Inhering Tenants in a Buying Rental Property
Most Popular Reply
Real Estate Agent · Austin, TX · Member since 2022 · 33 posts · 33 votes
4yGreat question! My quick tidbit would be to study the lease currently in place very carefully, so that 1. You have an idea of how the previous owners operated, should you decide to renew the lease with the current tenants. 2. Moving forward, you may have a better outlook on how you want to set up your next lease and whether or not you would like to include or remove any current stipulations. Congratulations on your first rental! You will do awesome.
12 Replies
- Rental Property Investor · Cherry Hill, NJ · Member since 2015 · 626 posts · 495 votes4y
Get an estoppel agreement
- Real Estate Agent · Austin, TX · Member since 2022 · 33 posts · 33 votes4y
Great question! My quick tidbit would be to study the lease currently in place very carefully, so that 1. You have an idea of how the previous owners operated, should you decide to renew the lease with the current tenants. 2. Moving forward, you may have a better outlook on how you want to set up your next lease and whether or not you would like to include or remove any current stipulations. Congratulations on your first rental! You will do awesome.
- Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes4y
Quote from @Ruben S.:
Hello everyone! I`m in the process of buying my first rental property with tenants living in the house. What would be the things to do before closing escrow when it comes to inhering tenants in investment property? Any suggestions? Any advices? How can I protect my myself and investment if any legal problem would rise up down the road? Their lease is expiring in 5 months with current property manager.
Thanks in Advance
Congratulations on the property. If the seller has before pictures that can be helpful for if they move out. You will have a better idea if there was any damage done to the property. Make sure you get their security deposit. I agree you will have to look at the lease and decide if you want to keep them or not. Is there rent at market value? Try to make sure you at least give them 30 days' notice for rent increase after their lease is up or see if they are planning on staying.
Quote from @Joe Martella:
Get an estoppel agreement
Thank you for the advice Joe! Since we're only 2 weeks from start we're using an agent on both sides and there is also a property manager on the seller side, who should I give the estoppel agreement to? How should I get it done if this is the right question?
Quote from @Madison Wilson:
Great question! My quick tidbit would be to study the lease currently in place very carefully, so that 1. You have an idea of how the previous owners operated, should you decide to renew the lease with the current tenants. 2. Moving forward, you may have a better outlook on how you want to set up your next lease and whether or not you would like to include or remove any current stipulations. Congratulations on your first rental! You will do awesome.
Thanks Madison for the great response. Going deep into the lease, I requested the agreement thru my agent because the loan lender wanted to confirm the amount being paid on the current lease. However, all we received from the property manager according to my agent was about 3 pages with only one person listed on the lease, how much is being paid every month, when the lease expires and a couple lines telling about Latest fees.
This is a family house so im guessing that theres most be a second part of the lease agreement. My question is, am I allow to get the entire lease to read it over? If so, who should i ask for the lease?
- Thank you for the reply....
Quote from @Steven Foster Wilson:
Quote from @Ruben S.:
Hello everyone! I`m in the process of buying my first rental property with tenants living in the house. What would be the things to do before closing escrow when it comes to inhering tenants in investment property? Any suggestions? Any advices? How can I protect my myself and investment if any legal problem would rise up down the road? Their lease is expiring in 5 months with current property manager.
Thanks in Advance
Congratulations on the property. If the seller has before pictures that can be helpful for if they move out. You will have a better idea if there was any damage done to the property. Make sure you get their security deposit. I agree you will have to look at the lease and decide if you want to keep them or not. Is there rent at market value? Try to make sure you at least give them 30 days' notice for rent increase after their lease is up or see if they are planning on staying.
I don't think there are pictures but I will ask...
of there are none, am I allow to take picture of the property inside and out even if there tenants inside the house, do you know?
- Rental Property Investor · Cherry Hill, NJ · Member since 2015 · 626 posts · 495 votes4yThe estoppel is filled out by the tenant stating what the rent and security deposit was paid. Look it up.
Quote from @Ruben S.:
Quote from @Joe Martella:
Get an estoppel agreement
Thank you for the advice Joe! Since we're only 2 weeks from start we're using an agent on both sides and there is also a property manager on the seller side, who should I give the estoppel agreement to? How should I get it done if this is the right question?
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes4y
Your offer to purchase should include a requirement that the Seller provide all documentation and agree to sign an estoppel certificate (also called estoppel form or agreement). The estoppel is a form filled out by the tenant, then confirmed by the Landlord, then accepted by the Buyer. It's supposed to ensure there are no surprises after closing. For example, I often see Buyers purchase property thinking there is a $1,000 deposit but then the tenant claims it was actually $2,000 because they paid the last month's rent. How will you know? An estoppel certificate fixes this problem.
Some things it may include:
1. Tenant name, contact information, and address
2. Occupancy date
3. Is there a written lease? If so, review it to ensure it matches the estoppel certificate
4. Are there any modifications to the written lease?
5. Are there any verbal agreements or arrangements between the current Landlord and Tenant?
6. Current lease term (expiration date, month-to-month)
7. Current rent rate
8. Rent due date
9. Security deposit amount
You can find plenty of examples by searching for "tenant estoppel certificate doc" or exchange "doc" with "pdf" for more options.
Here is an example and explanation: Sample Estoppel
Some have a lot of legal jargon but this document does not need to be so detailed. This is an important tool for anyone buying a tenant-occupied property.
The DIY Landlord Book4.7243 Reviews - Real Estate Agent · Austin, TX · Member since 2022 · 33 posts · 33 votes4y
Quote from @Ruben S.:
Quote from @Madison Wilson:
Great question! My quick tidbit would be to study the lease currently in place very carefully, so that 1. You have an idea of how the previous owners operated, should you decide to renew the lease with the current tenants. 2. Moving forward, you may have a better outlook on how you want to set up your next lease and whether or not you would like to include or remove any current stipulations. Congratulations on your first rental! You will do awesome.
Thanks Madison for the great response. Going deep into the lease, I requested the agreement thru my agent because the loan lender wanted to confirm the amount being paid on the current lease. However, all we received from the property manager according to my agent was about 3 pages with only one person listed on the lease, how much is being paid every month, when the lease expires and a couple lines telling about Latest fees.
This is a family house so im guessing that theres most be a second part of the lease agreement. My question is, am I allow to get the entire lease to read it over? If so, who should i ask for the lease?
If you are unable to gather the full lease, which you may not be able to in some cases, your agent or property management company (if applicable) should be able to help you draft a new one when the time comes. I would take note when you have access to the property on whether or not it looks or smells of smoke, pets kept on the premises, and any damages you may notice to calculate cost of cleaning fees/replacements. Not limited to-
- -heavily stained carpet
- -holes in the wall due to large nails, improperly hung items, poor drilling, etc.
- -pet damage (caused by chewing or scratching, or urine stains/odors)
- -burn patches or knife cuts on the countertops
- -broken window panes or ripped window screens
- -ripped door hinges, missing door handles or locks
- Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes4y
Quote from @Ruben S.:
Thank you for the reply....Quote from @Steven Foster Wilson:
Quote from @Ruben S.:
Hello everyone! I`m in the process of buying my first rental property with tenants living in the house. What would be the things to do before closing escrow when it comes to inhering tenants in investment property? Any suggestions? Any advices? How can I protect my myself and investment if any legal problem would rise up down the road? Their lease is expiring in 5 months with current property manager.
Thanks in Advance
Congratulations on the property. If the seller has before pictures that can be helpful for if they move out. You will have a better idea if there was any damage done to the property. Make sure you get their security deposit. I agree you will have to look at the lease and decide if you want to keep them or not. Is there rent at market value? Try to make sure you at least give them 30 days' notice for rent increase after their lease is up or see if they are planning on staying.
I don't think there are pictures but I will ask...
of there are none, am I allow to take picture of the property inside and out even if there tenants inside the house, do you know?
Yeah, I have taken videos and pictures just make sure the tenant is not in them.
Quote from @Ruben S.:
Hello everyone! I`m in the process of buying my first rental property with tenants living in the house. What would be the things to do before closing escrow when it comes to inhering tenants in investment property? Any suggestions? Any advices? How can I protect my myself and investment if any legal problem would rise up down the road? Their lease is expiring in 5 months with current property manager.
Thanks in Advance
I have bought and sold about 500 properties all in the Cleveland markets. This is what I do when buying one already occupied. Ask for the rental ledger. Visit the property see how the tenants take care of the place. Also ask for 3 months rent to be escrowed with the title company. As the tenants pay , then we release the rents. This helps avoid inheriting a headache. Lastly you need to hire a PM co,,, all the best
- 4yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
@Ruben S. here's what we share with our clients.
Purchase Agreement Clauses for Buying Tenant-Occupied Rental
If you’re considering buying a tenant occupied rental property, there are some documents you want to acquire for review prior to the closing. Once the closing takes place, the seller has zero incentive to cooperate with supplying them.
Not only do you want to obtain these documents, you also want time to review them well before the closing because unfortunately, there’s always the potential that one, or several, of the documents may be fraudulent.
So, let’s go over each document and why it’s important:
- Lease: this one should be obvious. A lease is a contract between the landlord and tenant. It spells out the monthly rent, when it’s due, the length of the lease (or term), should contain clauses required by the federal and state governments, and much more. Without the lease a buyer has no legal means to collect rent from a tenant or evict them for nonpayment.
- Rent Ledger: this is a record of all tenant charges and payments. It proves if the tenant is current on their rent and their history of whether they’ve paid on time or not. It should also show any security deposit collected, pet fees, cleaning fees etc.
- Tenant Contact Information: current phone number and email address are needed to be able to communicate with tenants.
- Tenant(s) Government Issued ID: typically, this will be a driver’s license to prove the identity of the tenant(s). Without, you have no way of confirming the occupants of the property are those named on the lease. Proper identification of tenants is also needed if you want any chance of having local code enforcement write tickets against the tenant and not the owner.
- Any Legal Action Documents: you’ll definitely want to know if the current landlord is evicting or suing the current tenant(s).
- Tenant(s) Social Security Number: this should have been obtained by the current landlord to do a background check during the application process. A new owner will need it if they want to pursue collection and garnishment for unpaid rent and/or property damages.
- Tenant(s) Employment & Bank Information: additional information useful for garnishment actions to collect unpaid rent and/or property damages. Usually collected as part of the application process.
Fraud: let's not pretend it doesn't happen. Desperate sellers do desperate things. We've seen fake leases and rent ledgers, even fake tenants - who were placed by the seller to backup the fake lease and ledger. So. it's not uncommon to request proof of rent deposits via bank statements and corporate/LLC tax returns. Of course, it can be almost impossible to validate any rents the seller claims they collected in cash. So, sellers can also be asked to sign notarized affidavits personally guaranteeing the validity of leases and ledgers.
So now, let’s get to the clause to include on your purchase agreement to make sure you get all this information in enough time to review it.
Seller(s) agrees to provide the following to the buyer within X days of buyer’s satisfactory inspection, but in any case at least X days before closing: All rental leases, rent ledgers, tenant(s) valid phone numbers and email addresses, rental applications & supporting tenant identification, income and asset information, any documents corresponding to any ongoing legal actions pertaining to the property, leases, service contracts, etc., at least three (3) months of the most recent bank statements for any account(s) rental funds were paid into and any company or corporate tax returns for proof of income and expenses. Seller(s) also agree to sign an affidavit at closing personally guaranteeing the validity of all leases and rent ledgers.
Now that may seem like a lot for a seller to agree to, but if they have nothing to hide, why would they not agree?
As always, none of this should be construed as legal advice and we recommend you consult a real estate attorney.
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