Inheriting problem tenants?!?

5 Replies

I thought I found a solid deal.....FHA owner-occ on a 4plex.. I had been asking to see the rent roll, and finally got it. Here's what I found:

1)  One tenant has been leasing for 8 months and has had 3 late pays.  Currently going through the eviction process, but his lease doesn't end till 01/31/2016  (I was wanting to close before the new year)

2) Two tenants are leasing (separate units) but they've got 4 late pays between them, and they haven't rented for a full year.

3) PM company (which I will let go upon purchase) charges late fees inconsistently, and in varying amounts.

The only positive thing was a 2 year tenant with 0 late pays, but her lease ends at the end of the month.

Is the problem with the tenants, PM, or both??  (I'm keeping in mind that HOPEFULLY the tenant going through eviction will be out by Feb 1, and that since I'm occupying a unit, one of the tenants in complaint #2 will be out)

I don't want to buy a headache..

The only real problem you have is the eviction. Some states when a property is sold the new owner must start the eviction process again,since you have no standing . You should check the rent laws in your state and talk to your current pm and an attorney . The rest of the leases are current . Check what security deposits are being transferred to you . If the numbers are good on the deal factor in the cost of eviction and decide if you want to proceed. Late fees are by itself not a deal breaker 

Ok, who knows how long that process could take... He's $1,800 past due so I definitely don't want to start the whole process myself, and drag this out even further.

@Mark Douglas

You could make the purchase contingent upon the current landlord / seller having the problem tenant removed prior to the close of escrow.  

You could then hold back (escrow funds) of a given dollar amount (e.g. $5000) that could be used to offset your costs if the tenant is still in place at close of escrow.

The buyer may not be willing to accept this, but I have done similar things in the purchase of multi-family units.

Regardless, make sure to the have tenants complete an estoppel statement so you know that everything regarding the tenant's lease agreement is correctly represented.

Make the purchase contingent on the eviction with a closing date AFTER the eviction. Include an opt-out clause if the tenant is not completely out based on your personal inspection of the property.

Have you inspected each unit? What if this tenant is evicted and trashes the place on the way out the door and you're one week from closing? 

Will the seller use the deposit to clean/repair the unit before you take ownership? I highly recommend this happen because it keeps the bad tenant tied to the previous owner. If he hands you the deposit and you spend it on cleaning and repairs, you become party to any future litigation.

I don't think it's a dead deal. In fact, stressed properties tend to bring a good return if you play it smart. Make sure you have the option of walking away if the problems aren't rectified. Talk to the long-term tenant and see if she plans to extend/renew. Make the seller and manager get rid of the old tenant and clean up his account so you can start fresh. Protect yourself by putting everything in writing!

Great advice guys!!  Definitely will incorporate those contingencies into the proposal.    If he's motivated enough, he'll go for it.