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So you finally found the perfect property that a tired landlord wants to sell. You have to wonder why they trying
to sell. Do they want to upgrade their property with a 1031 exchange, have all the money they need selling you a
ready made money machine, or has the tenant taken control and is now driving them nuts?
You are going to want to get copies of existing leases, statements of security deposits, move-in inspection
reports, rent rolls for the last year, tenant contact information, tenant applications, expenses for the last year
and any warranty information for warranties in place. Some buyers even go to the extent of getting statements
from each tenant as to their interpretation of their obligations under the current lease. To do the latter, you will
need the seller’s permission to contact the tenants and they may not want them to know the property is selling.
Once you determine the situation and if you still feel good about going forward you then need to consider a few
things. What you do next will make all the difference in the world in your cash flow going forward. If the house
is rented, after reviewing the existing lease, you will want to include language in the purchase agreement about
receiving current months rent and security deposit at the closing. We make the leases attachments to the
purchase agreement.
We like to close on the fifth of the month, and request the seller to pay us the full monthly rent at closing. It
then leaves the issue of rent collection to the seller if the tenant is late with their current months rent. It also
minimizes the amount we have to come up with at closing.
The rent roll will give you payment history so you will know up front which tenants pay on time and which are
habitually late. For the ones with the bad habit, you will know to take immediate action when they are late with
their payment so they will know you mean business.
Last years expenses will include payments made to service providers. The list may reveal that you have to pay
certain utilities such as water & sewer of trash pick up and this information may not have been mentioned by
the seller in the negotiations. The last thing you want at the purchase is the seller canceling a service and the
tenant being without water or trash pick up.
You will need to send a letter of notification to the tenant of the change of property management, the date of
change, where to send future payments, who to call with maintenance issues and the bank account number
where their security deposit is now being held. You can use this occasion to reemphasize your expectations of
the tenant’s performance under the existing leases.
Use the transition of property manager to meet with the existing tenants and find out if anything is in need of
repair. This goes a long way toward good will, and it gets you into the property to do a quick inspection.
Handle the transition in a businesslike manor; remember now you are in the property management business.
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