As a person buying or inheriting a rental property, your relationship with your tenants is crucial. The tenant-landlord relationship can make or break your bank. As any smart investor knows, you always want to be prepared for the worst. So what can you do to ensure that you are protected when you buy that new rental house, condo unit, or apartment building? Here are four ways to protect yourself when inheriting tenants.
Draw Up an Estoppel Letter Before Finalizing the Purchase
An Estoppel Letter is a legal document acting as confirmation by the tenant of the terms of their rental. Having one legally assures both parties that the tenant is aware of all of the terms of their lease, including any modifications that may have been made between the tenant and the previous landlord.
The tenant/landlord relationship often develops personal elements that have been mutually agreed upon by both parties, but don’t appear on the lease. The tenant may, for example, have had agreement with the previous landlord to pay reduced rent in exchange for upkeep help. It may not be in the lease, but it may have developed over the years between landlord and tenant. You, as the new landlord, will want to know about such agreements, so that you have the choice to honor them or not. By starting your ownership from a place of mutual understanding with your tenants, you prevent conflict in the future.
Double-Check Your Tenant’s Credit
Just like signing a new tenant, you want to be sure your inherited tenants have the financial wherewithal to pay their rent. The previous owner may have had standards more lax than yours, or those tenants’ financial situations may have changed. When you check tenant credit, you insulate yourself against the potential financial fallout of a tenant who cannot, or will not, make their rent. Whether you have purchased the property as an investment or not, non-paying tenants can cost you thousands of dollars in eviction fees. Better to avoid the hassle all-together and ensure that you and your tenant are a good match for one-another from the start.
Spend an Extra Hour On Your Welcome Letter
Some landlords slap together a welcome letter to their inherited tenants in just a few minutes, Frankenstein-ing new tenant letters with language from an old welcome letter and the previous landlord. Instead, we highly recommend sending your inherited tenants a letter that is as detailed and well-written as possible. You want to open a clear channel of communication between the two parties. A welcome letter will help your tenants learn what the rules are and understand who they should go to in the event of problems. Second, a clear welcome letter creates a precedent of understanding between you and the tenant. In the event of a dispute, you can cite the information that you gave them in order to bolster your case. This blog post of an introduction letter to existing tenants is a great outline from which to build.
Develop an Exit Strategy
Everything may seem shiny and new when you first come into possession of a new property, and this includes your tenants. But ten, fifteen, or twenty years down the line, will you still own that property? Will you still live in the same city? Will you still want to deal with tenants? What are your long-term goals for the property? If you don’t know the answers to at least some of these questions, you will need to sit down, take the time, and consider what your responses are. If you don’t develop an exit strategy, you could be stuck with responsibilities that make it impossible to pursue other opportunities that come your way. Your options for the property should match, roughly, with the near-to-middle term future you envision for yourself. To develop this vision, familiarize yourself with the local real-estate market, the worth of your property, and the costs you will likely incur if you choose to sell it. People depend on you as a landlord, but more importantly, you have to depend on yourself to make wise decisions about your future.