So first off I'm very excited. I've been listening to podcasts for a while and reading posts for a while on BP and now I'm finally working on my first deal! I've gotten approved from a lender and now I'm about to put in some offers. 😆
Here's my situation:
The property is a nice two story 3/2 duplex, with separate entrances with two huge nice decks and a garage. It is in a fantastic high end neighborhood just minutes from incredible shopping centers. One unit is occupied by a long term tenant and the previous owner lived in the other unit. The owner of the property unfortunately had a stroke (she is elderly) and now the family is selling the property. The current long term tenant is paying a measly $450/month for the unit. I'm not sure as of now if the tenant was related to the owner or not, but $450/month is extremely low for the area and for that size unit.
So here's my question:
Can I raise his rent when I purchase the property and move in? (I will be house hacking)
On one hand I would feel morally and ethically wrong for kicking him to the curb just because something happened out of his control. But on the other hand, $450/month is way too low. I would just like to know the ethical and legal way of handling this situation before I start throwing out offers.
Any help on this would be great!
First, you can't access the tenant in-place until title transfers.
The length of the existing lease is an issue, but with your new ownership, you can serve notice of non-renewal at lease 60 days prior to the termination date. In a separate cover letter, you might disclose your willingness to renew at the current market rate - - leave a phone number and suggest 'we talk this over'. Mean while you could take the current owner's unit ready for your use.
It's most likely the tenant's unit will need major cleanup - even some refurbishing.
Buying the home you have the right to know the terms of the existing lease or the expired lease incase it has a clause how to go forward after the old lease has expired, month to month, which old rules apply etc. That would be the place to start. If there is no lease be sure to get it in writing from the seller so nothing gets thrown in towards the end. You can also stipulate the property be turned over vacant at closing. This way it's no longer your problem. Good Luck!!
I just spoke with realtor. The owners told him there is no current lease agreement.. So does that mean I should present my lease agreement to him when I close? Or just ask that the property be vacant at closing?
I personally like to start fresh, screen tenants myself. Check their credit check their income and background. If you have the opportunity to get the property vacant I would. If you want to give him a shot and feel better about it, then communicate through the realtor. Ask for a rental application to be filled out. Treat him like a new tenant and let him know what the rent is going to be. This may put him in a position where he may want to leave and it won't be on you. Definitely screen him. Find out his intensions.
Can I get him to fill out an application before we close?
@Nicholas Armstrong Have you seen the tenant occupied unit? What is the condition?
If its not in top condition, I would see about getting the tenant to vacate prior to closing. This gives you a clean start and allows you to update/renovate the property to a condition that you feel puts you in the best position to find good paying qualified tenants.
I personally don't rent units that are at our below my comps. I want my tenants to stay, so I provide a slightly better unit that my comps. So my preference would be to freshen up the units before renting them.
We dont know your financial situation, so you might need that rental income to make your payments. If this is the case, my strategy might not fit your needs.
I might also consider asking the current tenant to temporary move into the existing owner tenant, thus giving you time to renovate their current unit. This will command a better rent (which the current tenant will hopefully see value in) and gets the unit in a better condition. It also allows you time to find all the little things that might be hard to see with a simple work thru. Once the renovation is complete on their unit, they move back in, and you move in to the other unit. You can renovate that as you see fit as you will now be living in it.
@Ken Good comment, I like
Great advice! I looked at the occupied unit yesterday. It is actually more updated than the owners unit. (i.e newer laminate flooring, newer carpet, etc..) But the issue about both units is that both of them were smoked in. ALOT.
On the day of closing I will be ripping up carpet, scrubbing, painting and scraping ceilings. My wife is pregnant and there isn't a chance in Hades she'd step one foot in there until it gets cleaned up.
I'll give different advice from my own experience. Last year I bought a double. Tenants has been year for years. They had a bunch of cats and when I say a bunch I mean clowder. Prior to closing I raised their rent $150. I kept them and updated the other side. It has worked out great. (I currently personally have 4 tenants I inherited and they are awesome) People who've been somewhere a long want to stay there. Put it on your offer you want a lease signed for X dollars prior to closing. If they say no you can ask for another 2k to offset purchase price.
I also own a property management company and we've had good (not perfect) success with long term tenants on a bigger scale.
In my situation his rent would be doubling. Should I still try to give him that option?
You would have to give them a 30 day notice, regardless of whether ya wanted em out or were going to raise the rent.