Best Practices For Inheriting Tenants (Podcast #332)

Inheriting tenants can either be the best thing ever or a nightmare. Podcast Host, Andrew Schultz, goes over the best practices for inheriting tenants, including whether or not you should keep the tenants and how to handle their leases.

Also in this episode, we’ll discuss tenants who vacate the property but forget about everything in the fridge and how to manage a bad tenant.

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Show Transcription:

Andrew Schultz: (00:00)
Hey everyone. Welcome back to another episode of the Rent Prep for Landlords podcast. This is episode 332. And I’m your host, Andrew Schultz. On today’s episode, we’re going to be talking about whether or not you should renew a lease for a bad tenant. What to do when you inherit tenants when purchasing an income property. And at the end, we’re going to have a bad tenant story for you. We’ll get to all that right after this.

Voice Over: (00:23)
Welcome to the Rent Prep for Landlords podcast. Now your host, Andrew Schultz.

Andrew Schultz: (00:28)
Before we jump into today’s episode, don’t forget to take a look at the Rent Prep for Landlord’s Facebook group. That’s an excellent free resource that you can tie into and get perspectives from landlords all around the country. Don’t forget to check that out today. Over at facebook.com/groups/rentprep, we’re coming up on almost 12,000 members in that group, and we would love to see you there.

Voice Over: (00:53)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants

Andrew Schultz: (01:01)
Today’s forum quorum begs the question. What do you do when you have a bad tenant? That’s coming up on a lease renewal. Let’s go ahead and jump right in here. I have a tenant who has honestly been a little bit of an issue. They often have a lot of very loud friends over loud music, et cetera. This has rubbed several of the other tenants and neighbors, the wrong way. And the lease is up. The tenant has practically begged me not to kick them out in the middle of the current COVID situation. And I have agreed to let them stay giving them one more chance. I think I will probably do a month a month or sublease contract instead of another year-long lease, but I was wondering how I can better protect myself if there ends up being issues. And I need the tenant out, maybe some sort of clause in the contract.

Andrew Schultz: (01:39)
So I’ll preface this by saying that I’m not sure what market this person is in. So I’m kind of tailoring the information that I give here to what we would do here in the state of New York. The first question I guess I would have to ask is why on earth would you want to renew a tenant that you know, you’re having issues with? I understand that we are in the middle of a global pandemic and sometimes the rent check you’re receiving is better than the rent check. You’re not receiving, but it sounds to me like this as a tenant, that’s actually causing a lot of issues, not just inside their own unit, but also your other units in the building and the neighbors as well. It doesn’t sound like it’s a real great situation for anybody. So I would strongly advise you to put some thought into whether or not you really want to renew this tenant at all, or if you’re better off turning this unit and putting in a different tenant that may not be causing these sorts of issues.

Andrew Schultz: (02:27)
So assuming you want to move forward, I definitely would not do a one year lease here in the state of New York at this time for this particular tenant, you really have to understand what the restrictions are in your current market with regards to the global pandemic and things of that nature before you make a decision as to type a contract and lease provisions and things like that. So in the state of New York, right now, we are still under an eviction moratorium for nonpayment. And actually, there’s still the national moratorium for nonpayment right now as well. The national does not cover issues other than non-payment. However, so if you had a tenant like this one, who’s being loud and obnoxious, that’s still a viable reason. So long as it’s a lease violation. So that’s something to keep in mind as you’re really going to have to understand what exactly the restrictions are in your area.

Andrew Schultz: (03:15)
Before you go ahead and start making decisions on this in terms of the type of lease that I would do, I would definitely go with the month to month. I would not go with the one year here specifically because in at least here in New York, it should be in theory a little bit easier to remove a month to month tenant by just issuing them the appropriate notice and telling them, look, your lease is being terminated. We no longer want you living here. There’s different timeframes that you have to give here in New York-based on the length of tenancy as well. So, you know, it’s not just a, a straight 30 days. It could be a 60 or a 90-day notice that has to be issued. So that’s also something that you’re going to want to keep in mind is, you know, if you give this tenant one more last chance and they screw up on day two, are you now stuck with this tenant until, you know, 90 days past that point?

Andrew Schultz: (03:59)
So definitely something to keep in mind when, when you’re talking about the type of document, that type of lease that you want to put somebody on in terms of the lease itself, if you’re starting to have issues with the tenant, you should make sure that your lease has clauses specifically ended about noise and things like that. Since that’s the issue you seem to be having here issue a lease violation to the tenant, we’ve talked about issuing lease violations in the past and what the process and procedure is. But I, you know, just to briefly touch on it here and make sure that you mail it certified and a first-class or email it, or post it in or hand, deliver it on the door. If you’re going to post it or hand-deliver it, especially if you’re posting it, get a time and date stamp, photo showing when it was posted and where it was posted.

Andrew Schultz: (04:42)
Generally, what I’ll do is take a picture of the front of the building and then take a picture of the notice hanging on the door with like a unit number or something in the, in the frame. So you can tell where it was posted, you know, understand what do you have to do when you’re dealing with lease violations, talk to maybe your attorney or whoever, find out what you have to do when you’re issuing a lease violation in order for it to stick because you’re going to want that, that chain of lease violations when it does come time for the the tenant to move out in the event that they say, no, I’m not moving. I’m going to stay. You have that, you know, that proof that you’ve had these issues with the tenant ongoing issues with the tenant when you do eventually wind up going to court. So that’s my 2 cents on that. I don’t know as though I would want to renew this tenant to start with, if I did have to renew this tenant, for some reason, I would certainly be very cautious about the lease documents that we’re putting them on and things like that. And certainly, I would be considering a month, a month over a one year lease here,

Voice Over: (05:32)
Water cooler wisdom, expert advice from real estate pros.

Andrew Schultz: (05:40)
That’s the longterm goal of a lot of investors is ultimately to grow their portfolio to the point where it can support a lifestyle that doesn’t require them to work their nine to five. But what happens when you purchase a property and it already comes with tenants in place today in the water cooler wisdom, we’re taking a look at just that. Let’s go ahead and jump right in here. I will inherit some tenants through the two properties that I’ve purchased. The property breeze have current tenants in them. And I intend to keep the current tenants

Andrew Schultz: (06:06)
Current rate. Do I need to sign a new lease with them, or is the lease with a previous owner still sufficient? I do have the previous leases at hand. I feel like I say this a lot, but this is one of those things that’s going to be state by state in the state of New York. For instance, a lease will survive the sale of a property, regardless of if it’s a commercial lease or a residential lease. So when that property sells and the new purchaser takes over the property, they are inheriting that property with the tenants and the existing leases as they’re written. So because of that, I always recommend to clients, whenever they’re purchasing a property that has tenants in place, they should review the lease or have the lease reviewed by an attorney who understands leases to ensure that there’s nothing in there. That’s going to trip them up.

Andrew Schultz: (06:48)
Any kind of weird clauses that you wouldn’t anticipate, something that was worked into a lease as a special deal for a particular tenant or something along those lines. You want to know what you’re agreeing to when you go to purchase that property. And the other thing that you can do is request an estoppel certificate from each tenant, which would basically just go over the basics of their lease. You know, what’s the lease term, what’s the rent amount. When is the rent due, what’s included, what’s excluded? And generally speaking, you would then take that estoppel and compare it back to the lease to make sure that all of the terms and conditions match. And then usually that will help you to resolve any sorts of little issues like that. And consistencies that would pop up prior to closing, as opposed to after the closing, and the tenant would sign off on the estoppel agreement, essentially agreeing to, yes, these little lease terms that I’m bound under.

Andrew Schultz: (07:39)
This is, you know, this is the agreement that we have in place. So those are the two things I would definitely recommend. Number one, have the leases reviewed or do a lease review yourself. If you’re in a position where you can go through and do that a number two, consider an estoppel. If there’s something that just doesn’t seem right in the leases, or if there’s not a lease in place if you have somebody that’s maybe on a verbal month, a month and a stopple might be a way of at least getting the basic terms and conditions of their tenancy, kind of knocked out and put onto paper, once you close on the property, maybe you’ll decide you want to put that month to month tenant on an actual lease, but at least you have something to work off of while you’re making that decision.

Andrew Schultz: (08:14)
In most instances, where you come into a situation and someone doesn’t have a lease, they would just be considered a month to month tenant. And at that point, you, if you wanted to put them on a lease, you know, you’ve got that option. Or if you wanted to terminate the month to month tenancy, you would just have to go forward and do whatever it is that’s required in your state determinate, that tenancy. And then you can go ahead and get the unit fixed up, turn it over, get it back out there on the market as for whether or not inheriting tenants is an inherently good or inherently bad thing. It really just depends on the tenant.

Andrew Schultz: (08:45)
We’ve had really good tenants that we’ve inherited over the years, and we’ve also inherited some real nightmares. One thing I will mention is that the tenant that you inherit will never, you’ll probably never the same relationship with that tenant that you would attendant that you place. And I don’t really know what it is about that situation, but it seems like whenever we’ve been in a situation where we’ve taken over management on another building where someone else has placed the tenants, and then we’ve come in and taken over the management and inherited the tenant, the relationships with those tenants never seem to be the same as the relationships with the tenants that we’ve screened ourselves. And I don’t know if it’s just because they’re not used to us or how we operate, or they think that we’re going to come in and make major changes or something like that.

Andrew Schultz: (09:25)
But it’s just, you know, it’s one of the things that I’ve noticed over the years is it’s just a little bit different when you’re dealing with an inherited tenant versus a tenant that you place yourself. I don’t know as though there’s any real reason for it. It’s just one of those things that I’ve observed over my years in the business. One other point that I think is definitely worth mentioning is that different people will have different tenant screening criteria as well. So you may be inheriting tenants that have been screened using different criteria than what you would screen under. They may have not been screened at all. They may have just been, you know, the body with the pulse got, got the tendency type of a situation. So definitely something to keep in mind there. If you’re able to get some more documentation with regards to the tenants when you go to close, see if you can get your hands on a rental application, some people will provide them.

Andrew Schultz: (10:08)
Some people won’t, but even more important than the rental application in my opinion is see if you can get a copy of their move-in condition report and any photos that were taken when they moved into the unit as well. That’ll make it a lot easier when that tenant does eventually move out and you have to do a security deposit disposition, and that’s definitely going to be one of those things. That’ll make your life a lot easier. So see if you can get your hands on some additional documentation as you’re going through the process and hopefully it all pans out for you. Good luck and congratulations on your new purchase,

Voice Over: (10:40)
Feet on the street. Real stories from real property managers

Andrew Schultz: (10:47)
Today, for feet on the street, we’re going a little bit later. We’re just going to do a couple of bad tenant stories. If you have a bad tenant story that you’d like to share with us, there’s a couple of different ways that you can submit that head on over to own buffalo.com and submit it right through the contact form on the front page there, and it may be featured in an upcoming episode. You can also share it over on the Rent Prep for Landlords Facebook group, facebook.com/groups/rentprep. Be sure to check that out today, our first bad story here, this one is this one’s a real doozy. A couple of girls who rented from me worked at a grocery store and had several freezers and a couple of refrigerators in their apartment. Apparently, they’d been stealing mass quantities of meat from work. For some reason, they bailed out of the lease and didn’t want to drag the meat with them.

Andrew Schultz: (11:32)
They shut the power off before heading out, and you can imagine the incredible stench discovered upon rent collection day. The smell was so bad to all the appliances and flooring had to be removed and tossed and every surface and the place cleaned and bleached repeatedly not to mention they’d painted the walls black and then covered them all with some satanic graffiti. Yeah, that’s a pretty bad one. We’ve done quite a bit of foreclosure work over the years, as well as our property management business, we constantly come across refrigerators that have been left sealed and you know, the power has been turned off or they were unplugged or whatever the case may be. We just duct tape them shut and take them outside. Like we won’t open them in the house. It’s, you know, refrigerators are not so expensive that you can’t get a new one is kind of the way I look at it.

Andrew Schultz: (12:18)
In that perspective, some of these refrigerators just get so gross from having stuff, you know, rot inside of them and being sealed uptight. It’s not, it’s not worth it in some instances to try to save them story. Number two, this one’s also a doozy. I run it out of house for about a decade to a woman with two children and her husband by both moved in, both signed the lease three weeks in the neighbors call me. The police had been there at least three times in the past week for domestic issues. A month later, I got a copy of the restraining order that she got against him. She sent it claiming that her rent should now behalf of the agreed-upon amount because he couldn’t live there anymore. The lease said otherwise, and she was mad about two months later, she called the health department because it couldn’t be allergies.

Andrew Schultz: (13:01)
It must be mold because my children don’t get sick at the health department, found nothing. They did issue a report with the words possible all over it, which was enough to cost me $1,500 in corrective actions for possible problems a month or so later, she called for noises in the attic. Raccoons had gotten into the attic. It wasn’t really her fault, but for the fact that she later said she knew when they moved in a month ago prior, but didn’t think that it mattered when she saw the raccoons digging at the side of the house, a female nested in the attic, crawling up inside an outer wall to get inside. The attic cost us $500 to have the raccoons removed and then $13,000 to rip out and replace all of the insulation in the egress wall and the attic as per County code for animal infestations a month or two, after that, she just stopped paying rent.

Andrew Schultz: (13:48)
It took another three months and a couple thousand in fees to have her evicted. The court awarded me $4,000 in background, not the full amount owed and not covering any of the eviction costs. Of course, she never paid two years later. She contacted me asking if she could pay a thousand dollars of the money she owed and in return, I would forgive the rest so that she could clean it off of her credit. I said, no. Well, good for you. As far as I’m concerned, tenants that leave apartments and homes, looking in, you know, dealing with situations like that, they should be responsible for the damages that they cause. And I find that more often than not, they just, it seems to slip through the cracks. It’s one of those things that, unless you really want to pursue it in court over an extended period of time, at least here in New York, it’s not always easy to get a judgment against a tenant that does a whole bunch of damage, and it can be a real, a real headache to try to get those judgements.

Andrew Schultz: (14:37)
So, you know, good for you getting the judgment, filing the judgment appropriately so that it, you know, fell onto her credit report. Now she wants to clean up her credit report probably to buy a house or a car or something like that. That’s generally when those judgments wind up getting paid. So kudos to you for going through the full process. You know, you definitely had a doozy of a tenant, but at least you were able to get that lien in place. And eventually, she’s going to want that lien off of her credit report. Bad enough that she’s going to offer you no more than a thousand dollars to try to clean the whole situation up. So definitely a little bit of a wait and see there, but I think that you’ll come out on top. That pretty much wraps things up for this week’s episode of the rent prep for landlords podcast.

Andrew Schultz: (15:17)
Thank you all so much for listening. We really do appreciate it. If you found this information useful, all we ask is that you share it with somebody who you think might benefit from the information. Our goal with the podcast is to help educate as many people as possible and help elevate the housing provider profession above where it is right now. So anytime that we can share information, or we can ask someone to share our information with someone who might be struggling, that’s a great opportunity for us to help others grow in this industry. If you’re looking to get in contact with me, I can be reached over at ownbuffalo.com. Don’t forget. I have a second show. Every Wednesday at 10:00 AM Eastern, the ASCA property managers show. You can find a link to that over on our Facebook page, which you can find at ownedbuffalo.com as well. If you’re in the market for some top tier tenant screening services, head on over to rentprep.com, you can take a look at all of the different options that they have for tenant screening solutions over there. The important thing is that no matter what you do be sure to screen your tenant. I think that a lot of people forget that about 90% of all of their issues can be solved with good solid tenant screening. And that’s exactly what you’re going to get over at rentprep.com. So be sure to pop over there and check that out. I’m Andrew Schultz with ownedbuffalo.com for rentprep.com. And we’ll see you next week.