All Forum Posts by: Kyle Haney

Hi Biggerpockets, 

I recently had a tenant that caused a fire by knowingly leaving their apartment while she had items on the stove with the burners on. While they was gone, one of the items they had on the stove caught fire. Fortunately, one of the other tenants (this unit is a fourplex) smelled the smoke, busted in the door, and called the fire department. This caused about fifteen thousand dollars of damage to the kitchen area but with the exception of the kitchen area the apartment is still livable. We had a contractor that is specialized in fire remediation review the damage and he has informed us that the tenant cannot be living in the apartment while repairs are underway which is estimated to take about four weeks. While working out arrangements with the tenant for repairs, they have become very unwilling to work with us and is trying to put as much of the cost on us even though the fire was caused by gross negligence on the tenants part. For example, the tenant is wanting us to pay for all utilities that the tenant is responsible per the lease agreement during the duration of the repairs. After a period of time, it became clear that we were not going to be able to work through the repair process without putting ourselves at risk of having future issues or disagreements. After that determination, we informed the tenant that we will be terminating their lease and asking them to move out completely due to their actions being a violation of the lease agreement (i.e. causing damage to the property due to gross negligence).  

The tenant is now refusing to leave the property which is preventing us from being able to make the necessary repairs to the property. Has anyone been through a situation like this and do you have any recommendations or advice on how to handle? 

@Tiko D. Blane Congrats on the first investment. 

I have recently started using Cozy and really like it. The time it takes for it to make it to my bank account has never really been an issue for me but I could see why it would be a concern. 

I also accept cash or check but this has led me down a rabbit hole of handling rent money more than I'd like too. I'm now working to require any new leases to use cozy or a more automated form of payment such as paying at the bank or ACH. I have not set up a bank account for individuals to pay but am looking in to it with my bank currently. I've had the same concerns as you have with my account number being available to other individuals and that has kept me from going that path. Mainly because I have concern that the information would be used for fraudulent online purchases. I'm not sure how valid that concern is and would be interested to hear more individual's experience with that type of setup. 

Thanks for the post and starting the good discussion. 

@Etim Fisk

I had a similar situation with my first rental property. It was a fourplex that had 3 of the 4 apartments rented. 1 of the three tentants was behind on the rent at the time that I looked at the property. When I made the offer one of my stipulations was that the issue with the delinquent tenant would be remedied by the time we closed. This tenant ended up getting evicted (by the previous owner) and I ended up purchasing the property with two occupied and two vacant. My intention going in to the deal was to BRRR the property so the vacancy did not bother me. Being my first property, I had a low operating income so it was nice that I could BURRR the vacant apartments while the property still received income to cover all or a portion of the expenses. I was able to rehab 1 apartment at a time and raise the rents while implementing my own screening standards to ensure I am getting good qualified tenants.

I learned a few lessons from this. 

1. BURRRing a multi-family and being able to keep a portion of it occupied helped reduced/eliminate the stress of having the vacant portion of the property and lessened my total cash in the investment by lowering my vacancy cost. 

2. Inherited tenants are hit or miss but you can sometimes get a good idea of what to expect based off information you can get from the seller. In my instance, 1 of 2 inherited tenants ended up getting evicted due to non-payment while the other is still a tenant and has been a good renter. The tenant that ended up getting evicted showed red flags of not being a good tenant prior to the purchase.

3. Having the partially rented property allowed me to "phase in" my own screening standards for the property and ensure that I am getting the best most qualified tenants. 

I say this as preface to some thoughts on your situation. You say that half of the apartment is occupied by the current owner. Why are they selling and what is their plan after the property is sold? Are they needing/willing to be a short term or long term tenant to allow you to have income on the property while you rehab or fill the other vacancies. While the chances of this may be low (why would they sell then turn around to rent the same property), it is worth looking in too. If that is not an option, is the current owner willing to allow you to show the vacant apartments and have tenants lined up while you are going through the closing process? This could allow you to lessen your vacancy time frame once you own the property. 

Overall, I think the answer to your question depends heavily on your individual situation. If you have a low operating balance that can't take the vacancy hit, then that may be a deal breaker for the property. As others have said, you will definitely want to make sure you calculate your expected vacancy time frame and factor this into your numbers. Personally, after my first experience I will lean heavily towards partially rented multi family if I am planning to BURRR the property. If I'm not, then I would want full vacancy (and tenant history and screening verification from the previous owner) unless I feel like I could fill the vacancies and the numbers makes sense with the expected vacancy included. 

Thanks for the good question and scenario!

@Alex Smith Thanks for the insight. For item 3, the tenant had not paid the full security deposit. The owner did turn over what the tenant had paid they allowed the tenant to move in without paying the full deposit. We now have a strict policy that the deposit has to be paid prior to move it but it proved difficult to obtain the rest of the deposit from the existing tenant upon purchase. The amount not paid was about $300 so in the grand scheme of things it was not a large amount but unsurprisingly we also had issues with the tenant paying their rent on time and eventually at all. Fortunately, this start getting this way toward the end of the tenants lease and we were able to remove the tenant by not renewing their yearly lease instead of going through the eviction process. 

Hello BiggerPockets Community,

I am a fairly new investor and have been rehabbing an investment property in Mt. Vernon, Indiana that is a fourplex. I'm curious to see how other investors handle security deposits especially when you are raising the value of a property with existing tenants. Here are a few of my questions; 

1. It is has been recommended to me not to have the security deposit equal to the rent rate. This prevents the tenant from thinking that the security deposit also acts as the last months rent. Does anyone have best practices or rules in place that decides the amount of the security deposit for your investment?  

2. How do you handle a security deposits with a tenant that renews after the rent is increased or the value of the property is increased? Has anyone asked for an additional security deposit when a tenant renews based off of increase value in the property?

3. One of the tenants I inherited with this property from the previous owner had not fully paid their security deposit. This tenant has since moved out of the property and luckily I did not have any significant costs due to damages to the apartment. Are there any recommendations for the best way to handle this type of situation? 

4. The previous owner did not document the state of the apartments upon move in for the tenants I inherited when I bought the property. Therefore this made it difficult for me to say that any existing damages were due to the tenant or were there upon move in. The property was inspected and walked through prior to purchase and there were no significant issues found at the time. Does anyone have recommendations for handling poorly documented move-ins when purchasing a rental property?

Thanks in advance for your input and advice!

MarQuita,

Thanks for the post! I am a new investor in the Evansville area and have been looking for a Real Estate Investor Group to join! This looks like a well established group that'll help Tri-State area investors connect with others!

Thanks, 

Kyle J. Haney