Tenants are
lifeblood for any landlord. These are the people who pay the
bills and make it possible for the landlord to provide for the family.
It's easy to vilify tenants. There are enough of them who mistreat
properties and provide splitting headaches for their landlords. However,
many of these experiences are truly the fault of the landlord. He is
the one who has the responsibility of conducting proper screenings
before letting anyone reside on his property. He is the one in charge of
drafting strong leasing agreements.
As a rule, most landlords go
after distressed properties that have been left vacant. However,
opportunities do arise where landlords may want to purchase a property
that still hosts a number of existing tenants. Obviously, these tenants
may not have been put through the vigorous screening processes that are
the norm for any responsible landlord with a good head on his shoulders.
They also do not have a leasing agreement with the potential new
landlord. These conditions could easily pose a risk.
The first thing
to keep in mind is that these existing tenants possess very
clearly-defined rights. The new owner needs he tenant's consent before
he can modify the leasing agreement with that person. This means that it
is against the law to kick out these people before their lease is up.
It is also illegal to raise the rent on them. The landlord is obligated
to honor every single classes in their lease with the prior owner of the
property. Only possibly foreclosure can void the agreement between the
tenant and the prior owner.
There are good and not so good things
about inheriting existing tenants. One of the great things is that the
landlord already has paying tenants without having to do any fixing up
or showing of the property. The purchase will generate instant
cash-flow.
The negative side of the deal includes the fact that the
landlord can very easily end up stuck with bad tenants that must be
taken care of until their leases expire. The prior owner might have been
trying to load up his property with anyone he could find just to make
things look better. The bad tenants may have been the reason the prior
landlord decided to sell the property.
There are many ways that the
buyer can protect himself. The first thing to do is to copy every
agreement and lease as a condition of the purchasing contract. These
should be reviewed and approved before the deal is closed. The names of
the various tenants can be run through databases to find anything
suspicious. However, the prospective landlord cannot pull their credit
reports. That permission must be specifically granted in writing by the
tenants. The final step is to look over the last two years' worth of
expense and income statements to find any deadbeats living on the
property.
If there are no written leasing documents, the landlord
needs to have each tenant fill out short estoppel agreements. These
agreements should specify ownership of appliances, rent amount, duration
of lease, amounts of deposits and that sort of thing. The seller and
tenant should sign and date each agreement. This agreement is a good
excuse to speak with the tenants and explain that their existing
agreements will be honored. They need to be put at ease. Once the sale
closes, the landlord can distribute an information packet detailing
contact information, how to pay rent and other things.
Buying a
property with existing tenants can be a little more difficult than
purchasing a distressed property. However, following these instructions
can make things much easier.