My husband and I just bought our first rental property in Lehi, Utah, thanks to a lot of the tips, tricks, and courage from you fellow BPers & these forums. The townhouse that we purchased had the option to come with the tenant, which was especially exciting since we are out of state, and didn't have to find another one. However, now that we have an accepted offer, we are concerned about a few things:
- Before we put in an offer in on the house, we told the seller's agent to let the tenants know that we would be raising the rent from $1250 to 1350, which is market value for the area. It was never communicated to our agent until after the offer was accepted that the tenant is not happy with the new rent price and may move out ASAP.
- The sellers agent also told us only now that the tenant has been difficult to work with on scheduling showings and now the inspection, even though they already knew that the house was being sold.
- Then, the sellers agent asked us if we would be interested in using their own property management's service.
I don't have any specific questions, but want to get anyone else's take on whether this is a suspicious situation, either with the tenant or with the sellers agent.
For what it's worth, our agent will be present for the inspection tomorrow (Tues) morning, and we have asked her to get a feel for the tenants, since they may be present.
Thanks in advance for your thoughts!
Jessica, Is the tenant lease up the same month that you are closing? Or are they on a month-to-month lease?
You shouldn’t be surprised by tenant’s attitude!
What was the rush to raise $100 when you are buying 1st rental and out of state.
@Jessica Chow Why did you want the seller’s agent to communicate a rent-raise to the tenant? You’re still obligated by whatever lease was signed. I don’t know if it’s month-to-month or annual. So here’s what I’m guessing happened:
You told the seller’s agent to spook the tenant -> Seller’s agent spooked tenant -> Tenant is acting like a spooked tenant
At this point, it wouldn’t matter to me what someone else’s opinion on the tenant is. Plan for them not to sign your lease, plan for them to have to adhere to the signed lease (which you should have), plan for turnover/vacancy, and move on with life 👍🏻
@Jessica Chow Congrats on the rental, pulling the trigger on the first one is challenging.
Do you have an estoppel agreement from the tenant and have you compared that to the lease provided by the current owner along with whatever background info they collected from the application? This data, or lack thereof, will tell you a lot about both parties.
Just because the unit comes with a tenant doesn't mean its a good tenant that you want in your unit.
I know the first deal can be like drinking from a fire hose, but if the current tenant leaves it is not that big of a deal. You can ask your current agent, if you trust them, to show the unit on a weekend for a few hundred bucks and run the advertising yourself.
Thanks everyone for the support and feedback! I think I'm just a bit jumpy because it's our first property, so your comment have been VERY helpful in calming my nerves.
@Dennis Williams and @Bill F. - Confirming that the tenant is on month-to-month lease.
@Sai T. - We know what we need rent to be at to be cash flow positive, and also what it would rent for if the house did NOT come with a tenant. We thought by keeping tenant, we would save on marketing materials and whatever vacancy costs while we get a new tenant in, but at the end of the day, we're fine to put a new tenant in.
Why are you dealing with the sellers agent and not your own? That is a negotiation disadvantage.
I agree that raising rent right away was not a good move because if it takes a month to fill the unit, it will take over 1 year at the increased rent to break even and that isn't including any turnover costs. You should have ran the numbers with the rent at 1250 and only offered based on that, any higher rents are just extra icing on the cake.
If $100 is the difference between you being cash flow negative and positive, you are going to be in for a rude awakening. That $100 is going to be eaten up rather quickly in things you didn't consider. When I was closing on my first property all the numbers indicated that it would be $2,300 cash flow positive per month after PITI and management. 11 months later, and I FINALLY cash flowed on the property! Vacancies, inspections, pest control, repairs, maintenance, appliances, poor management, Section 8 abatements, and other things gobbled up my cash flow and caused me to have to empty my savings account just to keep up with things.
@Jessica Chow @Samantha Klein is right. If the numbers don't work at 1250 your offer was to high. You should not have to raise rent to make it work. You are also bound by the current lease. If its M2M than you probably will have a vacancy right off the bat. Be sure to get an Estopple agreement and I would be looking for a pm right away. I have 9 units out of state. I always locate a manager before I look for a property. proper management should be in place on the day of closing. RR
I would not use the seller's PM. Start looking for a PM company. In fact post in a new thread for BP recommendations for that area.
Also, depending on how long the tenant has been there. The area maybe 1350, but if the tenant is for 2+ years or more and it has not been refresh, it might of been prudent to go with the 1250 for a few months.
Even better for more months to get it to a better renting cycle or out of the winter timeline.
Most important.......congrats to you and your husband on your first of many properties !
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