Good CoC but possibly inheriting bad tenants

4 Replies

Guys I need some advice. I am under contract for a 4plex. CoC (taking into account vacancy/cap ex and maintenance) is 16%. It is a class B or C. Schools are 9 and 10s.

One out of the 4 units is being renovated and we will choose the tenant. One unit is being leased out to section 8 and she has lived there for 5 years without problems. The 3rd unit is being leased out to a veteran. The previous owners allowed him to forgo paying rent for a few months when he first moved in “to get him back on his feet.” Now they are collecting an extra $200/month in rent from him. He will have that paid off in 8 months. The 4th unit the tenant pays late every month and has accrued a lot in late fees (previously owners charging $5/day in late charges). But they don’t hold her accountable for the late feedback so she has never paid them (according to the ledger). 

My questions:

1. Should we buy this property given the fact that we may need to evict tenants?The previous landlords have let a lot of things slide

2. The previous owners want to make the veteran sign a new lease that includes paying them their $200/month OR want to keep the security deposits to account for this 

Any advice? 

Thanks guys! 

I always bake in the cost of non-paying inherited tenants and the cost of an eviction or two when I buy an occupied building.  If you only have one tenancy that needs to be terminated you are way ahead of the curve!

I would probably buy it, but make sure you have sufficient reserves to shoulder the lack of rent / renovations / other costs while you stabilize the building.  Expect some negative cash flow at first, but once you get your own tenants in there you'll be in much better shape.

I would also lay down the rules and expectations on the existing tenants from jump, and when their current leases expire, have them sign a lease of your own, with these rules and expectations reiterated.

Good luck!

@Victoria S. inheriting bad tenants is part of the business in the apartment game. I am about to purchase a 19 unit in Berwyn, IL that has several! My recommendation is to always buy the building if it makes sense. Just make sure you have the current owner not renew/change any leases and let all current leases expire once you are under contract. You want the bad tenants on month to month leases so you can get them out as quickly as possible legally. As soon as you take over, let all the tenants know that you will be acting in a more professional manner. You are fair, but won't be making special arrangements. If someone doesn't pay, they don't stay. 

@Victoria S. to me these don't sound like "bad" tenants. In my opinion they sound like they range from "good" to "so-so".

With regard to the veteran paying back old rent, I would negotiate on that. The reason being if you pay the current owner for this while closing the deal. They are paid in full, but there is no guarantee you will collect that back from the current tenant. So, you are assuming the risk.

With the tenant who pays late, is the tenant bad, or was the landlord bad?!? By that I mean, if the landlord had held them accountable, would the tenant have been more diligent in paying on time? Managing tenants is part of the work, perhaps if you hold that tenant accountable, you can bring them from being "so-so" to being a "good" tenant.

@Victoria S. Inheriting idiot loser tenants when buying apartments is completely normal and common to real estate . Most landlords are incompetent pushovers . Do not let that ruin your vision for the property do not be turned off by a couple of stinkers in the building . Those people will be gone in no time and the investment is yours forever to make money on. The biggest thing is lay the law down right off the bat when you get in there and let these people learn there is a new sheriff in town . Late rent and shenanigans will no longer be tolerated or evictions will be handed out