Acquiring renters with purchase

General Landlording & Rental Properties
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Acquiring renters with purchase

Blake King
Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes

Hello lovely Bigger Pockets community members! I am finally under contract with an awesome house hack duplex! After a year trying to buy north of Seattle we finally got something. 

Here is the problem. Closing is set for June 26th. The tenants lease is not up until August. The tenant has lived at the property for 3 years. They use a back garage / shed and pay $150 under market for rent. I need to raise the rent $150 and take back the garage. There is no move In check list, so I am afraid if I make them unhappy with all these changes and they decide to leave, they could trash the place and just say everything was like that before (when I toured the home they had already blamed some things on someone else).

Is this a valid fear? Any suggestions on what to do?

Thanks everyone!

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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y

@Blake King just get photos of the inside before closing.  If it’s drastically different then those when they move out then you know what happened.

I’d be more worried about their deposit.  Make sure you get that before or at closing 

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  • Mark K.
    Staunton, VA · Member since 2018 · 83 posts · 42 votes
    8y

    I live in Virginia.  I just closed on a triplex last week.  All 3 apartments have tenants.  The law here is that I have to honor the lease from the last landlord.  None of the 3 families meet my screening criteria and all 3 rents are under market value.

    However, there is nothing I can do until their leases are up.

    I plan to incrementally increase the rents over two years to get them up where they should be. 

    1Reply
  • Blake King
    OP
    Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes
    8y

    @Mark K. hmm interesting I’m wondering what will happen in this case being that their lease is up only a month after and I do not believe I have to honor it for Washington’s laws

    0Reply
  • Account Closed
    Property Manager · Grand Rapids, MI · Member since 2018 · 97 posts · 80 votes
    8y

    Hey Blake, congratulations! In my state we also need to honor the lease put in place, definitely see if you can  secure a copy of the current leases and check what they say and what the laws are in your state. In these scenarios, I typically call the tenant and set up a meeting, and then in a very non-threatening way, just ask them what their current plans are as far as if they're hoping to renew at this point, or if they're looking to move soon. Then, calmly explain that you're looking to receive market rent for the apartment, so it will be quite a bit more expensive once their current lease is up. You can then offer them an option of early termination, as it can be easier to find a good place early summer than in August. If they are not open to early termination, you can also do the Cash for Keys strategy. The key thing here is to remain in contact with the current tenant, listen and help them feel understood, it's business and they'll understand that, but you'll have a lot better of a chance of them leaving the property in decent condition if you keep them informed and personally talk with them. The other question is did they just fail to turn in an inventory checklist at move in, or were they not provided with one? If they failed to turn one in, then you are able to assume that the property was in new condition before they moved in and can charge them for any damages at move out, as they failed to report any existing damages. Good luck!

    1Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y

    Here in Florida you must honor the current tenants lease as well.

    0Reply
  • Michael Kistner
    Rental Property Investor · Lodi, CA · Member since 2018 · 206 posts · 115 votes
    8y

    Blake,

     In California and Texas you must honor the lease as well. I’d double check that just to be safe. I’ve also bought multiple properties with tenants that didn’t have move in sheets and just asked to do one once I took over. No one had an issue with it. 

     We also have to give tenants 30 days notice if we’re raising rent less than $100 and 60 days notice if we raise it more than $100. 

     Hope this helps and congrats!

    Mike

    1Reply
  • Blake King
    OP
    Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes
    8y

    Thanks everyone this helps a lot. Going to brush up on the state specific laws and the talk with the tenants as suggested! Thanks everyone!

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Blake King I’m guessing you have to honor the lease. It’s only a month so it’s not really a big deal. I had inherited tenants from a place I bought last year. They were fine until the end when they left a lot of trash behind and didn’t pay a months rent. I wouldn’t say they trashed the place, they just didn’t take their broken furniture with them. I would make sure you understand the laws before doing this yourself (although a PM). You could do something illegal and that could get way more painful if you run into a smart tenant
    0Reply
  • Blake King
    OP
    Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes
    8y

    Thanks @Caleb Heimsoth, I figured from the start I had to honor their lease I was more concerned about not having a move in checklist, and the fact that I plan to raise the rent $150 and kick them out of the garage scares me that they could wreck the place because there’s is nice move in checklist. That’s my biggest concern is inheriting a tenant without a move in checklist.

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Blake King just get photos of the inside before closing.  If it’s drastically different then those when they move out then you know what happened.

    I’d be more worried about their deposit.  Make sure you get that before or at closing 

    2Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    8y
    Well you gotta honor that price and you probably want to make money till the lease is up given you just got it . So out of the gate I wouldn’t be in a huge rush to tell them it’s going up especially since your at 150$ difference . Vacancies aren’t cheap and they may turn out to be workable tenants if you incrementally raise it . Do your homework and be sure you can actually get that extra 150 in rent . You may actually dump a somewhat lousy tenant for a much worse one in the end .
    0Reply
  • Blake King
    OP
    Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes
    8y

    Very true @Dennis M., the market could support probably 250$ more based on my research (only 2, 2 bed houses for rent in the whole city, and they are going for 200$ more than my proposed $150 more price.) but vacancies are expensive and having them been there 3 years they must be decent, just some bad habits from previous landlords 

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  • Nicole A.Pro Member
    Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
    8y

    What about similar rentals close to your property rather than looking at the whole city? Those are the best ones to truly compare your market rate.

    Like others said, you must honor a lease so you can't change or end it before then. If you wanted them to move early, you *could* offer "cash for keys" (another topic you can search on here), but they're not required to take that offer.

    0Reply
  • Jim Cummings
    Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes
    8y

    @Blake King. Vacancies are expensive. As you don't say what the current rent is - look at what you're holding (loss rent) costs are for one month vacancy. For simplicity purposes assume the monthly rent is $1200 and you plan to raise rent to $1350. It would take you approx 13.5 Months to overcome the loss of one month rent PLUS you will moist definitely have some fix-up / make ready expenses if these folks move out. 

    Tenants have been there for 3 years, so most likely pay and PAY ON TIME  - big Positive factor. After meeting with tenants, decide if you want to KEEP them, if so, increase the rent incrementally.   

    2Reply
  • Blake King
    OP
    Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes
    8y

    @Jim Cummings wow that’s a compelling number. Thank you for bringing that to my attention. Rents are currently 1050 and I plan to raise them to 1200. The other problem is there is a garage / shed in the backyard the renter lets her fiancée store his tools in, and I am going to live in the other unit so I want the garage myself, and could see them pushing back on this. I think the best approach is Just going to be sitting down and being as nice as I can about it. As their lease is over Next month I think it would Be good to lock them into a year since a 6 month would leave it ending in the winter, is thins smart or not since I do I not know if they are good tenants? 

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  • Jim Cummings
    Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes
    8y

    @Blake King. Tenants have been there for 3 years - so they obviously like the place. Did you get any rent payment history / scuttlebutt from previous owner or PM about them. 

    Regardless, when you meet with them you will form an opinion; are they pleasant, seem easy to deal with, do they keep the place in good order, etc, etc. It's a value judgement. 

    Ask what their plans are - do they want to stay or go. If it's true - the rent is $200 below market - tell them and SHOW them the facts!  If they want to renew, renew the Lease at an additional $50 / Month. They will be happy you didn't raise the rent more, and if they renew for an additional year - you've just made $600.  

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    8y

    You need to honor the lease you bought.


    0Reply
  • Dick RosenPro Member
    Property Manager · Gilbert, AZ · Member since 2009 · 1k+ posts · 451 votes
    8y

    First off you can't just raise the rent you have to honor their existing contract. I would offer them a new lease with the new rates and terms to be effective when the current lease expires, they may accept, they may move on.

    0Reply
  • Jason Ray Richardson
    Rental Property Investor · Brookhaven, MS · Member since 2017 · 186 posts · 108 votes
    8y
    Originally posted by @Jim Cummings:

    @Blake King. Tenants have been there for 3 years - so they obviously like the place. Did you get any rent payment history / scuttlebutt from previous owner or PM about them. 

    Regardless, when you meet with them you will form an opinion; are they pleasant, seem easy to deal with, do they keep the place in good order, etc, etc. It's a value judgement. 

    Ask what their plans are - do they want to stay or go. If it's true - the rent is $200 below market - tell them and SHOW them the facts!  If they want to renew, renew the Lease at an additional $50 / Month. They will be happy you didn't raise the rent more, and if they renew for an additional year - you've just made $600.  

     Several of my rentals have had existing renters in them already. I've been fortunate that they were good ones, but they were all paying under market rent. One 1 went up by 200 a month, the others 25 and 50. I did based on my gut feelings and also what the former owners said about them, the ones I went up by 200 called on everything and the ones I went up less on were low maintenance. So far so good. But in all those cases they were operating on no lease or expired leases.

    1Reply
  • Shiva Bhaskar
    Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes
    8y

    As others have noted, you likely need to honor the lease. I'd try to treat them with respect when it comes to ending of lease/rent increase, make your offer, see how they react.

    Is it possible they'll act in an inconsiderate way when they move out even if you do so? Yes, of course. But on average, unless you are dealing with a warzone property or really terrible people, I think if you are honest with folks, tell them what your new plan is, and wish them well, you'll usually get things back OK. I recently bought a place with tenants in place, they decided to move on at end of lease, and everything worked out well. 

    0Reply
  • Blake King
    OP
    Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes
    8y

    Thanks everyone! In Washington I do need to honor the lease, it’s only one More month that was never my concern jjst not having the move in checklist :) thanks everyone! I’m going to go with the friendly approach :)

    0Reply
  • Alex P.
    Investor · Longview, WA · Member since 2015 · 94 posts · 176 votes
    8y
    Hey Blake, not having a move in checklist in Washington means you will need to return the security deposit in full when they move out of the property regardless of the condition of the unit. So yes your worries are valid, I would try to be as cordial as possible.
    1Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    8y

    As someone said above, do a walk through of the home on the day you close and use that as a condition report. Try to have the tenant there with you, and have them sign off on it, too.

    This is the condition you purchased the home in, so that is what you can go off of when deciding to charge for any damage during the move out. Doing this with the tenant present shows them you care about the property, and gives them a heads up that if they cause any damage, you will be charging them for it. Frame it as a service to them - ask if anything needs repair/rehab. 

    [email protected]Podcast Guest on Show #261
    BiggerPockets
    2Reply
  • Blake King
    OP
    Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes
    8y

    Thank you @Alex P., I will see what I can do with the seller with that in mind! 

    0Reply
  • Blake King
    OP
    Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes
    8y

    @Mindy Jensen thank you for the reply! That is smart to have them there and sign off, whether legally binding or not showing them I am doing this will plant a seed in the back of their mind and cause them to second guess if they were to trash it. I am sure they do not know the law either!

    0Reply
  • Peter M.
    Rental Property Investor · DFW, TX · Member since 2013 · 953 posts · 910 votes
    8y

    Something for future reference may be to include a provision in the lease that if they do not provide the Inventory and condition form within x number of days the unit is considered free of defects. Now as per @Alex P. comment, that may not be allowed in Washington so check the property code before doing it. 

    For now try to be cordial but firm and raise the rents as allowed by law. They may just move on on their own rather than pay a higher rent. Trashing the unit is always a risk no matter the tenant or previous living situation.  If they trash your unit you have judicial remedies even if you are required to return the security deposit but it will take time, money, and you will probably never recover damages from people who would do that type of thing. Good luck

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