

@Al Williamson is spot on. Its tough to fix bad habits of existing tenants. Definitely give yourself a buffer period before locking into a longer term lease to see how the "retraining" goes. 

As for background checks, etc. on the existing tenants, I probably wouldn't bother. The example they've set thus far speaks much more loudly than any info you'd find.

I don't know the rules in TX, but I would look into whether you're able to increase the security deposit when you start a new lease with an existing tenant. You might be able to fix that issue on the fly.

Good luck and keep us posted on how it goes!

If there's room to move on the rent, take it up by $50. Then you'll collect (roughly) $1000 from Section 8 and $50 from the tenant, so you'll be getting all of your money and the $50 fight will get you more cash. That said, I would probably make it clear to the tenants in writing with your letter that those who stay will be expected to sign leases, and during the trial period late pay/failure to pay will result in quit notices. Depending on your locale, it can actually be really difficult for the tenants to find new Section 8 housing. A lot of landlords just don't want to be bothered with the nitpicking that goes along with meeting all criteria of Section 8 inspection. So I suspect your tenants won't be in too big of a hurry to move, which is one of the things that makes Section 8 work - you get your money, they risk losing Section 8 if they destroy your property or don't pay their portion. 

I think Al is right, ultimately - some of the tenants need a strong wake-up call. 

Thanks.  It seems like the recommendation is to definitely have a trial period prior to signing any new leases.  I'll be sure to make this clear in the welcome letter.

Thanks,

Ehab

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here