Investors often buy apartment buildings inhabited by tenants. This is a nice situation to be in as you can expect immediate return on your real estate investments through monthly rental income. However, inherited tenants can also be a bad proposition as you have no idea how they have been screened by the owner of the property. Also, you do not know whether they are good or bad tenants as you do not have any records about their rent payments. It is only when you take over control of the property that you come to know about their behavior and payment habits.
Dealing with inherited tenants can be difficult
You are bound with the terms of lease agreements signed by the tenants living in your rental property. You cannot change these terms simply because you are now the owner of the rental property. You can neither increase the rent nor ask any of the tenants to vacate the premises. You can’t even change any of the rules of the lease agreement they signed with the previous owner. You must wait until the expiry of the present lease term to be able to do anything that you desire.
It can be pretty scary when you have many tenants living in your rental property, and you have no idea of their terms of lease agreements. How do you protect yourself as a landlord when you are about to buy a property with inherited tenants?
Try to find out the terms of existing lease agreements
The best way to protect yourself is to find out the terms of lease of agreements signed by your tenants with the previous owner. It may be difficult if the owner says that all agreements were verbal in nature. It can be trickier if the agreements given by them turn out to be made up stuff.
Estoppel agreement is a wonderful tool to save your skin
One way to protect you when buying a rental property with inherited tenants is to sign an estoppel agreement. This agreement is signed by the owner and you and spells out the terms of existing lease agreements. It contains the duration of the lease, monthly rents, utilities arrangement, and ownership of appliances, security deposit details, current repairs situation, and the repairs that need to be carried out in future. This form is filled by all tenants separately and gives you a clear idea of the situation of the tenant s and the terms of their lease agreements. Once you sign this agreement, you have at least a document signed by tenants that can protect you in case of a legal dispute.
It can help in saving your money and time
If a tenant claims that he had signed a verbal lease with the owner, you can refute his claim by producing the estoppel agreement that clearly mentions his lease term to be on a monthly basis. Another instance where estoppel agreement can save your skin is when a tenant claims to have paid $4000 as advance security deposit. You can easily prove in a law court that his security deposit was much less.
If you are going to buy an investment property with lots of existing tenants, it is in your own interest to sign an estoppel agreement with the owner. Make sure that you get this all-important document signed by your seller before the closing of the deal. In fact, you should not close the deal until you have received this document signed by the owner of the property. If the property owner has no idea about this agreement, you can download the format from internet for free.
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