During the process of buying a multi-family investment property, you may realize that the property that you want to purchase is going to come with inherited tenants already in place. Once the deal closes, these tenants will officially become your tenants so it’s important for you to know how to deal with them professionally.
In this article, we will share with you several tips for dealing with inherited tenants just that you have the right strategy for building a successful landlord-tenant relationship with them.
Things To Know About Inherited Tenants
Let’s face it, inherited tenants are without a doubt beneficial because, when the deal closes you won’t have to spend the time or hassle of having to fill vacant units in your rental property since they will already be occupied from day one.
Although having inherited tenants can be awesome, the reality is that they can also be risky because, those tenants were put into place by the previous owner of the investment property. Since they were not screened by you, you’re not going to have any clear indication of the quality of the tenant until you actually start reaching out to them yourself.
Besides the possible issue of lack of screening from the previous owner of the property, your inherited tenants could also be poorly trained by the previous owner and will need to be retrained on your rules for the rental property after you officially become the new owner.
Before contacting your inherited tenants, it’s best to put yourself in “their shoes” and know that they should be aware by now that ownership of their rental property has changed hands. They most likely will want to know who the new owner is coming to be, and if things are going to stay the same at the rental property as they were before?
Inherited tenants will also want to know if their rent is most likely going to be raised or if your goal is to kick them out in favor of converting the rental property into a Class A rental, or short term rental property.
How To Reach Out To Inherited Tenants
From the moment that you take over ownership of your multifamily investment property, your goal should be to send out a letter to your inherited tenants immediately introducing yourself as the new owner and make them familiar with your method of managing the property.
If you plan on managing the investment property yourself, they should be informed that you’ll be the one to conduct site visits, make repairs, and be their primary point of contact should they have any questions, concerns, or issues with the rental property.
Let’s say that you plan on hiring a property manager, in this case you should provide your new tenants with information on the property management company including who their point of contact will be should they need any assistance with maintenance, customer service, or other issues regarding the rental.
Sending a letter to your inherited tenants is a good initial first step to take because, this will also help them to see that you are not like landlords that they may have had in the past, or a slumlord, instead you’re going to be somebody who takes pride in their work and wants to forge a professional relationship with them from the very beginning.
During the process of your initial contact with your inherited tenants, you should also make it clear to them that your goal as the new owner is to offer as much value to them as possible. This means that you, or your representative are going to take the time to listen to your tenant’s current needs regarding repairs or maintenance and also provide them with insight regarding if you plan on making any improvements or alterations to the rental property in the future.
Review The Existing Leases
After contacting each of your inherited tenants using the letter that we recommended above, you’ll next want to take the time to personally review the leases for each of the tenants that are living in the multifamily rental property.
When reviewing the leases, you’re going to want to verify what exactly is the tenant’s responsibility? Are they responsible for paying utilities, water, sewer, and trash? Did the information about the property that the seller-provided match what the leases have to say?
While you are reviewing each of the leases, you’re also going to get a clear idea on what the rental properties are really renting for because in some cases, the seller may have claimed that one or more units were renting for $750 per month, when in reality those units are renting for less than that.
Tips For Raising The Rent On Inherited Tenants
After taking over ownership of a new multi-family investment property and finding that some of the units in the property are being rented for below-market value, in this case, you may be thinking about raising the rent on some or all of your inherited tenants.
Before raising the rent, it’s important to realize that depending upon the state that your property is located in, it may not be possible for you to raise the rents like you did with other properties in the past since some states have adopted rent control measures.
Before attempting to raise the rent on your Inherited tenants, you should take the time to research the rules and regulations for the state where your rental property is located and confirm if they have any new rent control laws in effect.
This is important because, as of January 2020, California and Oregon have both new rent control laws in effect that limit rent increases to between 5% and 7% per year plus inflation. By the time you read this article, the state where your multi-family investment property is located could have new rent control legislation in effect so it’s important to confirm what those laws are before moving forward with rent increases.
Depending on the leases that your inherited tenants have, once you’re ready to move forward with increasing the rent, it’s important to have an actual “strategy” for raising the rents.
Obviously, if your tenants have month-to-month leases, you can increase the rent on them when you give them a 30-day notice but for those tenants you have long-term leases, it’s best to move forward carefully with increasing their rents.
We’ve offered you some great tips in this article for dealing with inherited tenants.
Even though they can be a HUGE asset when purchasing a new multifamily property, these tenants are going to require a little work but if you show them that you’re going to offer them value as a landlord and respect them as tenants, they will want to continue living in their rental property even after ownership of the property has changed hands.