Tips On Handling Your Inherited Tenant

As a new Investor you will find that most of the time you will inherit a tenant from the previous owner and you think this is a great thing; you won’t have to pay for advertising and you have a built in rental stream already coming in.

This could be true however it is your responsibility to make sure this tenant is someone that you want to keep or legally have to keep.  Like everything else in a new acquisition, DO YOUR DUE DILIGENCE.

Estoppel Certificate

Make sure that you receive an estoppel certificate signed by the tenant.  An estoppel certificate is a document that outlines that everything is the way you were informed.  The certificate refers to the current lease and the terms of the existing lease (if there were any changes). The tenant signs off that they agree everything in the lease is as it seems and there are no additional terms agreed upon, nothing else is owed by either the landlord or the tenant. It should at the very minimum include the below:

1)      The lease dates (commencement and expiration)

2)      The date when rent is due

3)      The amount of rent

4)      Any deposit amounts

5)      If any modifications have been made to the lease

6)      If additional agreements have been made, a list of what those agreements are

7)      That no party to the lease is currently in default

Follow the Lease Conditions

Read the lease thoroughly, you may not love the terms of the current lease, but you are bound legally to abide by the lease until the date of expiration. At this point, you will have the chance to either renew and sign a new lease with existing tenants or give the proper legal notice that you will be ending their tenancy with you. If you decide to start over with a new tenant at the end of their lease, you will want to give yourself plenty of time to market the property.

Set up your own criteria for picking out a new tenant. Complete a rental survey for the area so you can determine what rent amount you will be requiring going forward.

Raising Rents

If you find that your rents are below market, there are several items to consider.

1)      Will you lose tenants if you raise too much?

2)      How much can you legally raise them

3)      Should you offer some sort of concession ie: accent wall or an upgraded appliance?

4)      How long will it take to release if you do lose your tenant

5)      How much will it cost to make the unit ready to relet if you lose the tenant

Lastly, keep in mind that not all of these tips will apply to everyone, be aware of any local ordinances that may affect what you can do when inheriting a tenant, and don’t forget, to introduce yourself!

Why Both Agents and Buyers Should Use an Exclusive Representation Agreement

An exclusive Buyer/Tenant (“Client”) representation agreement is an agreement that says that a specific Broker/Agent will represent the Client for the purchase or lease of real estate. It can be for a designated duration of time, a specific geographical area, a particular type of property, one specific property or a combination of any of the above. 

The Agreement creates no obligation on the part of the Client to purchase or lease real estate yet it assures that the Broker/Agent will be paid a commission in the event a transaction occurs for the Client.   The fee may or may not be paid by the Client, many times the agreement specifies that any commission due by the Client is offset by any fee collected from the other side of a transaction (Such as a Seller offering a commission).

For the Broker/Agent it will spell out how they will perform their obligations under this agreement through the individual signing on behalf of the Broker, another real estate licensee assigned by Broker, who is either the Broker/Agent individually or an associate-licensee (an individual licensed as a real estate salesperson or Broker who works under Broker’s real estate license). This is of course subject to the Client’s approval, which shall not be unreasonably withheld or delayed. Broker and the Client will agree that the Broker’s duties are limited by the terms of this.

For the Client the agreement gives representations to the Broker/Agent that there are no other Broker/Agents that the Client may be working with for this proposed transaction.  The Client further represents that the Client has disclosed to the Broker/Agent information about any properties that the Client has previously visited, or that the Client has been shown by any other real estate associate(s).   When disclosing this, the Client can “carve out” exceptions to the exclusive representation agreement by disclosing that if they were to move forward on one of these properties, another agent would represent them, thus protecting the Client from claims arising from multiple Brokers/Agents and limiting the Client’s liability

As for the Broker/Agent, it goes without saying that a Broker/Agent who has a contractual relationship is going to be more committed to the job. Before they begin the often tedious task of searching for the right location, demographics and price range for your investment, they want to be assured that they are going to be compensated for their time and effort. Their time is just a valuable as any other professionals’ time after all, would you expect an attorney to give you free legal advice, or work on your case without an engagement letter/contract? By showing loyalty and trust, most people will work that much harder knowing they are protected for the work they do.

The Client should consider this agreement because there are equal and mutual protections to both parties with respect to their interests. The Client can hold the Broker/Agent accountable for performing fiduciary services (some of which they would not be aware of without the contractual definition). Some Clients don’t want to feel they are being “tied down” to one agent, and mistakenly think that getting several Brokers/Agents to work for them will get them a better deal, this is not necessarily the case, as a key strength of the real estate industry and most successful agents is their communication network. The agents will talk to one another and if they find out their client is working with other agents, that client may soon not have any agents working for them, or just not be taken seriously. 

The Importance of a Move-In and Move-Out Checklist

A landlord/property manager is required to document any expenses that are taken out of a tenant’s security deposit; therefore, good documentation is vital. A move-in/move-out inspection with a checklist, pictures and/or a video is essential.

These Checklists can be Beneficial to the Property Owner and Tenant

The Move-In/Move-Out Checklist is a convenient, all-inclusive and reliable way to document the property’s condition. Tenants can benefit from a Move-In Checklist because any existing conditions will be predated to his/her occupancy. This checklist helps the landlord/property manager by reducing liability risks due to disagreements related to security deposit reimbursement; thus, protecting the value of the property.

Documenting Improvements/Repairs Made to the Rental Property

New carpeting, countertops and paint all need to be documented prior to new tenancy. Take pictures/video of the unit before the tenant moves in. Remember to take before and after pictures, and/or video of repairs made to the rental unit itself or its contents (refrigerator, stove, etc.) throughout each tenancy.

The Process

Prior to the beginning of the rental term, walk the tenant through the property.

What to look for and document on a walk-through:

Each room of the property needs to be addressed and documented separately. This is where a well-planned Move-In/Move-Out Checklist allows for a quick, yet accurate, documentation process.

Entire Rental Property

• Missing ceramic floor/countertop or splashguard tiles

• Loose ceiling and wall fixtures

• Scratches on floors

• Missing glass or ripped screens

• Furnace/Heaters

• Air conditioners

• Tears or burn marks in the carpet

• Rubbed off/Faded paint

• Outlet receptacles and covers

Kitchen

• Scratches or burns on countertops

• Condition of the appliances (refrigerator, stove and dishwasher, etc.)

Bathroom

• Toilet

• Bathtub/Shower – remember to look for mold, mildew, cracks and grime

• Hot/Cold water pressure

These are just a few examples of items that need to be included on the checklist. Once the checklist is complete, date it. Both parties must sign the checklist. Any discrepancies need to be initialed by both parties as well. Additionally, if there is something that will be done to reach an agreement, clearly document the solution and the date by which it will be completed. For example, if there is a missing toilet paper holder, document the date that it will be replaced. Mail a copy of the completed and signed checklist to the tenant.

The Move-Out Checklist

At the end of tenancy, another walk-through must be completed. The Move-Out Checklist should be identical to the Move-In Checklist, barring any upgrades/changes made during the tenancy.

Any significant damage to the rental property that is not considered typical wear and tear must be documented. By documenting these damages, the cost of replacement or repairs can be deducted from the security deposit. Mail a completed, signed copy of the checklist to the former tenant’s new address.

Each state has laws that govern rental property. Some laws pertain to the amount of time permitted for a landlord to complete the Move-Out Checklist once the tenancy ends.