Buying a property with tenants, Month to month without contract

8 Replies

I'm a few weeks away from the closing table, deal looks good, 3 units on one property, 2 units are leased $450 month(which is below market value) current owners didn't do background checks or sign leases. They have been on a month to month basis, one near 3 yrs. and one just over 1 year. One tenant has an aggressive bred puppy, looks like a pit/boxer cross, & I do not allow pets in my other rentals.

My question to the experts is; can I force the seller to do a background check and get a lease signed before closing or have them vacate, should I go talk to the tenants myself. I'm afraid once I sign on the property I may be locked in a deal with squatters and spend my first few months in the hole working on evictions..

Thanks in advance Matt...

I believe you may have had to submit those requests as contingencies with your offer to purchase the property. Since your offer was already submitted, accepted, and will be closing soon not sure what you can request at this point.

Since the tenants are currently all month to month, based on your closing date, it may not be too late to have the seller give the tenants 30 days notice to move, so when you do close the property is vacant.

I suggest to speak with your Realtor or RE Attorney who is representing you which may the safest way to go.

Is your inspection period over yet? Typically that's the buyer's get-out-of-jail-free card. The process cannot move forward until you remove the inspection contingency. Submit a written notice of failure of inspection, list a few physical defects of the property that you'd like the seller to fix, and add "obtain leases" to the end. If you're using a realtor, he/she should have a standard form for this purpose.

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Get signed estoppel documents from all parties regarding the verbal agreement. I would not ask the seller to obtain a written lease at this point with the tenants, it would complicate the matter. But I certainly would enter into my own signed written rental agreement with all of the tenants as soon as I had possession of the property. Make it a month-to-month rental agreement, which gives you more flexibility if the tenant doesn't work out. I also would not ask the seller to evict the current tenants, as it may cause unnecessary delay.

We bought an 8-plex and two units had pit bulls. Both of those tenants moved on their own soon after we bought the property. Partially because we manage our own properties, set in place new rules, and in the beginning were very "present", unlike the previous owner. We generally have a no pet policy, but did grandfather in the existing pets with the understanding the tenant demonstrate they are a responsible pet owner and follow our rules about pets. The cat owners stayed and the pit bull owners left.

One way to encourage existing tenants to move on their own is to gradually increase their rent. When you buy a new property, you can jump the rent to whatever level you want for the new leasing period. Follow applicable laws for doing so. But if you want to give the tenants a chance to stay and conform to your expectations, be reasonable.

Be fair and firm. Treat the tenants respectfully and give them reasonable time to adjust to your changes or move. The squatter scenario is rare and is less likely to happen in a multiplex. The tenants have been paying rent to the previous owner, yes? They did have a verbal rental agreement, yes? So, they are not squatters.

Don't be fearful, but do be cautious and surely set clear expectations from the beginning. Also, make sure you get security deposits that are adequate to cover your risk. Transfer of the existing security deposits should happen at closing, but if there are no security deposits or they are inadequate, ask for more when you enter into your new rental agreement with the tenants.

Check the legal history of each tenant to make sure you do not have any serious criminals residing there. Rental history and credit history is not necessary to check, as you will know soon enough how they perform as tenants.

All the best to you! Good luck!

Excellent answers above. I agree with Marcia, see if you can get signed estoppels prior to closing; that will serve as evidence of what they've agreed to regarding the unit (rent, deposit amount, who owns what appliances, etc.). Then after you close, have them sign rental agreements with you as the landlord. Make it month to month so you can just serve them a notice to vacate if they don't work out as a tenant.

Originally posted by @Marcia Maynard :
Get signed estoppel documents from all parties regarding the verbal agreement. I would not ask the seller to obtain a written lease at this point with the tenants, it would complicate the matter. But I certainly would enter into my own signed written rental agreement with all of the tenants as soon as I had possession of the property. Make it a month-to-month rental agreement, which gives you more flexibility if the tenant doesn't work out. I also would not ask the seller to evict the current tenants, as it may cause unnecessary delay.

I'm requesting estoppel documents from all parties, Thanks for the great Idea.. The unit with the dogs needs the floor replaced anyway, My wife & I have decided to charge a $25 a month pet fee on top of the rent. Should pay to replace the flooring when they do leave..

Originally posted by @Matt Laird :
I'm requesting estoppel documents from all parties, Thanks for the great Idea.. The unit with the dogs needs the floor replaced anyway, My wife & I have decided to charge a $25 a month pet fee on top of the rent. Should pay to replace the flooring when they do leave..

Sounds like you are on the right track with the estoppel. You might consider raising the security deposit too, especially if it is low. If we accept a pet (we typically do not except when we buy a property that already has one and it is a "responsible" pet owner) we were charging a $200 extra security deposit plus $20 per month extra rent. Later we changed it to $300 extra security and $30 extra rent. I would suggest charging $30 per month per pet because it is more money in your pocket and also is easy explain as "only $1 per day to be able to keep Fido!". Tenants can easily wrap their head around that. Good luck.

Quick follow up, I got the estoppel documents. Closed the deal, Moved one tenant from efficiency A into the 2 bedroom house, he referred a tenant to fill efficiency A and was able to keep the other tenant in the efficiency B.. got 12 month contracts signed & cash flowing.. 30%+ ROI... Pet will stay outside, no additional deposit with $30 month rent increase...