Inherited Tenants: How I Dealt With an Occupant Paying $295/Mo With No Lease

by | BiggerPockets.com

Considering buying a rental property with inherited tenants? Here’s how a recent acquisition by one of my partners and I went.

Good old inherited tenants—if you’ve purchased a property from a tired landlord or mom and pop owner, you understand that dealing with them can oftentimes be a pain. Sometimes the reason the owner is selling the property is due to the troubled tenants. Once you buy it, that problem becomes yours to solve.

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My Inherited Tenant Deal

Just recently, my partner and I purchased a property where the tenant was paying just $295 a month in rent. They had been living there for 20+ years. Talk about a landlord afraid to raise the rent! The property had no lease in place. Instead, there was a handshake agreement between the tenant and the old landlord, allowing the occupant to live there. The fair market rent on the house should have easily been $700+ per month. The numbers worked at the current rent, but they would be even more appealing if the tenant moved out and we renovated the property to get higher rents.

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Related: 4 Steps to Pre-Screen Prospective Tenants Over the Phone

Working it Out

We got in contact with the current tenant to notify them that we were the new owners. We let them know that we planned to offer a discount in rent to them, but it would need to be nearer the fair market price. Unfortunately, the individual was on a fixed income and was barely making enough to cover the current rent. In these scenarios, my partner and I always do our best to work with inherited tenants. Still, in my experience, 40-50% of them just do not work out. That is a high percentage, but that’s just how it works out.

Make the Call

As much as we wanted to keep the current tenant, it just didn’t work. We mailed them a 30-day non-renewal notice, which is a requirement in my state, even if a tenant does not have a lease. This may be different for your market. Just make sure you know your local laws. The tenant will now be moving out shortly (hopefully). 

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Related: 13 Things Tenants Don’t Understand About the Rental Process

Summary

It is not easy dealing with these tenants. It’s best to do what you can for them because some of them do work out. They can be great tenants and may prefer paying more to moving. If you feel they’re stringing you along, then they probably are, and it is best to act fast to get them out and replace them with a fresh renter at better rates.

Have you ever dealt with troublesome inherited tenants? How did you handle the situation?

Let me know your experiences with a comment!

About Author

Sterling White

Sterling White is an investor and business owner on a mission to make the world a better place through principled and efficient real estate investment.

Even before co-founding Holdfolio, Sterling and his partner Jacob Blackett had been involved with the purchasing and selling of over 100 SFRs. Today, Holdfolio is a prominent platform for investing in income producing multifamily apartments. The firm has been featured in national publications such as US News and was ranked as one of the best real estate crowdfunding sites in 2018 by Fit Small Business.

The success of Holdfolio’s technology gave birth to SyndicationPro, a fast growing all in one software solution empowering investors to efficiently and easily raise capital online.

16 Comments

  1. One thing you can do if the current tenant’s rent is too low and you want the rent raised without the tenant getting angry at you is this: when you write up a contract to purchase the property, require that the current landlord raise the rent prior to the sale as one of the conditions.

  2. I agree – if you can make the seller deliver the property vacant, so much the better. I’d rather wait an extra month or two than deal with former tenants that you don’t know. Also, the seller gets leverage on the tenant if she can say, “Hey, my hands are tied. The buyer wouldn’t budge!” Helps keep the tenant from being angry with the seller.

  3. Curt Smith

    The above attempts to hold the seller over the barrel re getting rid of a tenant only works in a slow buyers market. Another buyer can step and take the deal as is right out from under you. Contracts get ignored by sellers all the time and close with someone else leaving you high and dry. Today just close ASAP and deal with these bumps in the road. 🙂

  4. Ken p.

    Would you write a $400 check every month to someone you don’t know to subsidize their living expenses? If so, good for you, but most people are choosier about the charities they contribute to. Owning rental property should be treated as a business, not a charity, unless you specifically bought it as such (my parents once did that, to provide a decent place to live for a single mom dying of cancer and her the kids). Raising rents is part and parcel of bring an effective landlord.

    • Katie Rogers

      You are deflecting from the question. I tell you where some of them end up—homeless in towns everywhere. According to Sterling, this person was on a fixed income and could barely afford the way-below market rents. So how was this person going to live anywhere? And they had been a stable rent-paying tenant for 20 years! At the very least, if this were my tenant, I would be beating the bushes for whatever resources my community had to offer and helping my tenant take advantage of them. Sure, it’s a business, but it is a people business. If you buy that property, you buy that situation. Simply throwing people to the curb is wrong.

      • Nicollette Roth

        People end up in homeless camps for lots of reasons though. Trying to say that a landlord making a business decision is going to make someone homeless overnight is kind of a stretch…

        The reality is that Sterling and his partner merely brought the situation up to match the current market. Even that tenant had to have known that never having a rent increase wasn’t “real”.

    • Nicollette Roth

      This was my thought exactly. Being on a fixed income really isn’t your problem as the property owner. Sure, anything that can be done to help another person is always great! But, in the end, even this tenant had to have known that 20 years with no rent raises wasn’t “real”.

      It sounds to me like Sterling and his partner exhausted their resources, and then proceeded with the next option as any business would.

  5. Bernie Neyer

    I recently acquired a small apartment complex and used an Estoppel letter, obtained right here on Bigger Pockets, to determine what the tenants thought their rents was, what they had on deposit and when the rent was due. They sign the document, so they can’t turn around and say they lied when they try to play games.

    We had one tenant that tried to say the rent was really due the middle of the month. He was also let in without a deposit on the condition he supply his own refrigerator. That in itself went over like a lead balloon with me. Add in the fact that we don’t supply appliances and this tenant started at a deficit.

    The management company sent him a new contract which required a deposit and held the rent due on the 1st of the month, with a 5 day grace period. (I don’t do grace periods as I find tenants think the rent is due at the end of the grace period and NOT the 1st.) He tried to tell us that a relative that lived in an adjacent apartment had left their deposit for him. I contacted the old manager and was told this was false, that their deposit had been returned to them.

    It took a while and persistence, but being firm and honest with the tenant, we were able to rehab him, get him to pay his rent on time. We did give a small concession by allowing a smaller deposit. There were other tenants that had been there for quite a while, but were very desirable and had lower deposits. We did raise their rents, and the increases are going to continue over time to get the units to market rates, but by moving slowly we didn’t scare off good, non-destructive tenants. This isn’t always the case though. I’ve seen other landlords require the seller to evict everyone so they could fill the premises with more desirable tenants.

  6. Kai Hodge

    Great story! Im currently in a very similar situation. I close on a triplex in a few weeks and will have two inherited tenants both with below fair market rents. Both units would rent for $1200-$1300. Tenant A has a toddler and four week old baby-pays$875 utilities included. Tenant B pays $660 and has been living there for 14 years.

    Im hoping cash for keys would work and help both tenants.But, at the end of the day they will have to leave or pay the fair market rent. I have a mortgage and a toddler to feed as well. Its obviously a decision that keeps me up at night since 11:30pm.

    • Katie Rogers

      Depending on where you live, market rent and fair rent can be two different things. What is the typical income of your tenant base? Rent should be about one-third the typical income because of course, tenants pay the rent from their income, and the idea is to not price out your tenant base. Today half of tenants are paying more than 30% of their into for rent, and half of those are paying more than 50%. Just because they pay unaffordable rents every month does not thereby render those rents affordable.

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