I’m super excited. I just put an offer in on a 3/2 for 65,000. There is one thing. The seller has a long term tenant in place. What do I need to do to make this work? I have a lot of questions. I know I have to honor the existing lease. What do I need to look out for? How would the original deposit be handled? Thanks in advance for any input
@Robert Phillips the biggest thing is to make sure the current tenant is really paying. In larger deals I try to get bank records to analyze, but in this sized deal you might just try to feel it out by asking the tenant questions about the rental amount and how they are currently "getting rent to the land lord". I inherited four tenants at my rental property in Lyons, IL, and it was the best thing that ever happened to me! At the same time, I had to evict some tenants at my nine unit in Berwyn last year after purchasing it. Inherited tenants will only be as good as the screening process of the previous owner.
After that, you obviously honor the lease and prepare for any rent raises at leases end. I would imagine the original deposit will be given to you at closing, though you verify all of this with your agent/attorney/title company.
Often biggest issue of inherited tenants, besides having to replace due to poor quality, is that most may be below market rent. This is of course the reason to purchase but means with long term tenants you may be looking at a significant rent increase at end of lease. This is normal and not something to fear.
Put their rent at market and see if they stay or go. If they can afford market rent and stay you are good. If they decide to leave they will need to move down but that is a win for you since obviously you had a tenant that could not afford to live there.
Business wise cleaning house and getting off to a fresh start with rents at market stabilise your investment and immediately rises it's value.
Do not fear operating a efficient business model. In the long term you come out much stronger rather than subsidising tenants rent at the cost of your own income. It's only business, no need to start out operating a not for profit housing business unless that is your intent as a hobby landlord..
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