Letting go of a long term tenant after purchasing duplex.

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Letting go of a long term tenant after purchasing duplex.

Nicholas Armstrong
Investor · Birmingham, AL · Member since 2015 · 254 posts · 136 votes

Hello all,

I have posted about this topic before, but never got into the specifics of it.

I have purchased a duplex with one unit being occupied by a long term (5 year) tenant. The issue is that the long term tenant never had a lease agreement, he's been paying 1/2 of fair market rent and he doesn't have an actual job. He is a photographer, and builds LED lights for ATV's. So in other words he does odd and end things to make money. He's also a 40+ year old bachelor who smokes and drinks.. alot! (I have nothing against either, but his entire unit is filled with empty vodka bottles so it makes me wonder) Also during the inspection today a giant cat ran out of the closet and the tenant replies "I hope you like animals!"

So needless to say he will not be staying. Smoking and animals are no go's for me.

Here is my question:

A. Should I request the property be vacant upon closing to start fresh? And if so how do I do that at closing? or,

B. Write up a 3 month lease raising his rent a couple hundred dollars. This could give him a little while to find another place and maybe he will not destroy his unit out of hatred towards me.

I worry that if I ask for the property to be vacant he will destroy his unit out of anger.

But on the flip side I really don't want to live by this guy... or be his landlord for 3 months. (I will be occupying the other side)

Thoughts?

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Al Williamson
Rental Property Investor · Sacramento, CA · Member since 2011 · 2k+ posts · 1k+ votes
10y

@Nicholas Armstrong other investors have had success with doing the deal with a two-step closing. The escrow releases upon the tenant's departure.

The seller get a little money at close and the rest upon tenant surrendering the keys. It's an escrow matter.

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  • Brian C.
    Richardson, TX · Member since 2013 · 20 posts · 0 votes
    10y

    I was in a very similar situation about 2 years ago. We requested that the unit be vacant X days before closing, with an inspection by us to confirm. The sellers didn't want to ask the tenant to leave but instead dropped the purchase price a bit to cover some of the cost of eviction if it would be necessary. We ended up sending him notice of non renewal of lease by certified mail the day that we closed and he left peacefully. We gave him 60 days but legally only needed 30 since he was month-to-month. Check your state laws.

    If you're able to get the sellers to get him out that's definitely your best option. Let them deal with it. If he damages the unit the sellers should be responsible, they are usually required to maintain the property's condition throughout the sale process, check your contract.

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  • Al Williamson
    Rental Property Investor · Sacramento, CA · Member since 2011 · 2k+ posts · 1k+ votes
    10y

    @Nicholas Armstrong other investors have had success with doing the deal with a two-step closing. The escrow releases upon the tenant's departure.

    The seller get a little money at close and the rest upon tenant surrendering the keys. It's an escrow matter.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    10y

    Definitely get rid of him before closing. You don't want to start ownership with a problem. 

    You are worried about him trashing the unit before closing? What if he trashes the unit after closing? Make the seller get rid of him and have the unit ready for a final walk-through inspection three days prior to closing. If the departing tenant leaves it a dump, the seller has a couple days to clean it up before handing it over to you.

    I would do that before I would consider escrowed funds. You should not have to deal with the seller's mess.

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  • Nicholas Armstrong
    OP
    Investor · Birmingham, AL · Member since 2015 · 254 posts · 136 votes
    10y
    Originally posted by @Al Williamson:

    @Nicholas Armstrong other investors have had success with doing the deal with a two-step closing. The escrow releases upon the tenant's departure.

    The seller get a little money at close and the rest upon tenant surrendering the keys. It's an escrow matter.

     Would this have to be in the contract?

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  • Nicholas Armstrong
    OP
    Investor · Birmingham, AL · Member since 2015 · 254 posts · 136 votes
    10y
    Originally posted by @Nathan Gesner:

    Definitely get rid of him before closing. You don't want to start ownership with a problem. 

    You are worried about him trashing the unit before closing? What if he trashes the unit after closing? Make the seller get rid of him and have the unit ready for a final walk-through inspection three days prior to closing. If the departing tenant leaves it a dump, the seller has a couple days to clean it up before handing it over to you.

    I would do that before I would consider escrowed funds. You should not have to deal with the seller's mess.

     How do I make the seller get rid of the tenant? We've already gotten a contract signed.

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  • James DeRoest
    Investor · Century, FL · Member since 2015 · 950 posts · 603 votes
    10y
    Originally posted by @Nicholas Armstrong:
    Originally posted by @Nathan Gesner:

    Definitely get rid of him before closing. You don't want to start ownership with a problem. 

    You are worried about him trashing the unit before closing? What if he trashes the unit after closing? Make the seller get rid of him and have the unit ready for a final walk-through inspection three days prior to closing. If the departing tenant leaves it a dump, the seller has a couple days to clean it up before handing it over to you.

    I would do that before I would consider escrowed funds. You should not have to deal with the seller's mess.

     How do I make the seller get rid of the tenant? We've already gotten a contract signed.

     Bit late for that I would think. Should have made it a clause of the contract.

    Here's the problem though, they are paying under market rent and when they come out of the apartment, whether you like it or not, you will be repainting the apartment and doing a bunch of repairs. This will cost you a lot. 

    You need to do some sums to decide whether the costs of getting him out, refurbish the apartment, is going to equal the amount you'll get out of the apartment when it's re-rented. And remember that for the two/three months it's empty, it'll cost you in unpaid rent that you could have had.

    Or, when you have the number in hand to refurb and get him out, whether you can find a number that he is will to pay to keep him in the apartment? Remember, that he will have the same problem when he goes to rent somewhere new - he will have to pay a lot more than now.

    I went to our longest term tenants house yesterday. He's been there 20 years. His house is cosy and warm and he likes it. I will never ever raise the rent on him because when he goes, I have a 5 figure refurb coming up.

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  • Nicholas Armstrong
    OP
    Investor · Birmingham, AL · Member since 2015 · 254 posts · 136 votes
    10y
    Originally posted by @James DeRoest:
    Originally posted by @Nicholas Armstrong:
    Originally posted by @Nathan Gesner:

    Definitely get rid of him before closing. You don't want to start ownership with a problem. 

    You are worried about him trashing the unit before closing? What if he trashes the unit after closing? Make the seller get rid of him and have the unit ready for a final walk-through inspection three days prior to closing. If the departing tenant leaves it a dump, the seller has a couple days to clean it up before handing it over to you.

    I would do that before I would consider escrowed funds. You should not have to deal with the seller's mess.

     How do I make the seller get rid of the tenant? We've already gotten a contract signed.

     Bit late for that I would think. Should have made it a clause of the contract.

    Here's the problem though, they are paying under market rent and when they come out of the apartment, whether you like it or not, you will be repainting the apartment and doing a bunch of repairs. This will cost you a lot. 

    You need to do some sums to decide whether the costs of getting him out, refurbish the apartment, is going to equal the amount you'll get out of the apartment when it's re-rented. And remember that for the two/three months it's empty, it'll cost you in unpaid rent that you could have had.

    Or, when you have the number in hand to refurb and get him out, whether you can find a number that he is will to pay to keep him in the apartment? Remember, that he will have the same problem when he goes to rent somewhere new - he will have to pay a lot more than now.

    I went to our longest term tenants house yesterday. He's been there 20 years. His house is cosy and warm and he likes it. I will never ever raise the rent on him because when he goes, I have a 5 figure refurb coming up.

     Thanks for the insights,

    We have saved a bit of money to do some rehabbing. He's a big time smoker so all carpet will have to be removed and all surfaces will have to be repainted anyways.

    Im just trying to figure out how I'm going to get him out of there now...

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  • Fred Dray
    Professional · Glendale, CA · Member since 2013 · 105 posts · 47 votes
    10y

    Also during the inspection today a giant cat ran out of the closet and the tenant replies "I hope you like animals!"  This tells me the tenant is use to being or thinks he is in contol and suggests he may be combative.   Is he? 

    If not and he's agreeable, then discuss things with him.  If he's already been smoking and has cat, damage is done.  I suppose you could ask him to smoke outside.  Would he be willing to get rid of cat, if not pay pet deposit.  Tell him what market value is and your idea for raising rent and see if he can afford/is willing to pay.  If he can't pay and has to leave, at least you have shown empathy for his situation, given him an opportunity to stay and make changes and hopefully, he won't go beserk.

    If you are stuck with him and he is combative, give him proper notice, write up new lease or lease addendums with your rules and regs (no pets, no smoking, whatever) raise rent and put him on month-to-month. 

    If he has to move and suggests he will trash the place, give him a 24-hour notice to enter every two weeks with the excuse you are going to do some repairs...find something simple you can do like caulk around shower enclosure and do it meanwhile conducting a visual inspection to see if he is causing damage.  If so, take pictures and call police.

    good luck

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