I came across an interesting Duplex that would appear to be cash flowing well however I was told that both units are occupied but have no lease or deposits. Is this a recipe for disaster? If you were interested how would you proceed?
I just bought a house that had tenants month to month with no lease. I made them sign a new rental agreement with me. The rental agreement is for your protection and their's.
I have taken over many properties with no lease in place. I have had to evict some of the tenants without a lease. Sometimes even evicting John Doe's.
I would of course look to have the tenants sign a new lease with you if possible. If that does not happen & they default on rent payments, evicting them without a lease is still a relatively painless process.
No lease is like letting someone drive your car with no license. Big risk in comparison to letting someone with a license drive it.
You have a tenancy at will situation. They can move out, or you can ask them to move out, at will, as long as you give whatever is the appropriate notice in your state.
I would definitely ask for leases and security deposits if you purchase the building.
On day 1 of closing you meet with them to get a new lease signed. If they are not playing ball, start the eviction process. Since there is no security deposit, be sure to factor (to your analysis of the deal) in at least a few thousand you'll need to keep in reserves for any repairs.
You most definitely want a lease in place!
Minor correction. Technically there is a lease it is just not in writing. This is not likely an issue but it could be.
I would have a contingency of getting a new lease signed as part of the purchase agreement. Also don't forget that you are entitled to receive any deposits the tenants gave the current owner.
@Ned Carey repeat after me, "If it isn't written it isn't true but the converse does not follow." :)
@Mark Alphonse I have to echo what just about everyone here has said, if you proceed promptly get a new lease from your tenants within a few days of purchasing the property. If they won't sign, start the eviction process.
Other CYA Steps
You might want to also send out a survey to each of your tenants to make sure you know the names and contact information of everyone occupying each unit. I'm sure you can Google for something that works for you. Most forms I've seen are 1 page long and folded over like a brochure. This is useful for making sure your records are as accurate as possible from the start.
Require Renters Insurance
Most landlords I know require their tenants to get Renter's Insurance. There are some policies (I forget which ones off the top of my head) that allow you to sue the tenant's insurance company for damage or loss arising from the tenant's misdeeds. Others simply cover the tenant's stuff and no liability from their actions. It usually costs the tenant something like $150 per year for a decent policy. You might consider requiring this in your lease in addition to the security deposit.
Thanks for the replies. I decided to opt out of it because I could see that a lot of maintenance was going to needed soon.
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