120,000$ duplex under contract but tenant wont get out

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120,000$ duplex under contract but tenant wont get out

Levertis Brock
Member since 2021 · 14 posts · 6 votes

Got 120,000 duplex under contract but I just got news today that tenant won’t move out, my options are lowering the price or pushing closeing til tenants are out. the numbers are amazing on this property we are talking 38% cash on cash rents are 700 for the 3 bedroom and 500 for the 1 bedroom I know I can get the 3 bed to 1,000 and the 1 bed to 700 or 750, which mean I could turn around and sell the house for 170,000 but I plan to keep for the long term, also my mortgage would be 400 something, but I’am worried about the eviction moratorium should I talked them down and deal with the eviction or get out the deal? Because also I don’t know if they will do damage to the property but if I do get it the 1 bedroom would pay my mortgage off every month the seller claims that the eviction moratorium doesn’t stand up in court please send replies

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Joel Calkins
Real Estate Agent · Member since 2020 · 139 posts · 103 votes
5y

The federal court ruled the eviction moratorium to be unconstitutional, I would look more into your specific area to see if you can proceed with this process. For sticky tenants, the easiest thing to do is cash for keys, it's really as simple as putting a dollar amount out and see if they take it and go.

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  • Joel Calkins
    Real Estate Agent · Member since 2020 · 139 posts · 103 votes
    5y

    The federal court ruled the eviction moratorium to be unconstitutional, I would look more into your specific area to see if you can proceed with this process. For sticky tenants, the easiest thing to do is cash for keys, it's really as simple as putting a dollar amount out and see if they take it and go.

    9Reply
  • Ben Riechmann
    Investor · Cleveland Heights, OH · Member since 2017 · 128 posts · 73 votes
    5y

    I agree with Joel.  You can now do evictions, but it may be better to do the carrot instead of the stick to get them out in a quicker fashion.  Offer them money if they get out by a certain time.  Sometimes tenants don't stay to be troublesome but they don't have a lot of other options.  If you offer money and a solution where they don't have an eviction on there record you may be able to get them out.  I have always won evicitions without a lawyer, but I always am happier if I can come up with a deal where I don't go to court and they leave.  If they owe money, add that to rent if they can pay it instead of kicking them out.  Coming from someone who always wins in court, it still takes time to get them out and is a pain in the butt.  It is often better to come up with a mutual beneficial plan.

    5Reply
  • Levertis Brock
    OP
    Member since 2021 · 14 posts · 6 votes
    5y

    @Joel Calkins so you advise that I continue with closing get the sales price lowered and finish the eviction process my self? If I do that then I would probably have to hire a pm company which is ok with me. So you don’t think I should walk away I forgot to mention this is my first deal

    0Reply
  • Levertis Brock
    OP
    Member since 2021 · 14 posts · 6 votes
    5y

    @Ben Riechmann well the current owner offered them 500$ a uhaul, and hotel stay for a couple days and they shot that down. So how much would you buy it for I’am currently paying the 1% rule for it but I was told from my agent that I can get it for a lot lower

    0Reply
  • Tyler Williams
    Dentist · Taylorsville, UT · Member since 2013 · 102 posts · 68 votes
    5y

    @Levertis Brock

    Cash for keys is great.

    We had one like this but the deal was great like yours, so the upfront headache made it pain free in the long run.

    1Reply
  • Levertis Brock
    OP
    Member since 2021 · 14 posts · 6 votes
    5y

    @Tyler Williams how much do you think I should offer them to go?

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    Read your contract as they often say the house has to be delivered in the same condition as when it was viewed meaning if there was a hole in a wall at closing that wasn't there earlier, the seller has to fix it.

    If they were offered $500 and u haul plus a few nights at a hotel, offer them $1K and a u haul.  The other option is an eviction and tell them you'd prefer not to go down that road, but you will.

    3Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    5y

    FYI: the judge ruled the eviction moratorium unconstitutional, but then he turned right around and put a hold on his order while the other side appeals. So nothing has been decided yet.

    You have to decide how far you are willing to go. Will you offer the tenant $1,000? $5,000? What if they turn down all offers and want to stay but don't pay rent? If rent is valued at $750 a month and they can get away with 5-6 months of not paying, that's up to $4,500 in free rent and they don't have to move, so you may need to offer them even more.

    There's good upside to this purchase, but you have to be prepared to do what is necessary to get them out. I personally think cash-for-keys is the wrong way to go and would focus on eviction for non-payment. If it turns out they can justify non-payment because of COVID, then they should be able to apply for assistance and get caught up.

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    Just to clarify further. The federal judge ruled that the CDC exceeded their authority under the Public Health Service Act, stating that act doesn't give them authority. Just to be clear, the eviction moratorium that was ruled unconstitutional, just the CDC authority to issue one. That has no bearing on bans passed by congress, state or local government. Furthermore, as @Nathan Gesner stated, the ruling was put on hold pending appeal. 

    Some states are already disregarding the federal CDC order and proceeding with evictions. They are using other legal rulings as the basis.

    It is also worth pointing out that the these cases challenging the moratorium have taken months and tens of thousands of dollars to fight. So even if you can win the case, depending on location it could be a long costly battle.

    I recommend against "cash for keys", unless it is an extreme situation. Most tenants will leave when served with notice to vacate, so it often unnecessary. There is also risk that the tenant can take the cash and enter back into the property. Eviction is the only legal way to forcibly remove a tenant, so it is always the best route to pursue first. Only consider cash for keys if the eviction is problematic. 

    Let us know where the property is located and we can advise on how easy or hard an eviction would be. Location determines the best advice in this situation.

    5Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    5y

    Build in the cost of an eviction?

    3Reply
  • Dan Maciejewski
    Realtor · PInellas County Largo, FL · Member since 2016 · 902 posts · 810 votes
    5y

    Personally, I would delay the close until they are out.  Does your contract state that the property shall be delivered without that tenant / vacant?  If it does, I would do everything I could to put the impetus on the current owner to get them out before buying!

    Or figure worst-case scenario cost-wise of taking them on.  Then ask for that as a discount in purchase price.  But that's risky -- and unless you have navigated this before, you may not want to deal with this.  Some holdovers put holes in every wall, rip off cabinets, steal appliances, etc.  And if you are not set up to deal with worst-case, you probably will want to get it vacant if at all possible!

    4Reply
  • Jane BlakePro Member
    Gainesville, GA · Member since 2016 · 25 posts · 7 votes
    5y

    @Levertis Brock even if the stay on evictions stands. The moratorium ends on June 30, so if you cannot come to agreement soon, eviction is still an option.

    Don’t walk away from good deal. A year from now you would be great full for a great deal in my opinion. Never does it go as planned 100% of the time.

    Just my take on it.

    Jane Blake

    2Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    5y

    Thoughts:

    1. How much can you get the price down as a result of the house being occupied by (I assume) squatters? That's your delta on eviction costs. Example: if the seller is willing to knock $5k off the price just to be rid of the headache, then you have $5k to use to get them gone.

    2. If you plan on using cash for keys (I hate cash for keys and personally don't see I would ever do it), then use that delta as a massive carrot with a baseball bat behind it. So your pitch to the tenants: "If you are gone by 6/1 (whatever your closing date is), I will give you $5k no strings attached. If you are still there on 6/1 you will get nothing and I will file for eviction that day." Of course, you need to have the $5k to do it, and you should have some kind of contract and a contingency based on you closing on the property.

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    4Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    #1 trending post on BP for ya: https://www.biggerpockets.com/...

    i assume they don't want to move out and are also not paying. have you seen the condition of that unit? hopefully you are in a far friendlier landlord state than CA. i would consult with an attorney and see what your current options are, then see if you can knock the price down accordingly. 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y
    Originally posted by @JD Martin:

    Thoughts:

    1. How much can you get the price down as a result of the house being occupied by (I assume) squatters? That's your delta on eviction costs. Example: if the seller is willing to knock $5k off the price just to be rid of the headache, then you have $5k to use to get them gone.

    2. If you plan on using cash for keys (I hate cash for keys and personally don't see I would ever do it), then use that delta as a massive carrot with a baseball bat behind it. So your pitch to the tenants: "If you are gone by 6/1 (whatever your closing date is), I will give you $5k no strings attached. If you are still there on 6/1 you will get nothing and I will file for eviction that day." Of course, you need to have the $5k to do it, and you should have some kind of contract and a contingency based on you closing on the property.

     I agree on cash for keys. When it is offered, it needs a firm deadline and alternate consequence. Half the "cask for keys" offers people make are met with a no response or the tenant requests more time or more money. Tenants need to understand that the offer is not a negotiation. They also need to understand that the consequence of eviction is:

    1. You owe back rent and attorney fees

    2. It goes on your record, making it hard to rent decent places in the future

    3. We will place you in collections and it will show up on your credit report, making it difficult to get car or home loans. 

    Of course the message is, "take the easy money, why make this hard on yourself". Most the time cash for keys is not needed. People who use it frequently argue, "it works every time". Just because something works doesn't mean it is necessary or the best way to do something. You can open a bottle of beer with a chainsaw, your teeth or a bottle opener. People who use a chain saw or their teeth will say "it works every time". 

    3Reply
  • Andrew West
    Investor · Salt Lake City · Member since 2020 · 46 posts · 46 votes
    5y

    @Levertis Brock looks like plenty of people are weighing in on the main tenant/eviction question, but I wanted to jump in and caution you to double check your numbers. You didn't mention how you're funding the deal, but I'd question the legitimacy of a 38% COC return on a 1% property. Are you doing a low down payment? Have you accurately estimated all other monthly costs beyond your mortgage payment (taxes, insurance, vacancy, repairs, capex, etc.)? I might be missing something, but just a gentle "nudge" to go double check your deal analysis on this. That may even help your decision with whether this one's worth fighting for. Best of luck!

    0Reply
  • Andrew FreedBusiness Member
    Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
    5y

    @Levertis Brock - I agree with some of the recent sentiment. Don't walk away from a solid deal, they are hard to come by in this market. I would recommend doing your math for the cost of an eviction and request a seller credit. A seller credit would be more valuable in the short term as a result of getting cash now to deal with this issue rather than it being encompassed in your mortgage payment. Below is a table showing the benefit. Take the cash and either do a cash for keys or evict, whatever you think makes more sense but whatever you do, definitely keep the deal. 

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    1Reply
  • Randall Weatherall
    Real Estate Agent · Memphis, TN · Member since 2019 · 261 posts · 253 votes
    5y

    Get them down as much as possible (try and really talk it up as an issue and get at least $10-12,500 off), take savings and offer $1,000 and a moving company to actually come in and move their stuff for them - offer one day, no more and be sure they're aware in advance so they can plan.  But, also let them know that a refusal means they'll be evicted and get nothing except a 30-day (or whatever your local laws are but in Memphis, getting tenants out is pretty straightforward and easy).

    0Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    5y

    @Levertis Brock  do not close until out or pay 10k less, Also decent numbers NOT amazing ,,I prefer 850 850 all in PP of 75k 

    Good Luck  

    0Reply
  • Grace A.
    Investor · FL · Member since 2020 · 41 posts · 21 votes
    5y

     Don't think this is your problem to solve. Tell seller you're pushing closing out until seller comes to an agreement w/ tenants on when they'll leave. 

    2Reply
  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    5y

    Did OP ever say what state/city they are in? Would really change my advice on eviction risk.

    0Reply
  • Levertis Brock
    OP
    Member since 2021 · 14 posts · 6 votes
    5y

    @Ronald Rohde Florida,Pensacola I’am also paying all cash

    0Reply
  • Levertis Brock
    OP
    Member since 2021 · 14 posts · 6 votes
    5y

    @Nathan G. There rent is 700 the current seller offered them a pretty good deal 500$ a uhaul and a couple nights stay at a hotel and he even offered to help them move. I I would probably offer them 3,000 to walk away I just signed a addendum today saying closing upon eviction. This sucks cause I am a stock market guy and this is a cash offer and I already sold my stock and got the cash in the bank and on top of everything this is my first time buying a house smh but I still have my head raised high because I know it’s a good deal I could easily sale this house for 170,000 when I get the rents up they only sold to me because I was the only cash offer other offers was way higher than mine

    1Reply
  • Levertis Brock
    OP
    Member since 2021 · 14 posts · 6 votes
    5y

    @Andrew West the house is turn key brand new roof that was put on last year. I got a great deal cause I was the only cash offer and know I know why he wanted the only cash offer because of this tenant this tenant is the reason he is selling he was self managing also I ran my number at where I think I could get rents which is 1,700 I’am a cash buyer so no appraiser and very low closing costs, also I plan to do delayed financing

    0Reply
  • Joe Nam Do
    Washington DC · Member since 2017 · 5 posts · 2 votes
    5y

    I've given cash for keys before to make deals go through for my clients. You have to think about it as a ROI calculation. If you can get the building for $120k and you can turn around and immediately sell it for $170k, that's a big spread. Think of the deadbeats as business partners. You need their cooperation to make this deal go through. Ask them how much they want for them to leave. You'd be surprised how little they'll settle for. Especially when you let them know they will EVENTUALLY have to leave, they will want something out of it. Doesn't have to be cash. Maybe it's a new car. Or furniture for their new place. Or pay off their credit card debt. Be creative! Just get them the heck out of there. Lol

    0Reply
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