Rental Property Investor · Murrysville, PA · Member since 2018 · 12 posts · 1 vote
Hi all,
I would appreciate some advice. Recently got a home under contract with the plan to BRRRR, home has a renter but only a verbal agreement with the current owner. I was wondering how you seasoned investors would handle this situation. My intention was to allow the current renter to stay in place for 3 months, end the lease at which point i would do the rehab. Now I'm wondering if I should keep him month to month and end the "lease" after the first 30 days. Any suggestions would be appreciated.
If you are still in escrow get the tenants to sign a tenant estoppel stating the terms of the lease. Also check with your state law. In California only month to month leases can be verbal. Either way treat them nicely and budget money for an eviction.
The first action I would recommend is find out if they are good tenants. Talk to them, talk to the previous owners (take both with a grain of salt b/c tenants will try and tell you what you want to hear and owners will tell you whatever they have to sell the property). Be there for the inspection and see what state the house is in. Make notes on how clean the tenants are. If you do close on this place with the tenants still in, make sure to conduct a background check and follow all the rules you would for screening new tenants. If everything checks out (unlikely in my opinion), you have to decide when you want to do the renovation.
Do you have enough cash saved up to complete the work now? If not, go month-to-month with these tenants and save up whatever you need to complete the renovation. Good luck.
If you are still in escrow get the tenants to sign a tenant estoppel stating the terms of the lease. Also check with your state law. In California only month to month leases can be verbal. Either way treat them nicely and budget money for an eviction.
Thanks Sean. I have the cash to do the rehab now, I plan to contact the renter this week and work something out with him. I've inspected the house and the place is pretty clean, not a lot of personal items or furnishings in the house. I would like to keep him in place for 60 days on my lease, then move him out do the rehab and get renters in by fall. His rent cash flows now and I don't mind the extra cash coming in for a couple of months until we rehab and refinance.
if your plan is to get rid of him, tell owner you want unit vacant by closing. this shifts the risk from you onto him, since a holdover tenant has to be evicted and if this tenant refuses to leave the eviction is on current owners dime.
I would also request to have the tenant gone by closing. If they aren't then I'd negotiate a lower price.
If you close with the tenant inside, you could do a cash for keys scenario to get them out quick. Otherwise, I'd immediately give them the 30 day and start working the process.
Totally a judgment call on your part based on what you want to do with the property. If he's a good tenant paying market rate, I'd get him on a new 12 month lease. But if you want to rehab to increase rent then give him 30 day notice to vacate and proceed.
This is a situation where you absolutely want an estopple letter signed by both the seller and the tenant, if the tenant is still there when you close. That would outline the terms of the lease - rent, security deposit, property condition at move in, lease end date, lease term and anything else that a lease should cover.