To Keep an inherited tenant or ask seller to remove?

11 Replies

We're looking at purchasing a SFH in our area, and it currently rents for $650, but market rents are $850-900 in the area. The house looks to be in decent shape, but there does seem to be some cosmetic items to be fixed.

The sellers want to close quickly and want to know if we plan to keep the tenant or ask the seller to give them notice to leave.  I don't have any information on the tenant other than they "might" pay more in rent.  The sellers want us to have a meeting with the tenant to see if we would keep them. 

What questions should I ask or things should I consider if I think about keeping the tenant?  Some things I'm thinking: 

  • How long have they been a tenant? 
  • What was the screening process?  Is there a background check?
  • Do they pay timely - every month? 
  • Who pays utilities? 
  • Who does yard maintenance? 
  • Do they have pets ?
  • Do they smoke? 
  • What are the lease terms?  (I've read elsewhere that month-to-month is what I would wish for, so I could remove them myself if need be.)
  • Last, since it's fall, is it better to keep a decent tenant at well below market through the winter and then remove next year during a more favorable leasing season (assuming lease terms allow for this)?

I'm leaning towards telling the seller to ask the tenant to leave so we have a clean slate, but I don't want to shoot myself in the foot either.  This will be my first rental.  Thanks!

@Alicia Gates Everyone has a different plan. I’d prefer not to keep a tenant if I can help it. I don’t care what questions you ask - they have already been trained by that previous landlord. Regarding “cosmetic” issues - I would not put too much thought into this. If the current tenant is already there, they are living with whatever defects exist. Now, if there are leaks, black mold in tub, outlets rattling in the wall, I care about those things as they will cause you the most potential damage and most service calls.

There are too many factors involved to give you a definitive answer. However, when the tenant is that far below market rate, my initial recommendation is to have the Seller get rid of the tenant 7 - 14 days prior to closing. This gives a little extra time in case the tenant is running late and allows you the opportunity to inspect it vacant before closing.

This not only gets rid of a potential problem, it allows you to choose your own tenant that has been screened properly and can then be trained to your lease and policies.

Most leases if the subject tennent is on  a lease will survive the transfer of ownership so you may not have a choice as to whether to keep the tennent or not . Also be careful if you have an aged tennent such as a senior citizen because in a way they are protected by law. I would say depends on your state laws. 

If however the tenent can be gotten rid of by the existing owner I would ask if it is possible to be delivered an empty building, go in, and do your repairs, and then find your own tennent, and rent to them on your own terms.

@Alicia Gates have the tenants fill out an estoppel cert if they are staying it asks the basic questions. I would move them out unless I met them and new they had no issues. The landlord might be selling to get away from an problem tenant. That was my first deal. Eviction and angry tenants destroyed my house costing me $12,000 in repairs I could never recover.

It sounds like the general consensus is to try to have the tenant removed before purchasing the home.  Right now our offer states that we're reserving the right to make the final decision on keeping or not keeping the tenant, and if we choose not to that the seller has to remove the tenant before we can close.  Which is of course what's holding up them accepting our offer. 

@Janett Lewis an Estopple Cert is a great idea!  I was just learning about that last night after making this post, so should I keep them, I will definitely do that. 

My fear right now is that it seems like the sellers are anxious to close soon, and we're in a very hot market.  On the one hand I would hate to lose the house because of the time needed for the seller to remove the tenant, but on the other hand, I don't want to inherit someone who could cause significant damage to the house!  I think our market is hot enough (both for sellers and renters), that I don't think we would have an issue getting it rented, even at this odd time of the year.  

I sent my agent a list of questions to find out more about the tenant before I make my final decision.  At our offer price, even at $650 we're almost hitting the 1% rule, so if they take care of the property like it appears and I can slowly bring them to market rent (or even close the gap by 50%, maybe through 6 month increases of 10% each time), they may be worth keeping.  The estopple cert is a must, and I'd want to run my own background check, too.  Right now I'm praying for a month-to-month lease situation, so that at least if I take them on I can kick them out if need be. 

Once I have more info I will post again!

Personally, I think you are putting too much energy in to this. The current tenant is but a blip on the radar in the long term buy and hold game. You are required to honor the current lease- if it's month to month, you'll have to give them appropriate notice to vacate according to your local laws. If you don't even know what the terms of the current lease are, or why the sellers are so eager to get rid of the property quickly, you are putting the cart before the horse.

I've inherited great tenants on many occasions. On a few occasions, I've inherited some less than stellar ones. Ask the problem tenants to leave when you are legally allowed and move on, no big deal. 

Congrats on your first purchase, good luck out there!

Can you go to the house and just meet the tenants? That would be the best way to get a feel and see how they are handling the house. It's worth a drive believe me and get a copy of the lease. Check out local statutes to be sure you do what you need to do as a landlord, in MO we have to send a copy of a deed in the new owners name to the tenant, you don't want your case thrown out on a technicality if the tenant becomes a problem. Aside from that keep us posted!

@Alicia Gates

   If you're under contract, most states usually require the sellers to give you the current lease within a certain number of days. I'd ask your agent to check on that. That should answer most of your questions.

    Depending on when their lease is up you may have to keep them regardless. I've inherited tenants on multiple occasions and it has worked out more times than not.

 But I'd look over their lease before making a decision or not. Good luck!

 - Mike

@Michael Kistner we are not under contract yet, but almost.  The seller came back with a 2 week window in which we can decide if we're going to ask the seller to give a 30 day notice, and then we close, or if we are going to keep the tenant.  During that timeframe they will give us the lease and we will meet with the tenant (thanks @Janett Lewis for that suggestion).  

We would be under contract now if they had put the right address on the counter offer, so hopefully that will happen today!  :)