Inherited Tenants - Background check?

Question

Hi All,

I closed on a rental property with tenants in place. They are current and the seller / tenant attested that they were current in all 11 previous months of the lease.

I plan to offer them a new lease, with a relatively minor increase in rent to market (200-250). Only one of the two existing tenants are on the lease. I plan to put them both on it this time as I believe the second person moved in mid-lease.

I am new to landlording. My gut tells me asking for a background check is probably the right answer despite the potential for it to slightly offend them. They were very friendly and want to stay. No real issues other than a pet smell that I'm going to work on addressing with them since it's not 100% their fault. The old owner didn't take care of the property and some of the common areas need some deep cleaning and ventilation. Not to mention the carpet needing a deep cleaning.

Let me know your thoughts and any recommendations on how to approach.

Jim Hudson · Answer

@Kevin Sobilo fair point on the rent. The existing rent is $1,850 and I'd like to go up to $2,050. There should also be a pet fee, and as I mentioned I will have to address a litter box smell that's seemingly absorbed into the whole upstairs unit now and the common area staircase.

From some DD of my own, they both have good jobs and the town is not a low income area. The rents just happen to be $500-750 less in the central CT towns than the coastal towns, despite a high median income (and based on their positions, I'd expect their income to be well above the median).

I also was told they would be okay with rent increases and want to stay. This I take with a grain of salt since this was a message passed along from the listing agent who allegedly wanted us to tell them before closing if we intended on not keeping the tenants so they could have time to look.

Bottom line - I'm okay with vacancy in this case. If they move, I'll renovate their unit and finish the attic to add a second bath and third bedroom. This will not necessarily get me enough rent to pay the expense, but it will allow me to cash out refi. I talked to a few appraisers and they think the added 800 sq ft will get me about 20-25k added value. Plus some other work I'm doing at the moment.

thank you so much for the thoughtful response!

Jim Hudson · Answer

@Ben Fernandez the previous lease was terribly drafted. My new lease is going to be sent to them in a few days and they'll both be on it. I still hesitate on the background check for fear of insulting an otherwise "good" tenant by all indications. But this is a personality flaw of mine that I clearly need to work on building.

Kevin Sobilo · Answer

@Jim Hudson, a couple thoughts:

1. To be clear, you bought a LUXURY or HIGH END rental, correct? You are calling a $200-250/month increase "relatively minor" which would put the rent probably in the $4000-5000 OR MORE range for the increase to be 5% or less.

For a typical tenant paying $1000 or $2000 per month a $200-250 increase is LARGE. Just because you think its "market rent" doesn't mean their income and budget suddenly increases just because you believe the fair rent is that much more. For some tenants that is enough for them to leave and the vacancy/turnover cost could be more costly than any gains you might get from increasing the rent that much at once.

2. The best indicator for success is past performance you experience yourself. You can see how they take care of the rental with your own eyes and have attestations about their timely payments.

If they had an eviction 4 years ago, would you want to non-renew a good paying tenant like this? If they had a criminal conviction would you? If so, why? Real experience with these tenants outweighs every report from the past that you cannot weigh as accurately.

There are always circumstances around every past situation like an eviction. When a tenant is applying you have no better information than the reports so you base the decision on that BUT when the tenant is in place their performance with you as a tenant VASTLY outweighs any reports from their past.

So, no I would not do any tenant screening on an existing tenant that otherwise I would want to keep.

Greg Scott · Answer

If the seller could not provide you any evidence of a background check, I would say it is fair to tell them that and say one of your requirements is to have one.  Because this should have been done in the past, I would not charge them for the background check.

Just be prepared, what you find may cause you additional problems.  You could find that one or both have violent felonies in their past or maybe are in the country illegally.   You could end up with a vacancy.

Ayelet Wiedermann · Answer

@Jim Hudson, I don't know where your property is located, and so how you go about this might depend on the state and the particular laws of the state. Regardless, I'd start by thinking about the end goal. What is the goal of running a background check? Does it align with your goals and objectives?

As an example, in New Jersey, you can't simply end a lease or not renew. And so for the tenant currently on the lease, I'd think through the a purpose in running a background check. For additional tenants however, that are not on the lease, I'd run a background check, because since they weren't on the lease to begin with, you can decide whether to offer them a lease. As long as you have objective requirements (credit score over a certain number, etc.), you can identify whether the new tenant meets those objectives or not, and then make a decision.

Ben Fernandez · Answer

What does the lease say about them moving in new people not on the lease?

Follow your legal document and when you renew, if this isn't addressed, be sure to add it and any other concerns as needed. If it is addressed, hold them accountable and set a expectation on moving forward.

Yes, the background check, eviction and credit history, is normal practice for tenant screenings (after an application is accepted).

Alan Asriants · Answer

If the tenant beforehand paid on time and kept the property in decent condition I don't think there is a really a need to do a background check. That due diligence is what I/my realtor should have done during walkthrough and under contract.

If they showed you cancelled checks or proof of 11 months of timely payments I don't think you should be worried. Unless you think something is fishy, they could be dangerous, etc

Jim Hudson · Answer

@Jorge Vazquez I did get the estoppel letter, that's where the attestation was made that they are and have been current. Agree on the 90 days, but unfortunately I don't have that time period. Their lease is up in 40 days so they want to renew and I don't want to drag it out too far.

Jay Michalec · Answer

I would not do a background check on the existing tenant that is on the lease, but I certainly would for the one who is not. Especially since you know if the property becomes vacant you have the opportunity to do repairs/upgrades and there is room in the market for a rent increase vs what you are getting. I would approach it with the intention to keep them, and let them know that is your intention, however protect yourself from the start.

Inherited Tenants - Background check?

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