Getting rid of inherited tennant with 11 months remaining

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Getting rid of inherited tennant with 11 months remaining

Account Closed
Investor · Excelsior, MN · Member since 2017 · 85 posts · 37 votes

Hey everyone,

Looking for a little advice from someone who might have had a similar circumstance in their careers.  I am closing on a new duplex in NE Minneapolis, MN next week and have inherited tenants in both units.  The lease for one of the units is up at the end of the month and I will be giving that tenant their 30 days after closing.  The other tenant signed a year long lease the day before the house went on the market.  Yes, that is correct, the very day before it was listed.  I am not sure the circumstances of why this happened but at this level of the game it is a mute point.  I am really wanting to get that tenant out for two particular reasons:

1- I would like to do some rehab to the units in order to spruce it up a bit

2- The rents are very low for the area (another reason I think there was something shady behind the signing of the lease the day before).

My initial thoughts were to explain that I want to do some rehab and ask them to sign a 30 day lease with a guarantee that they get there deposit back and a free 30 days.  After the work is done I would allow them to apply through my background check and have first dibs at the new rate.  This is essentially paying them to leave.  This way they leave on good terms and don't have a sour taste like they are getting the boot.

What are peoples thoughts?  Suggestions?

Would love to hear if people have done anything to deal with this situation in that past.

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Jeff Sheraton
Wilmington, DE · Member since 2015 · 121 posts · 36 votes
9y

I'm not sure of the MN specific laws, but I would have to imagine that if someone signs a year long lease you would have to honor it.  Of course there is always the option to try to convince them to leave or maybe even buy them out.

Personally my thought would be that if the property cash flows just let it be.  Fix the first unit while the other is rented.  No point in having two empty units at the same time.  

Maybe after the first was finished you could offer the current tenant the opportunity to move into that unit for the remainder of their term with the understanding that the rent will increase at it's expiration.

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  • Jeff Sheraton
    Wilmington, DE · Member since 2015 · 121 posts · 36 votes
    9y

    I'm not sure of the MN specific laws, but I would have to imagine that if someone signs a year long lease you would have to honor it.  Of course there is always the option to try to convince them to leave or maybe even buy them out.

    Personally my thought would be that if the property cash flows just let it be.  Fix the first unit while the other is rented.  No point in having two empty units at the same time.  

    Maybe after the first was finished you could offer the current tenant the opportunity to move into that unit for the remainder of their term with the understanding that the rent will increase at it's expiration.

    2Reply
  • Jeff Filali
    Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    I'd let them stay as long as they paid on time and go ahead and rehab the other unit and after its finished offer to let them move into the updated one for the remainder of their lease at the new rate.  Then you can rehab the other.  If not, rehab the one and rent it, ride it out until the end of their lease and then do the rehab and increase the rent. 

    2Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Does your state landlord tenant regulations have any language allowing a landlord to terminate a lease to perform renovation work, possibly terminate to allow a family member to occupy the unit. 

    Your best option is to persuade them to leave possibly with a 3-6 month time frame while you reno the other unit. Offer the other unit at the higher rate when completed.

    Obviously you have a plan in place and should at least try to get rid of them any way you can. Basically nothing ventured nothing gained at this point in time.

    It is always unfortunate when a seller rents a unit just before selling but their feeling is that it will sell better. Unfortunately this is rarely the case as often that tenant does not fit the buyers plans or is poorly screened, Ant one with a heart beat will qualify.

    0Reply
  • Account Closed
    OP
    Investor · Excelsior, MN · Member since 2017 · 85 posts · 37 votes
    9y

    @Jeff Filali @Jeff Sheraton I totally hear what you guys are saying.  I am not sure what it is but I got a strange vibe when I was going through the unit on my showing.  I have no idea what the sellers "guidelines" are for screening tenants and would much prefer to have my own tenants in place.  The area that we are talking about is a pretty easy place to rent and I have had 10+ applicants on my other units which are just 2 bucks away. 

    On the financial side, even though it cash flows, I am missing out on $350/month in rent which is the difference between the current rent and what I get two blocks away.  350 x the 10 remaining months after I take over is 3500 total - 800 in one month free rent I'd offer = 2700 that I am missing out on. That in itself is enough for me to offer some incentive for them to vacate.

    I guess maybe I am in the minority in my thinking but given all the factors, I would much prefer to try and get them out.  I know that legally there isn't much I can do because i must honor the current lease. I just thought maybe someone had another creative way to entice them to find another place. 

    The first unit is ready to go and doesn't appear to need anything over top of the normal turnover stuff.  My management company has a waiting list for NE Minneapolis which is why at this point I am not stressing too much about having the two units empty for a short time. 

    This should go without saying but I will say it anyway, if they don't want to go, then thats that.  I don't want people to get the wrong idea of my intentions.

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  • Kevin Powell
    Minneapolis, MN · Member since 2014 · 48 posts · 28 votes
    9y

    @Account Closed You mentioned an incentive to have them vacate. Have you considered buying them out? If you offered them $1,000 for instance would that do the trick? Like you said you are going to lose out on more than that. 

    You don't have to approach it as "hey I want you out", instead you could say you have your renovation team lined up for X and its more expensive to have them out twice. "Would you consider terminating your lease in 60 days if I offered you $1,000?". 

    That might help both parties out as there will be more places available in May/June than there will be in April. There are also more potential tenants available later summer if you get your renovation done earlier. 

    2Reply
  • Account Closed
    OP
    Investor · Excelsior, MN · Member since 2017 · 85 posts · 37 votes
    9y

    @Kevin Powell  I hadn't thought of just straight up buying them out.  I was thinking that maybe the 30 days free rent to find a place +  their security deposit back might save me from having to come out of pocket.

    In the end, 1000 to leave still makes me money.  Thanks for the tip. Have you ever done this? If so, how did it go over?

    0Reply
  • Amber Gonion
    Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes
    9y
    Another way of looking at it mathematically is that it will cost you 800/month, one month for the rehab and one month at a minimum to fill. Good renters give notice to their previous landlord and don't sign leases last minute. (it would be different if you were just turning the place you could show it before they leave and have no gap, but most will want to see the rehabs before deciding). So you potentially are looking at $2400 in lost revenue depending on how long the rehab and inspections take, the lost potential revenue is $350x10=3500 that's 1100 difference not including rehab costs. Paying to remove someone and the fact there is no turnover cost with them in place seems to be inefficient. At the end of the lease when it cost nothing would be a better time I would think.
    1Reply
  • Daniel O.
    Investor · Takoma Park, MD · Member since 2016 · 166 posts · 147 votes
    9y

    Plenty of good advice above. Not sure where you are in the closing process, but you might also ask the seller to throw in some cash to help get them out. After all, it was the seller's "error" that is costing you $3500. On the other hand, I suppose the seller might back out once they realize they could have been making that much more money on the place...  But I agree, if the tenant is someone you would rent to, offer them $1000 to move out or give them $1100 off of their first few months rent at the higher rate in the other place. If they are not someone you would rent to, just offer them the $1000 to leave early, but have it decline by $150 each month after the first month that they stay. After 3 months, the offer is $700....after 5, it is only $400.  That gives them an incentive to move quickly.

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  • Account Closed
    OP
    Investor · Excelsior, MN · Member since 2017 · 85 posts · 37 votes
    9y

    @Amber Gonion @Daniel O. Thank you guys for chiming in.

    Amber, the "rehab" is a 5 day thing.  I am doing a new kitchen floor myself and have 2 painters doing 2 of the other rooms at the same time.  Say that takes 5 days and no one wants to move in until the 1st of the following month, I am looking at only one month empty.  As I mentioned above, there is a deep pool of renters looking in this area.  I just checked the other lease and it end May 31st.  This works in my favor because I could use that rent to cover the costs for that month while I do the work if I can get these tenants out at the end of April.

    Daniel, love the idea of the declining offer.  Thanks for that!! 

    Ultimately it isn't the end of the world.  I just very much prefer to put my own tenants in my units and not be stuck with low rents for extended periods.

    0Reply
  • Javier Sanmiguel
    St Paul, MN · Member since 2016 · 38 posts · 12 votes
    9y

    I'm gonna piggy back on this tread because I'm in a similar situation. I have a duplex under contract and the idea was to do owner occupied, but it turns out both leases are very new and long term (13 months!) Has anyone ever been able to move a tenant to owner occupy the unit? From what I know now, both tenants are not interested in moving at all. Plus the rents are low for the area, so the cash flow would be tiny if I switched to investment property and waited them out. Thanks everyone!

    0Reply
  • Joe Scaparra
    Investor · Austin, TX · Member since 2013 · 680 posts · 1k+ votes
    9y

    Sounds very logical for what you want to do, it's just that some people want to give you anything but what you asked.  Lets see you can get $350 more a month times lets say 10 months that is $3500 more money.  Sounds good.  Also you have some reservations as to the quality of the renters that are in place stemming from your inspection of the unit.  That is another logical reason to replace tenants.  So yes offering an incentive like $1000 might do the trick.  As evidence of your experience as a landlord, you seem  to know your business.  I say go for the incentive offer.

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  • Hunter Letchman
    Investor · Emerald Coast, FL · Member since 2013 · 45 posts · 11 votes
    9y
    I would do cash for keys if you want them out that badly. However, why not let them stay while you rehab the other unit? That will cover some expenses while you rehab and then give them the first option to move into the newly rehabbed unit (at a higher rate of course. This will give them the feeling that you're trying to take care of them, even though you may want them gone. It also will make your numbers better during the rehab as well. If you try and kick them out immediately then they may fight and you don't want a problem on your hands with a new property.
    0Reply
  • Edwin Williams
    Investor · Dallas, TX · Member since 2016 · 60 posts · 65 votes
    9y

    Very interesting thread here. You made and offer that was accepted on a property that had tenants. You did your due diligence, the property closed and now you want to remove a tenant who has a lease in place because you are not happy with the rent level. Here's my advice. See what you can do legally from a legal entity not here on this forum. Understand as a landlord you have a responsibility to your tenants that have signed leases. 

    0Reply
  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    I believe you are required to follow the term of the lease. You could watch for lease violations in this period and have cause for termination if their are infractions. So make it a tight rope walk and give written notice of any and all infractions. Make sure you have them sign a " Crime free / Drug Free addendum you can add this to the lease if not already there due to the fact the city of Minneapolis requires it. It gives you lots of potential for filing for eviction if they don't follow those rules. If you haven't yet taken the class to be certified for this I'd find out when the next class is and get it taken it certifies you as landlord, call your local police precinct and find out when it's offered. 

    I'd recommend you become a member of the MMHA Minnesota Mulit Housing Association, it's a great organization for Minnesota landlords and offers rental forms, classes, resources like vendors. 

    You could give a written notice now, that you will not be renewing their lease, that you would accept a 30 day notice to vacate prior to the first of the month, and will provide proper references. That if they agree to vacate within the next 90 days you would give them a relocating fee of $$$. They will get the message that you want them out. Of course you could be stuck with them for the entire next 11 months. Things would be worse.

    I'd do a condition unit check sheet take photos of unit as of now so you can document any changes as of the date they leave, and give them a copy.. any prior damages, was previous owners and you can't charge them for that. Get a current contact sheet with phone numbers for all occupants and list of cars.

    If you haven't yet download a copy of the  Minnesota landlord tenant laws, It's your bible and your best friend when it comes to your rental business. 

    2Reply
  • Bruce Runn
    Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    9y

    You have to honor the lease.  You can watch for violations but you also have to make sure you don't do things that can be classified as retaliatory in an effort to get them out or you could end up having them call in HOME line which will gives great advice/legal help for free to tenants and you end up having issues.  Best solution is typically offering them money to move and let them know you plan to renovate.  Don't make any promises of future rental to them.  It's always better to be on the up and up with people.  If they turn you down, just be nice.

    2Reply
  • Account Closed
    OP
    Investor · Excelsior, MN · Member since 2017 · 85 posts · 37 votes
    9y

    @Deanna McCormick Thank you so much for the informative post.  Lots to digest there and I very much appreciate the heads up on Drug Free/Crime Free as well as the MMHA.

    1Reply
  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    @Bruce Runn & @Account Closed

    Good luck Ryan.

    Bruce added a good caution, be firm but not retaliatory is correct. 

    So know your landlord tenant laws

    0Reply
  • Kevin Powell
    Minneapolis, MN · Member since 2014 · 48 posts · 28 votes
    9y

    I think we are all approaching the problem that there is a lease in place and the tenants have a right to occupy for the length of the lease. 

    I still would be surprised though if you approached them, explained the renovation, and then offered cash, their full deposit, etc. to vacate by a certain date that they wouldn't take the deal. You might even be able to throw in the perk of not having to clean, since you are going to have a cleaner come in after renovation anyway. 

    1Reply
  • Account Closed
    OP
    Investor · Excelsior, MN · Member since 2017 · 85 posts · 37 votes
    9y

    @Bruce Runn @Deanna McCormick 

    As I mentioned a few posts up, if they say they don't want to move, then thats that.  I am not going to try and force them to move by any means.  The reasoning for my post was to see if anyone had ever come up with a "creative" way to ask a tenant out mid lease for whatever reason.  Seems like "cash for keys" is that most common. 

    I think in the end, I will stick with my original idea.  Tell them I have some work I really need/want to get done in order to time the workers not having to come back multiple times.  Offer them a 30 rent-free period in order for them to find another place and guarentee deposit back if the unit doesn't change from current shape.

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  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    I'd agree with keeping this in mind.

    You could offer a mutual lease termination agreement if they would agree to move. But understand your need to fix stuff might not matter to them. If they agree to move any money you provide for relocation or incentive for them to move is paid once they give you the keys, and unit is returned in broom clean condition with all property removed. "no free rent" you can tell them you will give them the security deposit back they day they vacate along with the relocation incentive.  but I wouldn't give them a dime until they are out the door.. otherwise your liable to have them default and  you'd be out the "collectible free month you gave them" and be delayed by filing eviction and having more costs added for court fees. 

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  • Account Closed
    OP
    Investor · Excelsior, MN · Member since 2017 · 85 posts · 37 votes
    9y

    Very good point @Deanna McCormick.  Thank you very much again!!

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  • David Moore
    Investor · Crystal, MN · Member since 2013 · 486 posts · 277 votes
    9y

    @Account Closed

    There is one other thing to consider.  What if this tenant has a great payment history, and is a really good tenant? What we pay for a property, and our opportunity cost are things we tend to discount when we buy a property, but tend to cost tenants huge.  Should the tenant even be approached?  Did the seller disclose to you during the offer and contract period they had just signed a lease?  And if you accepted this as a  term of the sale, should you even approach the tenant?  Your opportunity cost stinks, sure, but why lay this on the tenant?  This tenant may be well connected, someone who has been in the neighborhood a long time. 

    Another win could be out there.  But eating 12 months of opportunity cost might be the best thing you can do.  

    0Reply
  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    I believe the tenants are fine.  The previous owner did them a solid by giving the tenants a new lease.  Which means they did not trash the place and probably paid on time.  If they are 350 bucks below market, why would they leave?  Offering them $1000 is three months difference and they have 10 more. 

    My advice is to be careful, not to be penny wise and pound foolish.  The optimization on a spreadsheet is rarely reality.  I would get the other side online and cash flowing and come back to the other side in 10 months.  Further, I would tell them their rent is going up $250 a month.  If they stay you will not have to renovate or lose 2 months while you do the work, making the lower rent possible.    

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  • Chad Newton
    Investor · Oakley, MI · Member since 2016 · 2 posts · 1 vote
    9y
    I recently bought a duplex that was already occupied by the previous tenants. They already had leases with around 6 months left. I chose to keep the tenants because one side had been there for 6 years without a late payment and the other side had no recent late payments as well. Here in Michigan under new ownership the prior lease agreement was automatically terminated and they had to sign new leases. I chose to keep them but raised the rent up to market value. If they chose to stay it was a bonus if not I had renovations in mind that needed to be done. I guess the renovations will have to wait and the cash flow will keep coming.
    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    9y

    In CA it is against the law. The new owner MUST honor the original contract as agreed.  If there is rehab work that is of emergency nature then you put them in a hotel if agreed upon.

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