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Thanks for joining us at the DeRosa Group for another episode of Mentorship Monday. On today's episode we're going to discuss what to do when you buy a rental property with existing tenants.
When it comes to buying a tenant occupied property it can be a rough transition in getting the operation to run the way you want it to. What if you want to renovate? What if you want to raise the rents? What if the property has lead based paint?
Our question today comes from Hugh where he explains that he just purchased a triplex that has existing tenants. These tenants have been living here for the past 5 years. He also mentions that they are paying their rent in cash at an amount that is below market value. There is a language barrier as most of them don't speak fluid english and the property also is likely to contain lead based paint. In regards to the lead based paint, as long as you have a disclosure signed by you and the tenants and you're in compliance with your local jurisdiction you should be covered on this. Still look to the remove or remediate as much of this as possible moving forward in the future.
Hugh wants to raise rents, which can be tricky depending on whether there is a written lease in place or not. If there is a lease in place then you have to abide by the terms and agreements in that lease. If there isn't a written lease in place, then you have more room to negotiate and send out a notice to tenants about rent increases. Make sure that you're in compliance with all local rent control laws. A few things that you can start doing is making a transition in the way you accept rent payments. Instead of taking cash, begin to put systems in place where you can accept electronic payments. We use "PayLease" and "AppFolio".
In conclusion, when making the transition in taking over a property their are going to be hurdles that you have to deal with. Even so you can still find ways to work around these barriers and make the transition to how you want to run the ship. Regardless of the situation you still have options. Hope this helps!
As always, please email us any real estate questions to HelpMe@DeRosaGroup.com and we will answer them on an upcoming episode!
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