Buying home already with tenants - need help

7 Replies

So I am closing on this house in a month.  The current tenants have lived there for 7 years, and were paying $750 a month.  I originally thought the $1100-1200 a month I would require for rent would have me looking for new tenants.  However, they are okay with paying $1100 on an 18 month lease.  This saves me the hassle of locating a tenant myself, or the expense of hiring a company (like I usually do) to find a tenant for me.  However, I have some questions that I'm sure experienced landlords can help with.  

I'll start by saying the tenants are hispanic.  One speaks pretty good English, but there is a bit of a language barrier that makes some things unclear when communicating.  In addition, none of the tenants have a computer, and therefore anything needed to do online becomes a problem for them.  Lastly, 2 of the 4 adults living in the house only get paid cash, and do not have a bank account.  

Am I making too many concessions?  I feel the fact they have been good tenants for 7 years (with 3rd party verification) offsets a lot of this.  My questions are what methods would be recommended for:

With them not using a computer, what methods would be recommended for application, background/credit check, income verification?

As the person buying this house on 12/1/17, I need to make the decision on if I wish to continue to allow these guys to be tenants, or give notification that I want the house vacant by closing.  By not giving notification soon, it will be on me to get the current tenants out, rather than the seller.

I appreciate all input and advice.

Ben

Ben,

One recommendation, would be for you to sign up with PayNearMe, this allows the tenant to pay at 7 Eleven with cash up to $1500. 

I am sure that most rental processors have way for you to have them fill out paper application and have you if the company run everything for you

Depending on the age, occupation, there's many people out there that do not own or use computers. I bought my 1st PC back in 1983, and for about 5 years after that, people that I came into contact with thought it was either unusual, or or what do you do with it.

My parents was given a used computer by my brother, but didn't quite figure out what to do with it. My dad's big experiment was to pay the phone bill online. The phone company said they never received the payment, and for the first time of his life, cut off his phone service. I think that was the first and last time he ever used the computer. My mother in law, who's now 93 was asked if she wanted a computer for Christmas. Her answer is she has no use for one.

As to going online to get credit reports, I still do not require tenants to do it. I did landlording long enough that I have an account with American Tenant Screen, type in the Name, address, and Social Security number, and I'm able to get the credit report on a tenant, any tenant, all by myself. As to rental applications, I still get it on paper from the tenant, no need to go online and apply. I create a file by typing in the info on the ezLandlordForms.com website, and also request credit info through them as well.

As to some tenants not having bank accounts, according to some surveys, a good portion of the low income population either does not have, or does not qualify for a bank account. This is why some firms pay their employees by deposits onto debit cards, and then they can get cash via an ATM. 

My younger 17 year old girl had a summer job, got paid via a debit card, and on payday transfer to money from her debit card to a checking account. We had the checking account set up for her anticipating she'll get paid by check or direct deposit. Just found out how old fashion that is. The way she got paid, she could've kept her pay on the debit card, and buy groceries with it, without her pay going through banks. So essence, for her, having a bank account was unnecessary.

And if you been following developments in other parts of the world, some countries have progressed beyond cash and bank accounts, and use smart phones for all transaction, such as paying for taxi rides, buying food from street vendors. 

Based on your narrative, they sound to be good tenants that'll stay for a while. I would gladly keep them. A lot of people don't speak English and get paid off the books. They seem frugal enough, which is good, to not have a computer if they don't have a need for it.

As to tenants that paid all by cash, I haven't had one of those for a while, but I asked him to buy a postal money order and pay me that way. It could still be done, so not having a bank account is no issue. That's simple enough for them to understand and do. I don't take cash either, and the money order is the receipt.

That is definitely going to be a challenge. I was always told that when you own a business (which whether you know it or not you having a rental property is a business) you have to have policies and procedures and structure followed. It stops your business  from being in chaos and also stops your business from getting into legal hot water. Never change your business model for the person, it weakens your processes and will ultimately cause failure. We have had low income homes in the past and we had tenants that had this same situation. What was interesting is that when we stated that we do not accept cash payments and any payment not paid thru online services was going to have a $25 service charge for processing their payment.. Shockingly they learned ALL how to pay online.. it was that simple, we thought and over thought what could happen how we handle it what exceptions we make etc.... Then we said F-It and implemented it and they complied.. I would go with what you process and business model is and do not deviate. Either they teach you or you teach them its really that simple.

Now on a legal standpoint if you allow one tenant and not others to do this as you buy more properties it can be construed as discrimination because one is hispanic and the other is African American.. now even though you were doing a favor you are wrapped up in legal battle justifying you process. And the only thing they are going want to see where you have written.

Again just not worth the hassle, in my opinion

I'm going to throw in something different from the rest.... one of the best things you can have as a rental property is solid-paying long-term tenants. Period. Why in the world would you get rid of proven tenants, who are even so motivated to jump $350 on their rent? I'd give anything to have those tenants in my property!

Why would them not having a computer affect you doing background checks and such? Do it through a service. Why would you need them to fill out an application? Background/credit check...I mean, maybe, but they already live there. Just check their income verification, if anything. In my opinion. All the rest is for new tenants. If you just want to ensure they are decent people, then...okay. But, seriously, long-term tenants. 

I see absolutely no reason to kick them out. And I agree about the risk of discrimination on your part. I'm not even sure I see your reasoning as being overly legit...

@Ali Boone said it better than I did. I done rentals for nearly 40 years, and for 30 of those 40, the issue of computers for tenants never came up.

Through the years, I tell people who tells me they don't have a bank account to just get me a money order, telling them I don't want cash. The real reason for that is my wife and I had busy W2 jobs and we sometimes don't get to the bank for a week or two and we don't want to keep that much cash around. We don't tell tenants that.

And if a tenant paid well for seven years and have no problem with a $350/month increase, that's great. You can't get tenants better than that. When I was a kid, I help out at my dad's business, and a customer gives me a $1.00 tip every time he comes, which is every week, and a $5.00 tip around the holidays. That was in the 60's and my first job paid $1.25/hour. Ask my dad what this guy did and I'm told he sells hot dogs from a cart. I said "he could make that much"? I'm told that not only that, he bought a newly built house down the street, a duplex for $70K all cash in 1970, because back then people like him can't get a bank mortgage. The guy also has trouble with English, but for me a $5.00 tip is a $5.00 tip.

Unfortunately, people this hot dog vendor would have trouble renting apartments.

@Ben Kirchner Have you been given any indication that they can afford the increased rent? If not, I would be hesitant signing them to a 18 month lease. Start month to month and let them prove themselves. 

First if you think market rent is 1200 charge them 1200, why would you choose to supplement their rent out of your own pocket to the tune of $100/month.

Second do not provide them a term lease. Inherited tenants should never be on a term lease unless it comes with the purchase. If they are in fact good long term tenants they should already be on M2M and that is the only type of lease you should ever be offering them. There is no reason to give up control of your own property to tenants by allowing them a term lease.

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