Buying a property with tenants on verbal lease

11 Replies

I currently have a Quadraplex under contract that has existing tenants in all four apartments. The neighborhood is somewhere between a C and a D so I am not confident I am acquiring the best tenants. The only landlord did collect security deposits but only has a verbal lease with these tenants. What I'm wondering is what would you have the tenants sign before buying the property? I found a good estoppel on biggerpockets but it doesn't list important things that would be found in a lease. 

Also, right now one of the tenants is paying significantly below market rents but is taking care of the lawn care and snow removal. I would like to keep this agreement with him, but am curious if anyone has any input on this? Any information you can give me is appreciated, I am not closing for 3 weeks so I still have a little time to get these things taken care of.

I would have the current landlord obtain written leases before closing. The only time you might want to have a verbal lease in a C or D neighborhood is if it is a single family with a tenant that takes exceptional care of the property. And those are extremely rare!!!!! Also you can want to make sure that it is in writing as part of the sales contract that the deposits are transferred to you. You mentioned that one of the tenants gets reduced rent for doing lawn care and snow removal. If the difference is about what you would pay and he is doing a good job I would say leave him in place. If you decide to do it yourself instead how close do you live to the property? I know you can get a lot of snow in Pennsylvania and would it be worth the hassle?

Joe,

I don’t think I would have them sign anything right now except the estoppel agreement. Make sure security deposits are part of the closing. WAit until after you close, find out who you want to keep, and who you don’t, then get leases prepared. 

I too MIGHT keep the tenant in place regarding the lawn and snow, but I always prefer to have this handled professionally by someone who is licensed and insured. Up to you

Originally posted by @Joe Carlile :

I currently have a Quadraplex under contract that has existing tenants in all four apartments. The neighborhood is somewhere between a C and a D so I am not confident I am acquiring the best tenants. ...

So you all of a sudden think that in a crappy area you are going to get wonderful tenants, rather than the crappy ones that seem to be the only tenants that are willing to live there? Good luck.

Are you 100% certain there isnt a lease? Are all the tenants saying its a verbal lease? Or the property manager/owner?

You should probably talk to a real estate attorney. You just want to make sure your covered.

One other thing to keep in mind--if the tenant doing the snow removal doesn't do it, you, the owner, are still responsible for a "slip/fall".

If you want to rid the property of the worst tenants you will want to have them vacated by closing per your contract. This may extend your closing date, but save you many headaches in the future, especially if your in a tenant friendly state.

Originally posted by @Joe Carlile :

I currently have a Quadraplex under contract that has existing tenants in all four apartments. The neighborhood is somewhere between a C and a D so I am not confident I am acquiring the best tenants. The only landlord did collect security deposits but only has a verbal lease with these tenants. What I'm wondering is what would you have the tenants sign before buying the property? I found a good estoppel on biggerpockets but it doesn't list important things that would be found in a lease. 

Also, right now one of the tenants is paying significantly below market rents but is taking care of the lawn care and snow removal. I would like to keep this agreement with him, but am curious if anyone has any input on this? Any information you can give me is appreciated, I am not closing for 3 weeks so I still have a little time to get these things taken care of.

 Everything in writing, if it not in a contract it pretty much barley exists (he said, she said) - NO GOOD  - remember this is a business, treat it as such. You will likely not get a quality lease from a landlord who does verbal agreements, I only see this situation as you taking possession, either putting written lease in place for a defined value and time and or vacating the units and placing new tenants. Having someone on-site who is doing snow removal and lawn care is excellent, in your case, you have to ask, is it worth a concession or is it cheaper to hire someone to perform a professional service - it gets tricky when your tenants are also completing property tasks. 

It's always best to have a written lease which will, at least, lay out who/have many can live there, whether pets are allowed, what rent is, when rent is due, etc..  However, with C and D tenants, after they sign a lease they tend to ignore whatever you have told them (so do some A and B tenants).  Perhaps they pretend to read it but simply sign without having really understood what they have read.

The advantage of a "verbal" lease is that these folks have month to month tenancies; much easier to terminate than yearly leases.  Many landlords prefer the month to month tenancies.

Gail

Even in a C and D class neighborhood, I would never have only a verbal lease...... I would do a M2M......and I would provide the lease..... MY DOCUMENT, not the selling landlord.

Make sure you get the current deposits (if there really are any) in the closing costs etc

The question becomes would you require a signed lease before you close? Depends if you think the current tenants will pass your screening and/or you think you can get better ones in a C or D class area.....good luck with that.....

"What I'm wondering is what would you have the tenants sign before buying the property?"  How about a short-term lease?  5, or 6 months to go into immediate effect the day you acquire the property or they have 30 days to vacate.  A short-tem vs. long term gives you enough time to check them out and know whether they will be tenants you want to keep or not.