I'm considering putting an offer to a condo in Indianapolis as an out of state buy and holder... everything was looking VERY good until I learn the owner has no lease agreement with the tenants currently living there which appears to be some kind of roommate situation. My immediate thoughts are how on earth could I even enforce the rent paid and the potential nightmare it might be if they refuse to move out.
Im thinking I should insist on the owner getting a transferable contract signed by all parties before closing otherwise I walk away. Any thoughts on this? thanks
Rental Property Investor · Charlotte, NC · Member since 2018 · 82 posts · 123 votes
7y
This is not uncommon. Just talk to an attorney because you will likely have eviction rights to the extent that they do not pay after close, but the attorney will be able to ensure it's done in the right way. The seller is unlikely to execute a lease, since the seller would be stuck in it if you do not close. It's probably not in your best interest either, since you don't know what sort of screening the seller has done on the tenant. Easiest way to do this is for you to have the tenants apply for a brand new lease post-close so that you can make the decision yourself.
Rental Property Investor · Charlotte, NC · Member since 2018 · 82 posts · 123 votes
7y
This is not uncommon. Just talk to an attorney because you will likely have eviction rights to the extent that they do not pay after close, but the attorney will be able to ensure it's done in the right way. The seller is unlikely to execute a lease, since the seller would be stuck in it if you do not close. It's probably not in your best interest either, since you don't know what sort of screening the seller has done on the tenant. Easiest way to do this is for you to have the tenants apply for a brand new lease post-close so that you can make the decision yourself.
Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
7y
I recommend asking the owner for his payment records indicating the payment history of the tenants (maybe bank statement showing dates paid, something). I would also check with the HOA and see if they've had any complaints against the tenants. If all checked out, I would make a contractual covenant that the tenants must either vacate before closing and/or sign a lease with a minimum term of x with the lease provided by the buyer. My clients and I have "acquired" most of our tenants through property acquisition without issue. However, we do inspect the properties beforehand tells a lot about the respect they show the unit), obtain payment records, lease and any screening information. I like having cash flow going day 1 but the due diligence is needed to increase the odds that it will still be flowing on day 2.
Property Manager · Chattanooga, TN · Member since 2018 · 179 posts · 92 votes
7y
This is pretty common actually. You can require the property be vacant at closing if you don't want to mess with it, or you can require that the tenant(s) sign a lease once you take ownership or they can move. You'll want to talk to an attorney to discuss potential eviction as well.