Inherited Tenants ( Is it worth to deal with them)

Investor · Madison, WI · Member since 2015 · 51 posts · 13 votes

Hi BP!

I have a question about inherited tenants since this would be our first deal (other than our own home).

We are closing soon on a 3bed/1.5bath Duplex with tenants in place. Their rents is at least $200 below market, both units need some cosmetic work, tenant 1 is a hoarder and tenant 2 is a section 8.

We would prefer to ask them to move(3 months ahead, April-May), revive the units and rent them to new/better-screened tenants but at the same time we are concern about vacancy (although we are in Madison and the area is nice so it should rent fairly quickly).

Are we starting this the right way?

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Darryl D.

Detroit, MI · Member since 2014 · 42 posts · 19 votes

10y

A hoarder and a section 8 tenant is a recipe for disaster. Filling a vacancy is less costly than prolonged damage and losing $200 every month. You inherited a property, don't inherit the burdens :)

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James Bonsall
Investor · Cincinnati, OH · Member since 2015 · 12 posts · 6 votes
10y
I only buy properties with inherited tenants for simplicity sake, but I am reconsidering that route after having to evict somebody because the previous owner didn't screen and I stopped getting rent. (She had a precious eviction on her record.) If you do choose to evict, it's better to do it now than later. Best of luck!
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Nicole A.Pro Member
Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
10y
Well, you could look at it as getting some cash right on day one for a while while before you spend a few thousand fixing it up. And they'd have to agree in writing to leave by a certain date before the lease ends. If they don't agree, you must honor the remainder of their lease. Now, if they're not paying rent, don't waste time filing for whatever the first step of missing rent is. Congrats on your rental!
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Darryl D.
Detroit, MI · Member since 2014 · 42 posts · 19 votes
10y
A hoarder and a section 8 tenant is a recipe for disaster. Filling a vacancy is less costly than prolonged damage and losing $200 every month. You inherited a property, don't inherit the burdens :)
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Yashira ZavalaPro Member
OP
Investor · Madison, WI · Member since 2015 · 51 posts · 13 votes
10y
Thank you for your responses! Their lease are month-to-month so it should be reasonable to give them 3 months to move.
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Lois Ginter
Rockford, IL · Member since 2016 · 126 posts · 48 votes
10y
Just curious where your building is. Rent in Madison is very high, and is the reason I relocated, and bought property in Rockford, IL. People making $50K a year are getting squeezed out, and can't afford to buy a starter home that cost $150,000 in an average area.
I was paying $925 for a one bedroom, and paid $1200 for a two bed, two bath before that in the Tenny Park area.
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Robert Melcher
Residential Real Estate Broker · San Antonio, TX · Member since 2016 · 506 posts · 311 votes
10y
In Texas the lease is superior so the sale includes the obligation to honor it.
The seller should have the deposit, so at least you get that with the sale.
If they are delinquent, you will have to give notice and file for eviction.
Faster is better.
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Yashira ZavalaPro Member
OP
Investor · Madison, WI · Member since 2015 · 51 posts · 13 votes
10y
@Lois Ginter Madison is definitely a tough market! Is very very difficult to buy a good deal from MLS.
The Duplex is on the West Side (Greentree Neighborhood, same as our current home).
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Yashira ZavalaPro Member
OP
Investor · Madison, WI · Member since 2015 · 51 posts · 13 votes
10y
@Lois Ginter How is the Rockford area doing? We are interested in looking at nearby cities.
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Lois Ginter
Rockford, IL · Member since 2016 · 126 posts · 48 votes
10y
I'm just getting started here, but most people I talk to seem to think I made a good purchase. I paid cash for 8 doors, and average monthly rent is $600.
I owned a house in Parkwood Hills on the west side, and Epic is driving the prices up on that side of town. Downtown is crazy expensive now.
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Craig Wilcox
Investor · TN · Member since 2014 · 508 posts · 167 votes
10y
Hi @Yashira Zavala,
I see you were asking about Rockford. The economy has been floundering for years in Rockford due to unemployment but has made some progress lately. There have been some big employment wins at the airport and Loves Park is growing. The announcement of a new hospital near I-90 and a hotel downtown will help as well.
Home prices are climbing a little in Rockford but are still very low compared to the suburbs of Chicago. With a good pool of renters in the area, rents have increased in the last couple years but are now leveling out. With low prices and high rents, the inventory is very low so the deals are hard to come by right now. Let me know if you have any specific questions.
Have you checked out Beloit? I am considering taking a close look as I have heard the city is making some good changes.
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Kevin Kurt
Waunakee, WI · Member since 2015 · 63 posts · 28 votes
10y
I would get them out sooner rather than later. I would try to stagger them though. I would try to get the hoarder out first and fix up that side and then try to move on to the other unit in a month. That way you are at least getting some income each month.
As far as the vacancy goes, last year I bought a duplex of the West Side near the arboretum, that had one vacancy. We signed at 1 p.m., put it on Craigslist at 3 pm, and had a deposit by 7 p.m. So if its a nice place it shouldn't be a problem.
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Yashira ZavalaPro Member
OP
Investor · Madison, WI · Member since 2015 · 51 posts · 13 votes
10y
@Kevin Kurt Great Suggestion! Thanks!!
4 hours that's amazing! I hope ours goes that fast!
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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
As a condition to the purchase, you can push the problem onto the seller with
- "upon COE, the property is to be delivered vacant"[a].
- You also can require the seller to disclose not only the rent roll . . . but the currency of each tenant[b].
Upon receipt of the disclosures, you can elect to recant[a].
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Michael Noto
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
10y
As a first investment it may be tough on you inheriting tenants if you are going in blind.
By going in blind I mean, have you been provided proof that there are leases in place, that the tenants are paying, and have you been given any proof of income or background info on the tenants you are inheriting?
If not, that to me is to much risk to take on as a first time landlord.
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Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
10y
@Yashira Zavala, you don't say why you are looking to get rid of the Section 8 tenant. If they pay on time and take care of the place, Section 8 can be a great, steady source of income.
If you have issues, ditch them immediately.
The hoarder is nothing but problems. Month to month leases have an end date of the end of that month. You do have to give them notice, but month to month means you only have to give them the notice required by law.
I don't know your neighborhood - how far is it from UW? Could you keep them in for a few months, rehab, and have it ready for students?
[email protected]Podcast Guest on Show #261
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Yashira ZavalaPro Member
OP
Investor · Madison, WI · Member since 2015 · 51 posts · 13 votes
10y
@Mindy Jensen Thanks for the response! There are no major problems with the section 8 tenant but the rent is $200 below market. I am a UW grad student and the area is kind of far for undergrads, perhaps more suitable for grad students/post docs with family.
@Michael Noto Thanks for your input. We din't think that the previous landlord screened the tenants well enough.
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Fred Heller
Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
10y
In most states the lease runs with the land, so you can't just "get them out." You'll have to honor the lease until it ends. That's assuming they're paying the rent and not violating any terms of the lease. In that's not the case, you would have to go through whatever eviction process Wisconsin calls for.
The other option is to offer a financial incentive for them to move before the lease expires.
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Tanya F.
Rental Property Investor · Madison, WI · Member since 2013 · 629 posts · 339 votes
10y
Call the Dane County Housing Authority Office. The caseworkers there that handle the Section 8 tenants are really good and you can talk to them about a reasonable plan to encourage the current Section 8 tenant to find another place if they won't pay the higher rent you'd like to get. They helped us out a lot when it was time for our Section 8 tenant to move on.
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Charles Myers
Investor · Madison, WI · Member since 2014 · 8 posts · 0 votes
10y
Originally posted by @Yashira Zavala:

@Lois Ginter Madison is definitely a tough market! Is very very difficult to buy a good deal from MLS.
The Duplex is on the West Side (Greentree Neighborhood, same as our current home).
It is still possible in this market, you just have to be prepared to move very quickly (showing within 24-36 hours of the property hitting the MLS, offer no more than 12 hours after.) Then you have to be ready to deal with a multiple offer situation, which is more of a question of how certain you are of your numbers than anything else. Madison is far from the most difficult market to find a good deal -- you just need to make certain that you're in a position to act on it once you have.
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Linda Liberatore
Real Estate Investor · Schaumburg, IL · Member since 2014 · 76 posts · 30 votes
10y
I would verify the local county/state laws on the proper notice and move forward with your notice to provide the option to replace the tenants. On the hoarder situation we have found it most helpful to include language from the public health code on sanitation. We recently had a case where we contacted the Chicago public health department and they were instrumental in intervention and supportive in our efforts to have the tenant notified that the unit be cleaned or vacated.
Section 8: You might consider contacting the Section 8 housing counselor/specialist and provide them the documentation indicating the rent is well below market. Depending on the situation with that tenant they may be able to raise that amount.
Hope that info helps
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Anthony R.
Property Manager · Lakewood, OH · Member since 2015 · 250 posts · 258 votes
10y
I've never inherited a tenant that didn't cost me money or become a huge pain in the ***. If their apartment is really ready to rent, then raise the rent just above market value for 12 mo lease and tell them they can stay if they accept. If they take it then you have a healthy income for your first 12 months with a little head ache. If they choose not to then list it at market and get rid of them.
This tactic has worked a couple times for me.
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Rick H.
Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
10y
Buy the Tenants and Toilets course from Fixer Jay Decima and the Rental Management course from Mike Cantu.
Learn the local laws and rental practices.
Begin creating a policy book do that you make your decisions based on your policy, not on situation. You'll appreciate not having to stress every time a tenant acts outside of policy. Make the rules in advance, enforce them consistently and fairly, and remember that the tenant's job is to manage your investment, not act like a defiant child.
Your initial objective is to make it clear to tenants that you are running your operation as a business, there is a new sheriff in town, what was in the past was between tenant and former owner.
Existing tenants should be given an opportunity to reapply or given plenty of notice that you are terminating but must okay established monthly rent, on time, until that date to vacate.
If you need emotional support, tell tenant(s) you have a partner ( could be your cat, etc.) and do not try to explain. Too many people feel they need to explain and end up backtracking.
When in doubt, get them out.
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Crystal SmithPro Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
10y
Originally posted by @Yashira Zavala:

Are we starting this the right way?
A plan to consider.
- Keep the section 8 tenant in place (depending on the terms of the lease & the property, "as is" still meeting section 8 requirements)
- Evict the hoarder
- Once the hoarder's gone renovate the hoarder's unit
- Once complete rent out the new unit then work on the section 8 unit; improve & increase the rent
312-681-7487
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Kelly N.
Investor · SE, MI · Member since 2013 · 1k+ posts · 461 votes
10y
I like @Crystal Smith's plan.
I prefer to buy with tenants in place. If they are paying rent that is below market value, your offer should be adjusted accordingly. You can raise rent as the law allows, or you can get them out so you can make improvements and get a higher rent.
Our tenants are typically on one year leases in our area, and inherited tenants rarely stay beyond that once we have purchased the building. Most already had a plan to leave at the end of the lease when they signed the lease, or they anticipate a rental increase and possible getting kicked out when new management takes over. If the apartment is in good shape and the tenant is a good one (pays on time, doesn't cause me headaches), we offer to renew the lease, and possibly increase price to close to market value.
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Andra Sandy
Property Manager · Birmingham, MI · Member since 2016 · 4 posts · 0 votes
10y
My advice may be too late for you to implement, but I would highly suggest offering them Cash for Keys.
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