Dealing with inherited tenants

[ctang]

Hello,

I`ll be closing on (my first property) 4-plex at the end of next week

and it`s fully occupied and 3/4 tenants have a dog and cats.
Since tenants are the assets, I want to make sure I have the right ones.

Their lease is not up till June and August 2010.

As much as I want to have the place fully vacant before I take possession, I don`t think that`ll happen, plus I did not put that in my agreement.

What diligence can I do to make sure that they will be good tenants and the terms and conditions applicable if they are not? Can I still do a credit and rental history check on them? treat them as if they were new tenants?

Thanks,

Chung

 

[thejules]

You can`t do that application process stuff with inherited tenants unless you ask them and they volunteer. The best thing about inheriting tenants is the adjustments on closing. I hope your closing is on the 3rd or 5th of the month? The amount of cash required to close is lowered by the amount of cash there is on file that the seller has collected for last month`s rent, & the amount of collected rent for the month in which you are closing.

I would say write the existing tenants a letter after closing and introduce yourself, desribe your services, and explain your expectations i.e. rent is due on the first etc... I would work with the exisitng tenants and develop a good business relationship until they prove otherwise, then I evict them if they are not working out. I hope that helps.

 

[fumbrunner]

QUOTE (ctang @ Jan 16 2010, 10:14 PM) Hello,

I`ll be closing on (my first property) 4-plex at the end of next week

and it`s fully occupied and 3/4 tenants have a dog and cats.
Since tenants are the assets, I want to make sure I have the right ones.

Their lease is not up till June and August 2010.

As much as I want to have the place fully vacant before I take possession, I don`t think that`ll happen, plus I did not put that in my agreement.

What diligence can I do to make sure that they will be good tenants and the terms and conditions applicable if they are not? Can I still do a credit and rental history check on them? treat them as if they were new tenants?

Thanks,

Chung
In the future, consider adding a clause in your offer asking for vacant possession.  I find its much easier to start fresh with your own tenants.

 

[invst4profit]

You should also immediately get your hands on your provincial RTA, if you have not already, and start studying. All the necessary information regarding both their rights and your own as a LL will be clearly spelled out.
Consider it the bible of your business.

 

[ctang]

Thanks to all`s helpful hints and suggestions.

QUOTE (thejules @ Jan 17 2010, 10:49 AM) The amount of cash required to close is lowered by the amount of cash there is on file that the seller has collected for last month`s rent, & the amount of collected rent for the month in which you are closing.

TheJules - that`s really interesting, I did not know you could adjust your closing to do that. Using an easy number if rent was $3000 per month and paid at the 1st of every month, if I closed on the 3rd, how much would I save ...Is there a way to calculate this?

Also, since my Closing is Feb 24, can I still adjust my closing date and how should I get my realtor to change it if you don`t mind sharing a bit more.

Thanks

Chung

 

[MikeMcC874]

QUOTE (ctang @ Jan 17 2010, 04:12 PM) Thanks to all`s helpful hints and suggestions.



TheJules - that`s really interesting, I did not know you could adjust your closing to do that. Using an easy number if rent was $3000 per month and paid at the 1st of every month, if I closed on the 3rd, how much would I save ...Is there a way to calculate this?

Also, since my Closing is Feb 24, can I still adjust my closing date and how should I get my realtor to change it if you don`t mind sharing a bit more.

Thanks

Chung

If the closing is on the 4th of the month and the month has 30 day, you are the owner for 90% of the month and the old owner 10%. With a $3000 monthly gross rent, you would get a $2700 adjustment for the rents the previous owner was to collect on the first of that month. You would also get a $3000 adjustment for last month rent deposits.

An added advantage is that if you have any tenants who are on welfare or disabilities and the rents come directly to the landlord, there is time for them to change the payment information. My recent closing had 2 of the tenants cheques still go to the old landlord. THEY had to chase him and get the cash. Not fun for anyone.

Getting the the date moved may just be a matter of asking the sellers for an amendment. Having a reason couldn`t hurt. Closing on the 24th you will still get about 15% of a months rent in credit plus the last months rents.

Mike

 

[gwasser]

I inherited renters in a rental pool. I didn`t do anything until they moved out after several rent increases by the property manager.

They were good renters, but one unit had a 1m high stack of bicycle parts covering a bedroom floor and in the other unit lived a reclusive couple. The first unit`s renters moved out after a year and it cost me a year`s cash flow to clean it up (but no money out of my pocket).

The reclusive renters had lived 10 years in the unit which was completely run down and stayed for another 2 years. They were an elderly couple that behaved stranger and stranger over time. In the end, me nor the property manager could get access to the unit for inspection even with proper notice. We were forced to evict. The damage... a 23K renovation - that certainly will take several years of cash flow (and.. I have the units clear title).

In the mean time, the Tiger Woods years helped double the value of the units and more. Yes, we fell back in valuation last year, but now we`re on the mend with two clean units containing new renters.

I am not crying and I am not cheering.

I think, if you have a 4-plex already filled with renters, just let them be. Renovate and adjust your rental property as the units become vacant. It maintains cash flow and help you build up a reno-fund. Only, when the renters stop paying rent or cause excessive damage you have no choice but to evict.

In the meantime you have all the time to convert the operation gradually to the one you envisioned without loosing a lot of cashflow.

My two cents

 

[Nir]

QUOTE (fumbrunner @ Jan 17 2010, 08:52 AM) I find its much easier to start fresh with your own tenants.
Interesting. I find exactly the opposite!
It is much easier to start (ESPECIALLY as a new investor) with existing BUT LONG TERM tenants.
I purposely looked for such properties and glad to say I was right. The reason: less headaches!
Again, emphasis on LONG TERM. They are the best.
Well, unless rent is too low but because I was also looking for a minimum CAP, rents by definition could not be low.

The above BTW is the best advice I can give new investors. At least that`s my personal experience.
Regards, N.

 

[ctang]

QUOTE (MikeMcC874 @ Jan 17 2010, 06:14 PM) If the closing is on the 4th of the month and the month has 30 day, you are the owner for 90% of the month and the old owner 10%. With a $3000 monthly gross rent, you would get a $2700 adjustment for the rents the previous owner was to collect on the first of that month. You would also get a $3000 adjustment for last month rent deposits.

An added advantage is that if you have any tenants who are on welfare or disabilities and the rents come directly to the landlord, there is time for them to change the payment information. My recent closing had 2 of the tenants cheques still go to the old landlord. THEY had to chase him and get the cash. Not fun for anyone.

Getting the the date moved may just be a matter of asking the sellers for an amendment. Having a reason couldn`t hurt. Closing on the 24th you will still get about 15% of a months rent in credit plus the last months rents.

Mike

Mike, That`s quite a bit, the total rent per month including laundry is actually $3650, so I would be saving or quite a bit if I close in the beginning of the month. WOW, thank you for being specific

I really appreciate your feedback

Chung

 

[ctang]

Godfriend,
Thanks for sharing your experience. How come you weren`t able to evict those tenants as soon as you found out how bad they had damaged the place? You said, you tried to inspect the place with proper notice but still couldn`t get in, is there a way around that? get the sheriff to evict or what?


Investmart,
I will remember that and thanks for the BTW.

From your experience, what kind of tenants (age group, profession) do have you personally found to be long-term tenants for you? do they give clues or is there a way to find out?

Thanks,

Chung

 

[jhoper]

QUOTE (ctang @ Jan 16 2010, 09:14 PM) Hello,

I`ll be closing on (my first property) 4-plex at the end of next week

and it`s fully occupied and 3/4 tenants have a dog and cats.
Since tenants are the assets, I want to make sure I have the right ones.

Their lease is not up till June and August 2010.

As much as I want to have the place fully vacant before I take possession, I don`t think that`ll happen, plus I did not put that in my agreement.

What diligence can I do to make sure that they will be good tenants and the terms and conditions applicable if they are not? Can I still do a credit and rental history check on them? treat them as if they were new tenants?

Thanks,

Chung

Taking on existing tenants can forsure be a battle. I have bought many properties in Edmonton and in Grande Prairie where there have been tenants in place and for the most part they have turned out okay. I always go into the deal wondering why the owner is selling the property and if the seller is selling because the tenants are problem tenants and the seller does not know what else to do.

None the less when taking on new tenants its very important to have all paper work for them. This is something that the seller should be providing to the buyer. IF the seller does not have the proper paper work this become more of an issue. I HIGHLY recommend meeting the tenants and getting a new application form filled out and IF possible doing a new lease. I like to do this for the simple reason of I know my leases and whats in them and if I don`t have a lease from the seller then this really cleans up the he said she said issues that might arise. Once you have a new application you can run a credit check and reference checks and I HIGHLY recommend you do this. Its important to understand the kind of tenant you have taken on. If the credit and references come back bad you are limited as to what action you can take on the tenants but it is still good to know.

Hope this info helps!! Good Luck and congratulations on the purchase!!



I do also like the closing of the sale on the 3rd or 4th. Its a great way to reduce the amount needed to close.

 

[Nir]

QUOTE (ctang @ Jan 18 2010, 12:13 PM) Godfriend,
Thanks for sharing your experience. How come you weren`t able to evict those tenants as soon as you found out how bad they had damaged the place? You said, you tried to inspect the place with proper notice but still couldn`t get in, is there a way around that? get the sheriff to evict or what?


Investmart,
I will remember that and thanks for the BTW.

From your experience, what kind of tenants (age group, profession) do have you personally found to be long-term tenants for you? do they give clues or is there a way to find out?

Thanks,

Chung

50+

 

[invst4profit]

QUOTE (investsmart @ Jan 17 2010, 10:29 PM) Interesting. I find exactly the opposite!It is much easier to start (ESPECIALLY as a new investor) with existing BUT LONG TERM tenants.
I purposely looked for such properties and glad to say I was right. The reason: less headaches!
Again, emphasis on LONG TERM. They are the best.
Well, unless rent is too low but because I was also looking for a minimum CAP, rents by definition could not be low.

The above BTW is the best advice I can give new investors. At least that`s my personal experience.
Regards, N.


I am of the exact opposite opinion regarding long term tenants. I disliked tenants staying longer than 2 years because of Ontario`s rent controls. Being able to adjust rent to market on a regular bases is a true plus. I never believed changing tenants was much work and, when experienced, was usually done with very little cost. It allows you to maintain paint and minor repairs going forward.
Long term tenants in Ontario can be a definite liability however if you are not overly concerned with income or minor upkeep, long term tenants rarely complain for fear of being evicted, they can add to the ease of arm chair investing.

One definite caution is if you have long term tenants it is highly recommended you do regular inspections, do not ignore them, as they do tend to seriously deteriorate a unit over time. Ware and tear, broken items not reported, minor leaks causing on going water damage, mould, drywall damage as well as a build up of kitchen grease and general filth (in some cases).

Personally I prefer to stay on top of my business with revolving (2 year) tenants but unfortunately this is not something a LL has full control over.

My policy when buying was to generally request vacant possession, allowing me to hand pick my tenants as I have very stringent screening policies, and was insisted on in the case of a property with any tenants in place longer than 4 years. Time of purchase is the ideal quick fix opportunity, in Ontario, to hone your business investment tenant wise.

 

[RCrein]

QUOTE (invst4profit @ Jan 23 2010, 11:17 AM) I am of the exact opposite opinion regarding long term tenants. I disliked tenants staying longer than 2 years because of Ontario`s rent controls. Being able to adjust rent to market on a regular bases is a true plus. I never believed changing tenants was much work and, when experienced, was usually done with very little cost. It allows you to maintain paint and minor repairs going forward.Long term tenants in Ontario can be a definite liability however if you are not overly concerned with income or minor upkeep, long term tenants rarely complain for fear of being evicted, they can add to the ease of arm chair investing.

One definite caution is if you have long term tenants it is highly recommended you do regular inspections, do not ignore them, as they do tend to seriously deteriorate a unit over time. Ware and tear, broken items not reported, minor leaks causing on going water damage, mould, drywall damage as well as a build up of kitchen grease and general filth (in some cases).

Personally I prefer to stay on top of my business with revolving (2 year) tenants but unfortunately this is not something a LL has full control over.

My policy when buying was to generally request vacant possession, allowing me to hand pick my tenants as I have very stringent screening policies, and was insisted on in the case of a property with any tenants in place longer than 4 years. Time of purchase is the ideal quick fix opportunity, in Ontario, to hone your business investment tenant wise.

Is it legal to request vacant possession in Ontario? Sure would make some situations much easier.

 

[ctang]

QUOTE (jhoper @ Jan 18 2010, 05:05 PM) Taking on existing tenants can forsure be a battle. I have bought many properties in Edmonton and in Grande Prairie where there have been tenants in place and for the most part they have turned out okay. I always go into the deal wondering why the owner is selling the property and if the seller is selling because the tenants are problem tenants and the seller does not know what else to do.

None the less when taking on new tenants its very important to have all paper work for them. This is something that the seller should be providing to the buyer. IF the seller does not have the proper paper work this become more of an issue. I HIGHLY recommend meeting the tenants and getting a new application form filled out and IF possible doing a new lease. I like to do this for the simple reason of I know my leases and whats in them and if I don`t have a lease from the seller then this really cleans up the he said she said issues that might arise. Once you have a new application you can run a credit check and reference checks and I HIGHLY recommend you do this. Its important to understand the kind of tenant you have taken on. If the credit and references come back bad you are limited as to what action you can take on the tenants but it is still good to know.

Hope this info helps!! Good Luck and congratulations on the purchase!!



I do also like the closing of the sale on the 3rd or 4th. Its a great way to reduce the amount needed to close.

I assigned it to my realtor as I couldn`t get financing..i`d added your advice to my checklist for inheriting tenants.

Thanks

Chung

 

[invst4profit]

The problem is in the hands of the seller. He sends a letter informing his tenants the building is being sold and that they must move. If one or more refuses to leave, as a condition of the purchase offer, you walk away.

Is it legal? Nothing illegal about asking.