How much to pay tenants to move out

Question

Hello BP,

I am going into a deal where I would be converting a duplex into a single family, renovating, then selling.  One of my problems is I have tenants in one side of the duplex that just signed a 1 year lease with the previous owners.

What would be a competitive offer to have them vacate the property early?  I'm thinking 60 days rent free then an additional 3-4 months rent in a lump sum when the property is vacated.  This amount is roughly what i've got allocated into the budget but am willing to negotiate to get this deal done.

A little background...they are paying below market rent in a generally sought after area (East Nash).  The property is by no means impressive and they could find something much better by paying a bit more each month and still be close to everything.  The father is a cook, the mother doesn't work, and they have a small child.

Any rehabbers or investors experience this in the past?

Kyle J. · Answer

I agree with @Andrew Syrios on both of his points. You can't just "terminate a lease" because you're the new owner as was previously suggested. You generally have to honor it unless the tenant mutually agrees to end it.

I also think your offer is too generous, even if you did budget for it. I especially don't like the part about 60 days free rent because what happens after 60 days if they don't leave? You're still stuck with a tenant you don't want and now you're two months behind schedule.

I'd start by talking with the tenant and explaining your situation and see if you can come up with a mutually agreeable solution. Could be as simple as a full refund of their security deposit and a good reference letter from you to help them in their search for their next home.

Andrew Syrios · Answer

A lease supersedes a sale, so unless there is some provision written in the lease, you couldn't terminate a year lease and would have to negotiate something with the tenant. Talk to an attorney to see what your options are. I think what you're thinking of offering the tenant is too generous though, that's basically 6 months of free rent. One or two months should be where you start I think.

Troy Sheets · Answer

Couldn't agree more with what Kyle and everyone else said. No free rent and if it comes down to paying them to leave, no cash in hand till they've fully vacated, signed a release of possession form and handed over the keys. Then you immediately change the locks.

Good luck and let us know how it goes!

Pari Thiagasundaram · Answer

Matthew,

If I were you, wouldnt give money upfront. Rather see what you can take as a tax write off with valid receipts.

Joe just nailed it down. Give them back their security deposit 100%. Take care of their moving expenses and pay the movers directly. Offer them these and see what they say.

Option 2, add to the first option that you will pay the last month utilities, if they provide you the statement.

If they say no, Option 3, (add to option 2) Pay their fist month rent in the new apartment. And keep in mind, dont be desperate to answer their phone calls/ reply to emails even though you might want them out soon.

Good luck and keep us posted how it goes.

Jeremy Pace · Answer

As the new owner, it would be well within your rights to terminate their lease agreement early as defined by their current lease (60 days usually, but whatever it says in the lease).  If you offer them a buyout, you're giving them all the negotiating power right up front.

Tell them you want to terminate their lease.  Answer their questions, and if they move, great, if they come back and say they want bought out, tell them they can have their security deposit and like, $200 or something.  In the meantime, begin renovating the other 1/2 of the duplex ... don't waste time.

Don't just run in throwing money around, even less-than-smart people will smell blood in the water right away.

Even if you stand to make a fortune in this deal (and I'm hoping you are, since you're willing to torch six months rent to get into this property), don't just give money away for nothing, it's bad practice.

Joe Trometer · Answer

Hey Matthew,

Great suggestions from Jeremy!

I've done this before just being honest.

I introduced myself as the new owner and told them my plans on how many repairs and renovations would be needed and I'll be getting started right away.

I explained my normal working hours starting at 7:am and sometimes past dinner.

Most leases have a 24 hour notice to enter a property / unit for access for repairs... I tell them I may have to enter your home on occasion as allowed in the lease, hope you understand "our" problem here.

I explained that since this would be disruptive for you and your family I'm willing to let you out of your lease early since you will have to move out at the end of your lease anyway, and see what they say.

They just might say they were going to move anyway?  Some renters get attached to their landlords and move just because of the Change in ownership.  Don't know why :-)

I offer to give back full security deposit, for sure.  That's great incentive right up front.

Keep in mind, some renters when moving have to come up with another security deposit to move into their new place,  then wait for the return of their previous security return along with the damage report.

Might suggest you could work something out with their new landlord and forward their security deposit... that's a little creative... but only if they object or ask about it.

For me, I never offer money, and I've never had a renter ask for money to move.

I use explanations like; moving now would be better than worrying about moving later, or, finding another place now would be much nicer than the all the busy work that has to be completed here.

Good luck on that.

Be sure to let us know how it works out for you Matthew.

How much to pay tenants to move out

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