Inherited tenants in new duplex

26 Replies

This is such a rookie question but I have to ask it anyway.  I am going to close on a duplex and I just found out the tenants are a month and a half behind in their rent.  It is an estate sale so I am not sure if they are just taking advantage of the situation or if this is typica behavior. 

The other unit is vacant and the current tenant is out of their rental agreement and MTM.  I guess I am nervous to go into this with negative cash flow off the bat.  Should I ask them to leave and just look to fill both units fresh?  Or take the risk for a month and see if they pay me, or would you run for the hills and pass on this all together? 

Any advice or accounts from previous experience will be well received!

Start the eviction proceedings as soon as you are legally able to do so.  Gauge the tenant's response and proceed accordingly. If they pay and get with the program you may want to keep them. If they don't pay you'll be glad you acted quickly to get rid of them.

Hi Kim,

I would not want these people as my tenants.  If this is typical behavior, you don't need it.  If they are just taking advantage of the situation, what else will they take advantage of in the future.

I would tell the seller that they need to be current with rent or (preferably) out of the property before you close.  If you do close on the property prior to getting these people out, I would give them two month's notice to get out.  Legally you probably only have to give them a month, and they probably already realize their days are numbered, so 60 days should be enough time for these problem tenants to be someone else's problem.  

Let us know how it goes,

Kelly

Rule number 1 of landlording is that you can't control if or when the tenants pay, rule number two is that you can't control if and when they leave.

Tenants are not known to be the most proactive bunch, either, so this may not be malicious.  They could just be falling through the cracks because the current owner no longer cares, or is fatigued.

As a new landlord you have an opportunity to retrain your tenant.  I would give them a notice to end the contract as soon as you are legal able to do so right after closing, and let them know that you will tear it up if they pay all rent due by the grace period.  Make it clear that they have to pay to stay (even though they really have all the power) and be really firm about holding them accountable to their side of the M2M agreement.  They will likely either shape up or move out, hopefully.

I just closed on a property with pretty much the same situation. Initially I was going to kick them out, but after talking to them, I realized they didn’t pay because the previous owners did nothing even though there was no hot water. I told them to catch up on rent and they paid it right away. I am still going to screen them as if they are prospective tenants and if there are no red flags, I will keep them.

In your situation, I would talk to the tenants and the seller to find out more info. You can even use this as a bargaining chip to ask for a price reduction.

Get the history of payments from the seller.  They may be selling because the tenants are a pain in the butt and refuse to pay.

Can you make the sale contingent upon them getting the tenant out prior to close? In some states it doesn't take that long, but why take on the added burden of that when the seller should have already started the process.   Month and a half behind is not acceltable.   I would try to push the risk back onto the seller or get a price reduction. 

@Raymond Y.  I just found this out yesterday and I close in two days. Unfortunately, I believe it is to late amend the price at this point-isn’t it?  These tenants mentioned some things were not fixed that they asked for when I went for the inspection.  Nothing major like hot water as you mentioned with your tenants.  I think they were just putting on a show.  

@Michele Fischer Your 101 is right on the money. I can’t control those things and I’ll have to get my head wrapped around that. If the past due rent is to the old owner do I have to collect that from them? Funny they are behind because they asked me several times if they were going to have to move and they didn’t want to because their child attends the school down the street.

@Kelly N. @Ryan Murdock I have a feeling I am going to have to start the eviction process. If the rent isn’t paid on the first I’ll give them the 5 day notice and move forward from there. Thank you both for your feedback! I really appreciate it!

@Kim Herrick , I recently had an estate sale package with - surprise the day of the scheduled closing - one tenant being behind on rent. While the listing agent said that I should close and then evict, I said no. (She said a lot of things, and I hope that she gets to read my “fond” memories of her that come up here and there, as she is a member here. But that’s not important here.) I had the sellers deal with that first - before the closing, which was put off by another couple of weeks.

Check you purchase contract; you should be able to “stall.” This is not something that you did. Have the seller (“estate”) deal with the issue. You don’t want to find out later that there was no written lease, no provision in the lease for heirs (that would be you,) etc. - unless you have a copy of the lease and know it’s real and covers any potential pitfalls. I am talking worse case: good lawyer repping the tenant, “liberal” jurisdiction, etc. - cover yourself while you can, or demand a lower price.

@Raymond Y, I am not a lawyer, but, if you intend to make a credit check as part of your screening of (pre)existing tenants, I am not sure that you should - “credit” had already been extended to them, and they may still be covered by that original contract. Maybe I am overthinking it. Good suggestion on asking the seller to lower the price.

@Al D. GREAT advice!  I finally got a copy of the lease after threatening to not close this week. The lease is basic but clear about non payment and late fees. 

Would you recommend I go back and ask that they get the current tenants paid up or out before closing per the lease?  Were your sellers resistant to your request? I know they obviously complied. My sellers were clearly trying to hide this from me which is frustrating. 

@Kim Herrick I would go back to the seller and do one of the following:

1) Make the seller evict the tenant so you get the property vacant

2) Go back to the seller and ask for a price reduction based on how much you value the time it would take to kick out that tenant. This route might be riskier, but if you have a good PM they should be able to help you evict the tenant.

Depending on your purchase agreement, it might be too late to go back and negotiate, but this situation has definitely changed your numbers a little bit. Doesn't hurt to ask!

I was pretty much the same situation as you are in, except i did not think quick enough about the additional pre-close negotiations mentioned above.

In my case time after closing i dove in to set expectations and address/remediate all concerns from the previous landlord, and since then i haven't had any troubles.

Thank you for the post!

@Kim Herrick , I think that my sellers were very frustrated with me since before this issue came up, like when I realized that the way that how their listing agent described the properties in the package was a night and day difference to the reality of the properties’ condition. The sale still made sense, but at a lower price. I asked for it. They practically felt indignant for being asked for another discount after first giving me a large discount to the original asking price. I kept it “business,” and got what I needed. I practically apologized to them for their agent being a liar.

If you don’t have an agent working only for you (not a dual agent who also represents the seller,) you always should.

If you did not get an inspection (especially if it is a contingency in the contract,) get one. I’ve seen too many people “omit” facts in Disclosures, and later pretend they knew nothing. If you feel that the sellers have lied to you about something already, there may be more that you can’t even begin to imagine to suspect yet.

Raymond Y. ‘s suggestion of either of the two points is correct. I hope that you are not represented by the seller’s agent, and that your contract has the right contingencies in it.

Remember, anything can be negotiated. Unless you are in a hot sellers market (for duplexes,) the seller must consider the possibility of how much they may lose if the property goes back on the market. You are a bird in the hand - they should treat you as if you could fly away at any moment.

@Kim Herrick we just went through this. We bought our first MF which unfortunately included inherited tenants in Kansas City. We initially tried to get the sellers to vacate the units but they didn’t budge. We went through the deal anyways and did the following:
We closed beginning of January. We met with each of them and reviewed their contracts, making sure we were all on the same page. By week 2, if not paid, we gave them their X-day notice to pay or vacate. You’ll get a whole bunch of excuses but just point out the contract you covered with them and play it off as “following previous contract set in place”. Now, we also played the role as PM and not owners, which I’m glad we did as our bottom unit was very demanding in wanting to speak to the “owners” to try to get out of paying. We also offered a cash for keys for all units. Our top unit ended up doing the cash for keys and moved out by month end. Our middle unit paid up their late fees + rent and paid last month right on time now since they understand now that paying rent is a priority. Our bottom unit ended up vacating.
Overall, for being our first time handling bad tenants, I think we did ok. If anything I would of started the pay or evict paperwork from the get go, otherwise just stand your ground but be respectful. Good luck!

@Kim Herrick lots of different advice being given here. 

You are not responsibility to collect the 1.5 months worth of late rent. Let's say you close Friday on the property, you are only owning the property for 5 out of 28 days in February. That works out to 17.8% of February rent due to you. Then March 1, you expect 100% of March rent. I would stop over an talk to the tenant. Let them know the amount they owe you on Friday (whatever 17.8% of a months rent works out to). Then let them know they owe you full rent on March 1st. Let them know you do not have any flexibility and if they are unable to pay, they will need to move out of the property (either of their own doing or through eviction). 

Get a written statement from the seller stating last 6 to 12 months worth of payment history. Payment dates and amounts. Have the seller sign the document certifying how much rent the tenant is behind. You need this for your records to protect yourself in case the tenant claims they paid the old owner.

Make sure the security deposit 100% transfers to you. Some sellers try to "take" the security deposit to satisfy late rents. This isn't how it works. You can only take a security deposit to satisfy rents AFTER the tenant moves out. 

Refuse to close if the seller doesn't transfer the security deposit and provide the letter.

Ultimately if the tenant has not paid rent in 1.5 months, they should have no problem coming up with rent for you. Again, your concern is not satisfying unpaid rent to the old owner. In fact, if the tenant is spending their money paying the old owner, how much do you think will be left for you. 

If you choose to collect money for the old owner, you must send them the money. In other words, there is no incentive for you to collect for the old owner and why should you? They were negligent in dealing with this.

If for some reason the tenant cannot come up with any money, serve them a notice to vacate and then follow through with eviction if necessary. Usually people will just leave when they get a notice to vacate. Worst case the eviction will cost you $1000-2000 in most states. You will of course keep their security deposit in this case, so out of pocket worst case is probably $1500 or so. If the deal still works given that worst case situation, then move ahead.

Originally posted by @Trista Fenner :

Kim Herrick we just went through this. We bought our first MF which unfortunately included inherited tenants in Kansas City. We initially tried to get the sellers to vacate the units but they didn’t budge. We went through the deal anyways and did the following:
We closed beginning of January. We met with each of them and reviewed their contracts, making sure we were all on the same page. By week 2, if not paid, we gave them their X-day notice to pay or vacate. You’ll get a whole bunch of excuses but just point out the contract you covered with them and play it off as “following previous contract set in place”. Now, we also played the role as PM and not owners, which I’m glad we did as our bottom unit was very demanding in wanting to speak to the “owners” to try to get out of paying. We also offered a cash for keys for all units. Our top unit ended up doing the cash for keys and moved out by month end. Our middle unit paid up their late fees + rent and paid last month right on time now since they understand now that paying rent is a priority. Our bottom unit ended up vacating.
Overall, for being our first time handling bad tenants, I think we did ok. If anything I would of started the pay or evict paperwork from the get go, otherwise just stand your ground but be respectful. Good luck!

It is a mistake to lie about owning the property to your tenants. You are demanding honesty from them, so why would you lie to them? It can come back to bite you. I don't even understand the point in hiding the fact you are the owner. My tenants know I am the owner, but that makes no difference in them needing to pay their rent. In fact as the owner, I have more credibility. I tell tenants I have bills due, so they either need to pay or leave so I can get a paying tenant in.

I would also advise against cash for keys. Most tenants leave when being asked to, without the need to bribe them. If they don't leave, then you should always follow legal means to take back the property. Eviction returns legal rights to the property back to you. Cash for keys gives you no legal rights. Most notice to vacates, never even make it to eviction - the tenants just leave. Half the tenants don't even show up for eviction proceedings, so you get a default judgement. 

New landlords are afraid of tenants, but they shouldn't be. This is a business. Tenants need to pay rent, because you have bills to pay. All the excuses and drama are of no concern to a landlord. Pay or leave are the only two options. Evictions are just the next step if a tenant refuses to leave. This is nothing personal to the tenant. It is just like their electric bill, which gets disconnected if they don's pay. Their car gets repossessed if they don't pay. Why would a rental property be any different?

@Joe Splitrock

Our bottom unit tenants were heavy drug users with a history of physical abuse. It seems as though you have developed a great strategy of handling these types of tenants, but with this being our first rental property (and me being a 5'1 female against these two), there's no way I could chance my safety. You're probably right about the cash for keys. I'm sure our top unit would have moved out prior to evictions so we could have changed that route. I'm out $200 for doing the cash for keys but we got them out 2 weeks before the scheduled court date which allowed us to start renovations sooner which worked out perfect for us. Thanks for the advice. We are excited to get our first BRRRR completed and I'm sure we will learn a lot along the way.

Originally posted by @Trista Fenner :

@Joe Splitrock

Our bottom unit tenants were heavy drug users with a history of physical abuse. It seems as though you have developed a great strategy of handling these types of tenants, but with this being our first rental property (and me being a 5'1 female against these two), there's no way I could chance my safety. You're probably right about the cash for keys. I'm sure our top unit would have moved out prior to evictions so we could have changed that route. I'm out $200 for doing the cash for keys but we got them out 2 weeks before the scheduled court date which allowed us to start renovations sooner which worked out perfect for us. Thanks for the advice. We are excited to get our first BRRRR completed and I'm sure we will learn a lot along the way.

I would never have a woman confront multiple male abusive drug users, regardless of height. As far as a great strategy to deal with bad people, relying on the legal system is probably the best way. Not that I always handled it that way. I had one situation where a tenant hit his wife and threw something through a window. I asked him to leave immediately and never come back - it worked. Not the best way to deal with the situation, but I improvised out of anger and it worked out. He could have also attacked me or killed me, so looking back it wasn't the best idea.

Any time illegal activity is involved it is best to post notices on the door and avoid confrontation. Use process servers to serve notice to vacate. Follow the eviction process and that way the sheriff will walk them out. You are 100% correct that your safety is most important. 

I understand that cash for keys can be a quick way out. It is just not usually necessary and it is not a scaleable process that comes with risks. I am not saying it can't work. 

Good luck on your BRRRR.

I would tell them the moment that you take over the building that a new sheriff is in town and if they enjoy living there they better pay up. No excuses, no exceptions. Pay on time or eviction will be the result. If they don't pay at least you have a clear conscious that you didn't throw them out and you also setup yourself to not have to find a tenant if they do pay. 

I would also screen them using the biggerpockets screening tool. I use this for every tenant and it's a good guide. At least if you do this you'll have an idea of what to expect. 

I would ask them to leave and it might be good to offer them cash for keys. Maybe $100 or something like that if they give you the unit back swept clean with no noteworthy damage. Make sure to get the keys before you pay them anything. 

By the way, this is not uncommon with inherited tenants. My experience with inherited tenants is almost completely negative.

I have to agree with @Andrew Syrios that most of my experiences with inherited tenants has been poor. Usually they test you like children, even the good ones. I've had doors slammed in my face and rent a day late just to try and test me. Usually after you show them you don't take any guff though they either toe to line or GTFO. Raising the rent usually flushes out the ones that aren't serious also. 

I know that all comes across tough but when I raise rent I give 6 months notice that it's going to happen so they have time to find another place to go. I also make sure they are WELL aware of my policies on when rent is due. If I've learned anything it's that every boat needs a captain. Either you're going to be the captain and they'll follow you or they'll try and mutiny and you throw their asses overboard 

@Kim Herrick You mention this is an estate sale - is court approval involved? If so, you might not be able to change the price, or rather the heirs won't be able to agree at the closing table that they'll accept less to offset the problem w/o court approval.

If you are still in atty review, as part of their first letter your atty should have sent over that the seller agrees that all tenants are current on their rent. If that's not the case, its an issue for the seller. This one will also depend on which contract you used as well. Your atty should have also request a copy of the leases.

The sellers will resist your request to remove the nonpaying tenants, but depending on the contract and your atty review stipulations they might not have a choice. Also be aware that if you are in atty review, they can toss you out of the contract as well, so just be careful if this is a good deal to not get too greedy. If they had another offer very close to yours and that person is still interested they might just cancel the contract.

Assuming you get the place with the tenants there - I'd approach ignoring their debt, that's not your problem. Give them a chance to start paying if they are under lease, if they don't pay the exact day its due, start the eviction. And if they are MTM, issue the notice of nonrenewal. And double check your closing statement to be sure that the seller has credited you the prorated amount of rent-to-date when you close, the fact that they didn't collect from the tenants isn't your problem.

Not legal advise, just based on experience.

@Kim Herrick It's intimidating starting out and wanting to make they right decision.  Mistakes will be made at some point, and that's part of the learning  process.  You have the capability to evaluate this decision.

I purchased one fully rented property in September and have another under contract that is half rented. Fortunately no one is behind on rent or pays late.  One tenant was in violation of the lease, I worked with them on it.

I will typically give it a couple months to get to know the tenant and see if they will work with you.  If not you have the benefit of M2M leases.

There is always a risk of rocking the boat an losing tenants at the beginning.  If you have a good lease in place, it will make things easier.  The lease I inherited was not a solid lease and I found this out when issues started to arise.

Things to do right away:

1. Estopel Certificate or at least a questionnaire for the tenants.  If you can get payment history, even better.

2. Have the tenants sign a release of information so the property manager can provide (if they choose too) sensitive information on the tenants.

3. Have the lease reviewed.  Things that came up for me are who pays for pest control and in what situations will the tenant be responsible.

4. Be in contact with the tenant and discuss ways to catch them up.  If you come in with an iron fist, your rapport building with tenants will be challenging.

5. Know your market.  That will tell you the rents, and current vacancy rates.

6. What kind of work will be needed for the turnover?  Do you have the budget and reserves?  It is typically easier to perform renovations without tenants in place.

@Kim Herrick Laws vary by state, but in Texas, you would have every right to either delay closing in order to give the seller time to remove the tenants or to walk away from the deal and get your EMD back. I would definitely not want to inherit tenants who have already proven that they won't pay on time. This is the seller's headache to deal with, not yours. If they're MTM like you said, it shouldn't take more than a few weeks to get them out. You said that you got the impression that the tenants were "putting on a show" regarding their excuses for not paying rent. Follow your gut. You don't want these folks. They're going to be a problem. Make the seller deal with it (especially since they purposefully hid it from you) or walk away from the deal.

Best of luck

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