Unique leasing agreement

[Ben Voogd]

Hey guys! Hope all is well. Looking for some help in a unique situation.

Just closed on a triplex. Seller said they had no lease agreement in place. But said that unit 1 was getting free rent for being the “manager” of the property, collecting rent and doing repairs.

Unit 2 was paying $400 a month

Unit 3 was paying $500 a month

All 3 units paying below market value by a couple hundred dollars.

But unit 1 manager said after paying water and doing repairs each month there was $0 left over. So for 18 months the current owner was making $0 income on this property. Wild..

Anyway Monday I closed. And unit one manager says we have 2 leases in place.

Unit 1 lease - a month to month. No start or end date. And was signed in 2013 for $475 a month. This lease was signed by the owner of the property before the current seller.

Unit 2 - month to month. Signed October 2019 but signed by the manager (family members unit 1 and 2) not by the owner of the property.

Unit 3 - no lease at all. But manager keeps receipts each month.

Trying to figure out what I can do in this situation. Can I create a new lease and charge market value rents or do I have to follow there lease agreement?

This property is in the state of Oregon.

Thanks !

[Nathan Gesner]

The previous Landlord was throwing away a lot of money. While you may recognize that and fare better, I believe you're about to make a similar mistake.

If each unit is "a couple hundred" below market, then it's very likely you have "below market" renters that are not of the quality one would desire. They won't be able to afford market rates. They probably have a sense of ownership that will be difficult to overcome. And they'll collaborate and talk behind your back for as long as they stay there, seeing you as their enemy and the source of all their frustrations in life. You're much better off getting rid of all of them, cleaning the places up, and renting them to new tenants at market rate.

The "manager" that's living for free? If the apartment is worth $500 a month, that means the manager is receiving $6,000 a year to manage two apartments? That's impressive! If you hired a professional and they raised the rents to $700 a month, their management fee would cost you about $2,500 a year and they would actually understand the law, have policies in place, provide services your tenant cannot, and more.

Quit before you hurt yourself. Spend the next month learning about PM and how it works. Search for PM in your area, interview, and hire them. Let them help you get these tenants out, turn the units around, and fill them with qualified, stable tenants that will appreciate the property instead of taking you for a ride. Hiring a professional and getting rid of the "free" manager will increase your return 50 - 75% in the first year. Once things are stable and you've educated yourself on how to manage rentals, then you can consider taking the property back and giving it a whirl.