Buying Duplexes w/ existing tenants.
I am a new investor looking to obtain several duplexes in my area for cash flow. My questions are these:
1. If the duplexes have current tenants, how do you go about getting them to sign a new lease and can/should you raise rents when you take ownership?
2. How do you go about getting a deposit on these units?
CraigB,
Welcome to the board.
Generally, your purchase will be subject to the existing leases, meaning that you have to honor the current leases (rate and term) the seller has with his tenants.
The leases should specify the notification period for a lease renewal notice. If there is no specific notification period written into the leases, then follow the timeline specified in your local landlord tenant laws. Just before this notification period for each tenant, notify them of their rent increase, and advise them that they will be executing new leases with you if upon renewal.
When you take possession of the property subject to the existing leases, the seller is responsible for giving you a credit for all collected security deposits. If the security deposits are insufficient for your rental management plan, you advise each tenant how much extra security deposit will be required when their lease is renewed. Include this in the lease renewal letter you send each tenant prior to their current lease expiration.
You're right on the mark DaveT!
CraigB some caution here. If you jump rents and deposits to drastically you will wind up with a negative cash flow. I would suggest researching your rental market area before you jump.
[addsig]
JohnMichael,
You are so right, but there is a worse scenario.
If your tenant feels that your rent increase is too drastic, you may find your property trashed when the tenant vacates.
Here is how I know. Back in 1986 I bought a bank REO. The bank had a tenant in the property on month-to-month rent basis for $300. When I took possession of the property, I allowed the tenant to stay on, but at a market rent of $450 per month.
The tenant paid the rent, but at the end of the lease term, I got the property back with damages that cost me $7K to repair and a ton of "trash" in the back yard to haul away.
Guys,
Thanks for the advice.
One particular duplex I called about this weekend was vacant on one side with a tenant renting for well below market value without a signed lease in the other.
Does this tenant have any rights without a signed lease?
CraigB
No! you can remove a tenant that does not have a lease - the 30 day notice or what ever is in your area applies - but before you buy, make sure that they do not have a lease... what I mean is I see it sometimes where they are month-to-month and then when they sell the building the landlord signs them to a year to protect them from the new landlord and raising rents... So just verify that they have not lease - or get it in writing that the will not sign any.