Inherited Tenants, Poor Property Condition – How Would You Handle This?

[Cory Brown]

I’m a first-time landlord who recently acquired a rental property that needs a fair amount of work. I inherited the current tenants, and I’m trying to decide the best path forward.

The property is in a C-class area, and the tenants are not maintaining it well. There’s fecal matter in the house and yard, along with trash, clothes, and general clutter throughout the units (not full hoarding, but close). It’s clearly impacting the condition of the property.

At this point, I’m hesitant to put significant money into repairs or upgrades while these tenants are still in place, but I also don’t want to let the property continue to decline.

A few things I’d really appreciate input on:

• Would you try to enforce better standards with the current tenants, or focus on transitioning them out as soon as legally possible?
• For those who’ve dealt with similar situations, is it worth attempting a “reset” (clean-up expectations, inspections, etc.), or is turnover usually the better long-term play?
• I’d like to document the current interior condition—what’s the best way to approach inspections and getting photos while staying compliant?
• The current leases allow multiple pets with no restrictions, and there are no security deposits in place. How would you handle tightening this up going forward?

I’m trying to think about this from a long-term asset perspective and avoid putting good money into a situation that won’t improve.

Appreciate any guidance from those who’ve been through this before.

FWIW - I knew the condition of the property prior to purchasing.  It's not an expensive property, and I bought it for a learning experience prior to more significant purchases.  So my eyes are wide open, I'm just looking for experienced advice

Thanks!

[Drew Sygit]

Quote from @Cory Brown:

I’m a first-time landlord who recently acquired a rental property that needs a fair amount of work. I inherited the current tenants, and I’m trying to decide the best path forward.

The property is in a C-class area, and the tenants are not maintaining it well. There’s fecal matter in the house and yard, along with trash, clothes, and general clutter throughout the units (not full hoarding, but close). It’s clearly impacting the condition of the property.

At this point, I’m hesitant to put significant money into repairs or upgrades while these tenants are still in place, but I also don’t want to let the property continue to decline.

A few things I’d really appreciate input on:

• Would you try to enforce better standards with the current tenants, or focus on transitioning them out as soon as legally possible?
• For those who’ve dealt with similar situations, is it worth attempting a “reset” (clean-up expectations, inspections, etc.), or is turnover usually the better long-term play?
• I’d like to document the current interior condition—what’s the best way to approach inspections and getting photos while staying compliant?
• The current leases allow multiple pets with no restrictions, and there are no security deposits in place. How would you handle tightening this up going forward?

I’m trying to think about this from a long-term asset perspective and avoid putting good money into a situation that won’t improve.

Appreciate any guidance from those who’ve been through this before.

FWIW - I knew the condition of the property prior to purchasing.  It's not an expensive property, and I bought it for a learning experience prior to more significant purchases.  So my eyes are wide open, I'm just looking for experienced advice

Thanks!

Great ideas for you so far from the other responses.

A few BIG questions missing though:

1) How are the tenants paying?
- Are they S8?

We deal with tenants like this all the time. If they're paying on time and you can control long-term damage, it's often logical to keep them.

2) What percent of market rent are the tenants paying?
- Given the condition of the property and the potential cost to renovate, it's logical to accept around 80% of market rent.

3) Why take pics, do a walk-thru video and get the tenants in the video responding to your questions about:
- What repair issues are there?
- How did the damages occur?

You'll want the tenants on video to hold them accountable if anything goes to court!

You state, "my eyes are wide open".

Respectfully, I disagree.
- "put significant money into repairs or upgrades"
- "my plans were to fix the house up for them and give them a nice place to live"
- "had a window guy go out to measure windows for replacement"
- "plan was to keep the tenants in place and re-invest all cash over debt service and utilities into fixing the property"

In our experiences with HUNDREDS of Class C properties & tenants:
- 25% of Class C tenants eventually don't pay, trash the property & you have to evict.
- 25% don't pay, but take decent care of the property, you still have to evict.
- 25% pay relatively on-time, but live like this.
- 25% pay relatively on-time and take decent care of the property.
-- You will lose a lot of money trying to find these tenants.

Why are you thinking of putting in new windows?

With Class C properties you prioritize Health & Safety repairs to avoid lawsuits.

Government Required repairs are #2 priority, check local & state laws for these.

Property Preservation is the next priority, but only to avoid MAJOR issues, usually tied to avoiding long-term damage done by water leaks.

Last is Marketing Impact or Tenant Retention repairs. 
- You're dealing with Tenant Retention as the property is occupied. STOP think about what you would want and only focus on the bare minimum to keep the tenants paying rent! 

Marketing Impact applies on vacant rentals. How many rentals in the area have you looked at to understand what property condition local tenants expect?
- To be profitable, you'll need to fully understand the concept of, "Maintain to the Neighborhood" NOT your personal preferences!

Yes, these tenants are trashing your house. Why do you care about the cosmetic damages already done?

Of course, if the tenants were trashing your freshly rehabbed property, it'd be different.

NOTE: going to assume when you reference fecal matter, you're implying the source is the pets, not the tenants.