Rental Property Investor · Portland, OR · Member since 2018 · 45 posts · 10 votes
I have just put my first property under contract this morning. I owe a huge thanks to BP and all its members especially @brandonturner and @davidgreene definitely couldn’t have done it without you guys. So now I’m going through the inspection time and I kinda got screwed on their counteroffer cause they accepted my price (299,000 on a 5br/2bth 3000sqft In Portland, OR) but they wanted to cut my inspection time in half from 10 to 5 days. I knew I would be pressed for time but I did it anyway.
So my question is about the current tenants in the house their are five people currently renting rooms for various prices depending on room size. I kinda want these people to stay as long as everything checks out with their background check and credit report. So in Portland they have very strict renters laws favoring the tenants and it can be very expensive to get them out of a residence and what I’m wondering is how to negotiate that to my benefit with this seller. Any comments or tips would be greatly appreciated!!! Thanks everybody
I've only had 2 inherited tenants so take this as you will. But for me, my main concern's are 1 they don't trash the place and 2, they pay on time. If you are buying a place with tenants already in you get to see how they keep their place maintained. i'd think if the place looks good and the rent roll show's they make their payments on time, i wouldn't need to go any farther. I wouldn't feel the need to do a new credit or background check. I"d just look at the original applications the current owner has on file.
If the place isn't being well kept or they are habitual late payers, then i think you'd want to discuss with the seller about a no cause eviction and who's going to be paying the relocation fee. What i would do is go to portlandmaps.com and look for any violations or complaints that have been filed recently on this property. Maybe this is a party house and there have been a ton of noise complaints. If that shows they are trouble tenants, time to discuss the no cause.
There's also market rent to be discussed, but since you didn't mention it, i'm going to assume the current rent is set at a reasonable amount.
I am curious to see how many people here rerun inherited tenants background and credit check.
@Sean Rhodes
Try to get a feeling on them when you walk through. Is everything a dump, or reasonable?
Ask the seller for payment history over the last 12 months, and copies of leases. If they’ve been paying on time, that at least helps.
The benefit of buying an already tenanted house is income on day 1, even if it is a bit of a pain.
Are the tenants on leases? If so, there’s not a real easy way for you to remove them even if you wanted to.
In the sales contract it typically reads as you’re accepting current tenants-did you add anything into the original purchase and sale agreement that would alter that?
You can ask the owner to give notice to some or all of the tenants during the inspection contingency negotiations. If they’re willing to consider that you’ll likely have to let your earnest money go hard and it’s still a long process.
Be careful and have your criteria for “acceptable” tenants ahead of time. You want to make sure you’re not inadvertently targeting a protected class or opening yourself up to claims of doing so.
Your inspection period should be five business days and starts the day after mutual acceptance, so if you timed it right, you could gain extra days there (check the contract). Get those lined up ASAP. A bad tenant in a room rental may cost you a few grand but a bad foundation or sewer can cost you tens of thousands. Don’t lose sight of the long-term by focusing too much on the short-term tenant issue.
To answer your question: You already knew there were tenants in place when you put in your offer, correct? If so, the amount you offered should have reflected that. Since you did not "discover" the tenants during the inspection period, they are not a negotiating point.
@Mathew Wray The tenants are on month to month leases. And also the seller agreed in the initial contract that the tenants were going to be his responsibility. So even though I want the tenants I would like to try to receive a credit at closing for me taking on his responsibility for the tenants. But my only concern is that the seller doesn’t want to talk about the tenants until after the inspection time is done. Won’t it be too late to negotiate once the inspection is done?
You can try to negotiate anything during the inspection period, but once that is up you're relying on their good will to get any credit for handling the tenants. To Jessica's point, you did know they were there ahead of time and that you agreed to accept them. Doesn't mean you can't revisit the issue now, but it may hurt your chances/credibility. Better to me, to just negotiate harder on the facts of the property vs. the subjectivity of the tenants. If you do move beyond the inspection period there may still be some contingencies for you to get out of the deal but your earnest money could also be at risk. Of course, I'm going to tell you to consult your real estate partner on the deal for actual advice on how you should handle this specific situation. It sounds like you're working without an agent so I'd hit up a lawyer for an hour of their time and make sure you've got an out if you so desire one.