I finally made 2 deals... in one week!!!! WOOOHOO!!! :)
However, the one is a duplex and I'm super weary of acquiring someone elses tenants. The place looked clean and taken care of - but if they don't pay, I don't really care how good they take care of it - they need to go. I asked for proof of payment and the current owner gave me Venmo transfers into their bank account (NOT VENMO TRANSFERS TO THEM FROM OTHERS). It sounds like there hasn't been default payments but as of now, thats word of mouth... and their lease is only one page - I asked for better proof but they haven't gotten back with it yet.
Needless to say, one is on a month to month and the other ones lease expires in September 2021. The property is in NJ where I believe there are eviction holds in place. If they're not willing to sign a yearly contract under my terms (the current lease is one page!), can I immediately give notice to vacate to the 'month to month' renter.... and what can I do with the one thats lease expires in September? Honestly, the rents are under FMR and I can def value add to both units to justify the increase in rents - would probably need to find new renters though.
Never acquired renters, please advise... :)
@Erica L. To do it right, best to follow up with an attorney who knows landlord law for your state, and if applicable, city. Most areas require notice in writing 30-60 days in advance. Unfortunately with the halt on evictions, if they refuse to move out there might not be much you can do. So if you're in the due diligence period of your contract still, proceed with caution or you can always cancel the contract if you're not comfortable.
@Tom S. I mean, does this look like consistent proof of payment to you?? IDK if its just the owner that wasn't organized with their finances, their lack of knowledge on how to use technology, or the fact that these tenants might be late once in a while. The dates are so inconsistent.
Am I the only one who asks for proof of on time payments when acquiring tenants?
@Erica L. there are a couple things we've done, and I recommend when you assume tenants.
1. As soon as you close deliver a notification w/ a tenant information form.
a. Ask if they have any outstanding maintenance items.
b. Let the know how and where they can pay rent.
2. For the month to month tenant, if you want them to sign your lease give them 30-45 days to review and sign it along with the option to move if they don't want to sign a lease w/ you.
3. For the tenant w/ an ongoing lease in my experience you have to honor it until it expires. But as the end of that lease draws near, repeat step 2 with this tenant.
4. If you know rents are low, but the investment is worth it I wouldn't walk away from the deal because of the tenants....unless you don't have the cash on hand to cover expenses in case the tenants don't pay.
The possibility of a tenant not paying is always a risk, and since you're inheriting these tenants you can't control / reduce that risk. Develop your screening criteria, and enforce it.
As Tom S. said check your local and State laws to ensure you are compliant.
@Erica L. - it’s a good sign the property seems well maintained. Pride of ownership and tenancy is a very good sign. obviously you will be in a pickle in NJ if your inherited tenants don’t pay rent. However you face the same risk if you lease to new tenants who don’t pay rent. I would ask (perhaps via my attorney) for proof of payment on time for the past 6-12 months (deposits to them in venmo, not withdrawals from venmo to their bank account). I would also ask for a letter (estoppel?) Where the TENANT signs directly with you that they are paying x rent and have Y security deposit parked with the landlord. I would also interview tenants and see if any seem to be pains in the butt. (Why is landlord selling?) I would also ask for the original application / including Ssn info needed for pursuing for a judgement (at closing for any PII) and copies of the leases. Also when you are closing, ask for payment of the rent. So you close on Month Day 2, ask for 30/31 days of rent prorata from both tenants because he’s already received it. (Versus closing on Month Day 29 and being responsible to collect Next Month Day 1 rents. Good luck. Let us know how it goes.
@Natalie Schanne Hi and thanks for such a thorough reply, I really appreciate it. Sounds like you should’ve been my realtor all along! Haha.
I will definitely take everything you’ve said into consideration. However, my husband and I were talking about it last night and if we continue to nit-pick (because I was about the low security deposits, the inability of the current owners to prove the tenants are paying on time, and the need for the tenants to sign a new lease with us), we may just loose the deal. Today is the end of attorney review and our first deposit it due. We’re just going for it and take our chances. One is one a month to month and the others lease is up in September. Worse case scenario, I have to start the eviction process and pay their rent for a couple months. I know in Jersey it can take up to 6 months to go through the eviction process but we’re willing to take the risk. The tenants did have “pride of ownership” and both let us in the day after it was put on the market. Some listings we’ve been waiting for the tenant to allow showing for months! I will also have them sign new leases with me, under my terms, before closing. I’m also doing a shorter than normal lease because if I don’t like them as tenants, I don’t have to renew with them once our lease agreement is complete.
This being said, I know I may be taking a risk. However, as I’ve read and heard plenty of times, at least I’ll gain the experience and thus, learn from it.
Thanks again for your reply. I wish you served south Jersey. I’d love to connect and have someone like you on my team! 😃
@Erica L. - If you want to connect with other engaged local investors, check out SJREIA / South Jersey Real Estate Investor Association (REIA). They're currently doing 8-12 zoom calls a month and will go back to in-person meetings as soon as they can. It's a network of about 900 local real estate investors. One of the best benefits is they have an email listserv where you can ask for advice on a good plumber or roofer to hire or an attorney who can help you with xyz. Getting connected with a good person can save you thousands. I also recently asked a question about buying owner's title insurance during a refinance when I'd previously bought an owner's policy and got two helpful answers from title companies stating that it wasn't needed. (When doing a REFI, you have to buy a new lender's policy each time).
Good odds of a quality tenant if it is maintained. Good odds of a historic good relationship between the tenant and owner as well. Creep on their venmo history, it's like facebook you can see who transferred the money to them if it was public. If it's the amount on the lease from the person on the lease, don't worry about it.
@Erica L. I would familiarize yourself with NJ's anti-eviction statute and the pertinent case law surrounding any issues regarding lease renewals, etc. You say you finalized 2 deals and one is a duplex. If the other is a residential rental and you are not living in it you can be subject to the anti-eviction statute. SFH and Duplexes are exempted unless you hold 3 units or more combined and don't reside there. Tenants may never know- but it can be discovered.
As others have said, the Venmo app will have the transfers on.
I would make sure that you have 1 and a half months security deposit per unit and if not I would want to know why. Many small landlords will start dipping into deposits to make up late or missed rent, regardless of the rules. That will be your 1st indicator.
As to the new leases, what does it entail? Be certain you can change things you intend to change (pets can't be changed to no pets if they have one). And also ask yourself this- Do I need to have a new lease signed now?
If it were me I would hold my cards close to my chest. This is not the time to upset a regular paying tenant whether you like them or not. They will see the writing on the wall and start saving their rent payments for their next residence and their is not a damn thing you can do about it except get yourself in a tizzy for naught.
"The property is in NJ where I believe there are eviction holds in place."
Oh, you believe correctly, but unlike other states ours doesn't end until at least 60 days after the governor says the state of emergency is over. When is that going to be? And it will certainly be extended.
"Worse case scenario, I have to start the eviction process and pay their rent for a couple months. I know in Jersey it can take up to 6 months to go through the eviction process but we’re willing to take the risk."
Six months from when? For what benefit? I cannot stress this enough... take it easy, If they are paying and good tenants- leave it at that until the moratorium is over and the backlog is down.
I speak from the experience of inheriting horrible tenants with some crappy "one page photo-copied-fill in the blanks lease" which each was violating in one way or another.
If everyone is paying then I wouldn't say anything about lease changes, rent increases, non-renewals, etc. until you can enforce them. They have no relationship with you and will not hesitate in keeping their money rather than give it to some stranger who they believe is going to push them out anyway.
Just make sure to set proper expectations for yourself -- you cannot get tenants out in NJ if they don't want to go right now. All you need to do is read the news to see whats happening to some landlords in states like NJ, CA, etc. Like above poster said, we are probably months away from having this lifted. Just yesterday Murphy sounded new alarm bells because of "Covid variants".
No offense, but you're playing with fire by relying on sketchy venmo details. And whats with all those deduction notes, tenants should never be deducting repairs, the landlord should be managing that. If you have an attorney i would make sure they get on top of this ASAP...estoppel agreements, clear documentation, and be fully informed of the anti-eviction and moratorium laws in NJ.
Anyway, hope whatever decision you make works out well for you, update the post if you can, we're curious!
Thanks for your reply. Yes, I decided to make both tenants sign new rental agreements, under my terms and conditions. I didn't raise their rent, didn't ask for more money for the security deposit, and the new lease agreement will start the day of closing. I kept the one unit, that's lease is ending in September, the same - ending in September. If they're good paying tenants until then, I have no problem extending their lease but will definitely increase the rent (as it's below FMR). If they're not good paying tenants, I fulfilled my extent of the lease and will just give them advance notice, their lease is expiring in September and we will not be renewing with them (as we truly wanted to add value for increased returns anyway). However, like I said earlier, if their good paying tenants, I have no problem extending their lease and not renovating the property. Maybe little things here and there to justify the small increase I would be tagging on.
With the month to month, they’ve been there for five years and truly took great care of the place. I will have them sign a 6 month lease. All my lease agreements give the tenants the ability to terminate the agreement early, as long as they give me at least 60 days written notice. With this unit, I will do the same. If I like them and their payments are on time, I’ll renew with them and increase only a small amount (after also doing minor cosmetic repairs). If their not good standing tenants, when their lease expires, I’ll do the same - give them 60 days advance notice in writing that we will not be renewing the lease with them. We will then also renovate that unit and increase rent for future applicants.
They all agreed to sign my new lease after sending them a generic copy I use... this will start the day of closing, when I take over possession.
Wish me luck! I’ll be sure to keep everyone updated. :)