Been lurking on the board for a while. I'm under contract on my first investment property in Richmond, KY. It's an older house that has been turned into a duplex and is currently rented for $1000/month. Purchase price was $75k and house needs minimal work. Current tenants are not under a lease which I plan to make them sign when I take over or move out. Local bank is having me put 25% down since the property is multi-family and I'm getting an interest rate at 4.25%. Cash flow numbers look good compared to other properties I've run but I'd love to hear what everyone thinks.
I had this exact situation with one of my properties. You are assuming that the tenants are good ones and that they are paying. I would recommend verify both - do background checks on them, and make sure you have in writing when and how they are paying rent. This will make the lease conversation easier - either you want to keep them there, thus they sign a lease, or ask them to leave in a nice enough way to disincentive them from wrecking the place while they are there. Think - cash for keys, or 60 day notice.
@Tim Burdette Hi Tim, The first property that I bought was a 3 flat that I house hacked. I inherited two tenants that were on MTM leases as they at one point in time were on official leases. I first thought about asking them to sign a year lease right off the bat but decided to keep them on MTM agreements and see how things went. Since I didn't know these tenants, I did not really know what kind of people they were or if they would consistently pay rent on time. I continued the MTM arrangement with them for about 5 months before asking both of them to sign extended leases. One tenant signed an 18 month lease with a built in rent increase and the other signed a 6 month lease to get the timing to end in the spring which they then signed a 12 month lease. Knock on wood to this day, I have not had a major issue with either tenant and neither of them have missed a rent payment.
Unless you're going to substantially raise rent and kick one or both of the tenants out, my personal suggestion would be to let it ride for a few months to see if the tenants are going to work out before deciding to put the current tenants on an extended lease. What happens if they agree to stay then stop paying the 1st or 2nd month? You'll have to go through the eviction process or do what Carter mentioned above and try a cash for keys situation. I personally think you should decide if you like the tenants before asking them to stay.
Thanks for the advice guys. I think I will get to know these tenants before committing to them for at least 12 months. Ideally I'd like them to leave. Both are smokers and one has a cat, both things I will not be allowing from new tenants.
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