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How do I remove an inherited tenant when flipping a property?

BenSanderson

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May 11, 2009
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172
Hey everyone,





I have an opportunity to buy a nice 3bd
2bth detached house in Cambridge for $70,000 less than appraised value
($340,000 current appraisal, signed contract for $270,000). It's in
great condition and only requires some fairly minor renovations to
really make it shine. Paint, some carpeting upstairs, and some exterior
landscaping should do the trick. The sellers want out ASAP so they can reinvest their money in another business now that the market is heating up. With such a discount, I'm happy to oblige them with a quick sale. We would be closing towards the end of May.




My primary goal is to
flip this Spring or early Summer, but my backup strategy is to
refinance to pull my investment money out and then set it up as an RTO.
Because of the large discount, I could own the house with very little (if any)
money invested in it. I'm fine with both strategies, but I'd rather flip
it as it's not quite the longer term material that fits my system.




My
main concern is that the sellers still have a tenant installed with a
lease that is not up until October. They've stated that he's making
plans to leave earlier than his lease end date, but no one's sure
exactly when that will be. I'm telling them not to worry about it
because I don't want the issue to kill off a $70,000 deal. I told them
I'd be fine with taking him on if need be. And if I DO wind up taking
him with the purchase of the house, what are my options for removing him
before the lease end?




The way I see it, I have two options: 1) Let him leave on his own, or 2) Pay him to leave in a timely manner.




Option
1 ` Let's say the tenant stays put while I try to sell. If I flip the
property and find a new buyer, then the tenant will need to leave anyway
before that buyer moves in (with 60 days notice, I believe). The rent
I'd be collecting will help with my carrying costs, which is good, and
the tenant keeps the place clean and has decent furniture, which helps
with showings. However, I'd like to do some renovations beforehand,
which will disrupt life for the tenant. Am I allowed to do this while
he's living there?




Option 2 ` Pay him to leave. It
would be a lot easier on me if he was gone soon after I took possession,
and I'd be happy to pay him $1,000 to $2,000 (maybe more) to facilitate
his exit. If he's considering leaving anyway, I can't imagine why
$1,000 wouldn't seal the deal for him. I'm thinking I should get him to
sign an exit agreement giving him 30 days, and that this should be done
after I've waived conditions on the purchase two weeks out from my
closing date. This means he'd be out two weeks after I take possession.
Of course, I'd have to carry the property vacant without any rent coming
in, but at a potential profit of $50,000 or more, I'm perfectly fine
with that.




Another question is regarding the last
month's rent he would have paid to the sellers. Is that their
responsibility to pay back to him, or does it become my responsibility. I
know the sellers won't give me the $1,400 for last months' rent after
giving me a $70,000 discount. What happens here?





Does anyone here have any experience with clearing out a tenant when renovating or flipping a property? Any words of advice?




Thanks,



Ben
 

invst4profit

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Aug 29, 2007
Messages
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The best approach is the simplest approach. Sit down and talk with the tenant before you make any decisions to offer money or make any plans regarding the tenant. Don't tell them anything about your plans until you find out directly from them what their plans are.

Then if they are not planning on leaving, as you have been told, you explain the situation including the fact that there will be renovation work taking place and that the property will not be a rental when completed. This hopefully will lead to a simple agreement for them to leave. There is no reason to rush into bribing tenants unless they attempt to blackmail or threaten you with a fight to stay. Most will be agreeable to leave.

Have them agree to a date to leave and have them sign a N11.

As far as the LMR is concerned simply apply it to the last month they are there and pay them the interest owed.



Don't assume you are going to have a problem and don't rush into paying a bribe before you have spoken to them especially if you suspect they want to leave before the end of the lease. If they do want to leave early that is leverage to your advantage as they are on the hook for the full rent to the end of the lease if you were to chose to keep the unit as a rental.
 

BenSanderson

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May 11, 2009
Messages
172
Thanks Greg! I've met the tenant a few times already and seems to be a decent guy. I'll try the open conversational approach you suggest and see where it gets me.



Also, the standard P&S Agreement states that "vacant" possession will be given to the buyer on our closing date. I don't think this is going to happen, so would I need to amend or account for this in the Schedule A or something?
 

invst4profit

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Aug 29, 2007
Messages
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You could amend if you chose however keep in mind the sale agreement is not binding on a tenant.

A tenant served with a eviction notice in regards to the change of ownership is not legally obligated to leave.

If they chose to stay it is then the buyers responsible to take the tenant to the Landlord Tenant Board to force the eviction.

In Ontario with the tenants having the right to stall and challenge every step of the process this could take months. The

convoluted process being heavily weighted to favour tenants is the primary reason landlords are often placed in the position

of being blackmailed by unscrupulous tenants. This often can result in landlords bribing tenants to leave.



I never pay tenants to leave. I prefer to evict as this sends a strong message to other tenants.
 
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