Buying 5-unit apartment, do I have to keep the tenants (no lease)

General Landlording & Rental Properties
7yFollow

Buying 5-unit apartment, do I have to keep the tenants (no lease)

Matt Waggoner
Member since 2018 · 7 posts · 2 votes

Hi all...

I am an investor in Illinois (Rockford Area) and am considering a 5 family apartment.  None of the tenants have leases and all but one have been there 4 years plus.  The current owner bought it 35 years ago and has done the bare minimum to make it habitable.  
We walked each apartment today and all but one were ok.  One was completely trashed.  When I say trashed, I mean it looks like a crack house in the basement (and might be for all i know.) See pic below.  Anyway, as it sits now, the property cash-flows pretty well.

At the minimum, all units need windows and doors. One unit need major renovation.


My Choices as I see them:

1.  Buy the place, raise all the rents to market rates (they are well below, but so is the condition of the apartments) and wait for them all to move out.  Renovate and install new tenants.

2.  Evict for health reasons the one tenant.

I asked myself, "if the place was vacant, would I buy it?"  The answer I came up with was, yes. 

Any advice please!!!

Thanks!

Matt

1Reply
45 views

Most Popular Reply

Craig Wilcox
Investor · TN · Member since 2014 · 508 posts · 167 votes
7y

If there is no written lease, Illinois considers it a month to month tenancy and requires 30 days notice. I would suggest that you make the purchase of the property contingent on the trashed unit being vacant. Once you renovate and fill it at market rent you can move on to others. 

4Reply
See this reply in the discussion

8 Replies

Jump to latestLatest
  • Cathy Svercl
    Rental Property Investor · Clearwater, FL · Member since 2013 · 125 posts · 55 votes
    7y

    are you financially prepared to empty the place out, fix it up, and then get new tenants?

    otherwise, i would fix up the junky apartment (the other tenants and your neighbors will thank you).  are the other tenants good tenants?  raising the rents will probably force everyone out.  how merciful do you want to be (allow them 30 days or a few months)? - it's usually 15-day notification for month-to-month renters, but check locally.  and ask everyone to fill out a new Rental Application for the new Landlord.

    1Reply
  • Craig Wilcox
    Investor · TN · Member since 2014 · 508 posts · 167 votes
    7y

    If there is no written lease, Illinois considers it a month to month tenancy and requires 30 days notice. I would suggest that you make the purchase of the property contingent on the trashed unit being vacant. Once you renovate and fill it at market rent you can move on to others. 

    4Reply
  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    7y

    @Matt Waggoner

    I agree with @Craig Wilcox you can give 30 day notice to end the lease or raise rents since they are on month to month.  Not sure how under market rent it is, but if the building hasn’t been maintained for 35 years that is probably why rents are so low.  I tend to conduct the improvements and then raise the rents.  This provides justification on why rents are increasing.  Of course, you do not need to give a reason for raising rents but seeing the improvements helps.  Not sure if the improvements can be done with tenants occupying the units but you should try to keep the income going if at all possible.

    Good Luck. 

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    They are on month-to-month leases so your only requirement is to serve them a 30-day notice and you don't need to give them a reason.

    Get rid of the trashed tenant immediately.

    All the others would have to complete an application within five business days of purchase and pass my screening. If they do, they will be bumped up to market rent. If they reject that offer, give them 30 days notice.

    Odds are, these are low-class tenants and they are unlikely to afford market rates. Be prepared for them all to leave, renovate quickly, and get the units filled at market rate.

    The DIY Landlord Book4.7244 Reviews
    WebsiteView Page
    3Reply
  • George SkidisPro Member
    Rental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
    7y

    Ten minutes after closing give a 30 day notice and start the process of removing the pig from their sty. Do not evict the good tenants.

    Determine your new planned rent for all units. Determine an incremental rent increase plan for all remaining residents. Each increase should include the planned upgrades and renovations to each unit. That will let your resident(s) see the additional value you are providing them.

    Within 30 days of closing schedule appointments and meet with each of the good residents. Introduce yourself and tell them your vision. Sell them on staying!

    Before the last day of the month following meeting with your residents give them a 60 day notice of their first incremental rent increase. You could even serve the notice when meeting with the residents. 

    So you serve anywhere between the first and the last day of the month. The 60 days starts tolling or starts being counted on the first day of the next month. Never wait to serve a notice on the fist of the month. It will not start counting until the 1st of the following month.

    Do not offer any resident a new lease unless they are willing to start paying the new planned rent immediately. Let them know that signing a lease puts them on the priority track for upgrades. 

    After the pig sty is renovated show it to everyone of your current residents who did not choose a new lease. Tell them what the new planned rent is and offer it to each of them at the new planned rent. You may have a unit switcher but probably not. This is a symbolic gesture of your good will but also lets them know you are serious in your intentions.

    After the first incremental rent increase you may loose a tenant. Now renovate their unit. Once it is rented, before the last day of that month give the second  60 day notice of your next incremental rent increase. Just like shampoo lather rinse repeat until all units are up to your planned rental rate. 

    Your goal is to stagger the move outs to avoid 100% vacancy. Vacancy can lead to vandalism, theft of copper and other issues best avoided. 

    1Reply
  • George SkidisPro Member
    Rental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
    7y

    Typo on my part 30 days not 60.

    0Reply
  • Matt Waggoner
    OP
    Member since 2018 · 7 posts · 2 votes
    7y

    Thank to everyone!  I have a plan to go forth.  

    0Reply
  • Michael Van
    Investor · Chicago, IL · Member since 2018 · 46 posts · 55 votes
    7y

    Definitely some great advice here. Thank you everyone for sharing. I love reading the posts and the community involved. 

    If anyone by any chance knows anyone interested in the Aurora Illinois market I may have a portfolio of SFR houses being sold soon. Please pass along some names if possible!

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free