Home Buying in Raleigh>Question Details

Dvalleeis, Home Buyer in 27617

Buying investment property with existing tenants

Asked by Dvalleeis, 27617 Tue Oct 29, 2013

Hello, I came across this blog and was hoping to get a few answers. I am interested in buying a townhouse in NC as an investor which has an existing tenant. Their existing lease which I have in my possession expires next summer. I am waiting to hear back from my realtor with more information about the tenant. If the tenant's review is favorable and I wish to keep the tenant - My questions are as follows:

1. It was mentioned that current existing tenant leases will continue until they expire unless I expect to move in, which I don't. However, without any legal document between myself and the tenant is the tenant legally required to send me the future rent payments and meet the other terms of the lease? Additionally, the existing lease has a low security deposit which I would like to increase.
2. Should I add language in the purchase contract that the purchase is contingent upon a new lease signed between myself and the new tenant - with a new security deposit given to me a

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Answers

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If you are buying a property with an existing tenant and lease you have no options at all. regarding the lease terms or the tenant. By law you inherit the lease. Your closing attorney should generate a legal document between you and the Seller the "Assignment and Assumption of Leases" which will be recorded along with the other closing document in the county in which the property is located.

The seller or their property management company will notify the tenant that starting on such and such a date all rental payments should be sent to you. You should also notify the tenant of this immediately after closing. There will be a proration of rents as of the day of closing. The Seller is responsible to turn over to you the tenants security deposit and you are required to deposit it in a NC Bank and notify the tenant where it's been deposited. This account must be used for nothing other than the security deposit, no other funds may be commingled with it unless it's a Trust Account and then other security deposit checks may be deposited into it as well and you will need to maintain the customary Trust Account records for each deposit.

You should be speaking to your closing attorney for more information and to make certain you are operating within the boundaries of very state specific Landlord?tenant laws and not depending on the advice of strangers given over the Internet who may or may not know what their talking about.

When the current lease expires you may then create any type of lease terms you wish in terms of rental / security amounts as long as the general terms comply with NC state laws. You may screen your tenants however you like as long a your screening processes are not in violation of federal discrimination laws. As you are buying a property that is governed by an HOA you will also have to comply with any rules they may have regarding rentals, many HOA actually prohibit rentals except under duress. In other words the owner has been trying to sell and ha been unable to and cannot afford to pay their mortgage and HOA fees without renting. I strongly suggest you Google North Carolina Landlord and Tenant Laws and you'll be able to pull up a wealth of information
1 vote Thank Flag Link Wed Oct 30, 2013
Great questions.

I have three such properties with tenants in place. The owners are ready to sell.

The sale would transfer the existing lease and managment agreement to the new owner. The security deposits are in and would stay in the the managment companies trust account.

Let.me know if I can help
1 vote Thank Flag Link Wed Oct 30, 2013
It's my suggestion go through the link: http://www.myadamo.com/ and choose your best house, land & any other properties according to your budget.
0 votes Thank Flag Link Tue Nov 5, 2013
Good evening, Dvalleeis:
The Seller and you need to come to terms on what happens with the security deposit and under what conditions the tenant gets it back. Get a copy of the current lease and have a NC real estate attorney review and advise you on your rights and responsibilities under it, and what has to be done in the transfer of the property. Use that attorney to draft a contract that documents whatever agreements you can work out with the tenant BEFORE the closing. If you appreciate an answer, please give thumbs up. For the most helpful answer, please say thanks with a best answer click.
0 votes Thank Flag Link Mon Nov 4, 2013
I am truly surprised that your REALTOR hasn't already answered these questions for you. Having said that.......please listen and "write this down between your ears"............in North Carolina if you purchase a property that is rented (or leased) due to a signed rental (or lease) agreement , then you MUST honor that rental agreement.

Of course you should immediately consult an attorney for proper legal advice. And you should educate yourself concerning Tenant's Rights and Landlord Duties. The North Carolina Real Estate Commission website has pertinent information that I urge you to look at sooner rather than later.

Again, I am not an attorney and cannot give you legal advice. I can state with absolute certainty , however, that you cannot move into a property that is currently rented to another individual . And here's something I'll bet you didn't know, when a lease agreement expires , the lease may still be in effect and a tenant may still have the right to stay in the property. At that point a tenant would be on what is called a "month -to-month" Unless and until Tenant gives an advance THIRTY DAY WRITTEN NOTICE , the "month to month" lease would still be in effect.

So please, please contact a reputable real estate attorney, check the NC Real Estate Commission website, and by all means ask your REALTOR about Tenants Rights and Responsibilities as well as Landlord Rights and Responsibilities. Perhaps a landlord can also give written notice to a Tenant , that's something I urge you to ask an attorney.

Being an investor is one thing.....being a landlord is something else altogether! There is a tremendous responsibility attached to owning and /or managing a rental property. I beg you to get guidance from an attorney and a REALTOR who specializes in managing rental property. I'm not trying to discourage you but perhaps you would like to begin your "buy and hold" investment career with help from a management company. Your REALTOR should be able to recommend a firm. As I understand it , the management firm handles all monies, lease agreements, trust accounts, minor repairs, and the like for a small percentage of the rents. But again , this is an area I know very little about. Please get advice from someone who does know.

Hope this helps!
0 votes Thank Flag Link Wed Oct 30, 2013
Hi Jo, thank you so much for the information. Since I placed this post i have been doing lots of research such as reading the NC Landlord-Tenant Laws. Everything you mentioned makes perfect sense; however, I am confused on one point. After the lease expires and goes month-to-month won't i be able as the landlord to give the tenant 30 days notice to move our if I so desired. If the tenant is good and paying I would not do so but if they are a problem then I guess I could impose a large rent increase (allowable per laws) to make move out or just give them 30 days notic eto move out. Is this an accurate portrayal of what coule be done? Thanks for your comments
Flag Thu Oct 31, 2013
If you are buying a property with an existing tenant and lease you have no options at all. regarding the lease terms or the tenant. By law you inherit the lease. Your closing attorney should generate a legal document between you and the Seller the "Assignment and Assumption of Leases" which will be recorded along with the other closing document in the county in which the property is located.

The seller or their property management company will notify the tenant that starting on such and such a date all rental payments should be sent to you. You should also notify the tenant of this immediately after closing. There will be a proration of rents as of the day of closing. The Seller is responsible to turn over to you the tenants security deposit and you are required to deposit it in a NC Bank and notify the tenant where it's been deposited. This account must be used for nothing other than the security deposit, no other funds may be commingled with it unless it's a Trust Account and then other security deposit checks may be deposited into it as well and you will need to maintain the customary Trust Account records for each deposit.

You should be speaking to your closing attorney for more information and to make certain you are operating within the boundaries of very state specific Landlord?tenant laws and not depending on the advice of strangers given over the Internet who may or may not know what their talking about.

When the current lease expires you may then create any type of lease terms you wish in terms of rental / security amounts as long as the general terms comply with NC state laws. You may screen your tenants however you like as long a your screening processes are not in violation of federal discrimination laws. As you are buying a property that is governed by an HOA you will also have to comply with any rules they may have regarding rentals, many HOA actually prohibit rentals except under duress. In other words the owner has been trying to sell and ha been unable to and cannot afford to pay their mortgage and HOA fees without renting. I strongly suggest you Google North Carolina Landlord and Tenant Laws and you'll be able to pull up a wealth of information
0 votes Thank Flag Link Wed Oct 30, 2013
Hi Larry, thanks so much for your valuable advice. I was not aware of talking to my closing attorney on this matter and this is a valuable piece of information.
Flag Thu Oct 31, 2013
Full question - as the question was cut off

Hello, I came across this blog and was hoping to get a few answers. I am interested in buying a townhouse in NC as an investor which has an existing tenant. Their existing lease which I have in my possession expires next summer. I am waiting to hear back from my realtor with more information about the tenant. If the tenant's review is favorable and I wish to keep the tenant - My questions are as follows:

1. It was mentioned above that current existing tenant leases will continue until they expire unless I expect to move in, which I don't. However, without any legal document between myself and the tenant is the tenant legally required to send me the future rent payments and meet the other terms of the lease? Additionally, the existing lease has a low security deposit which I would like to increase.
2. Should I add language in the purchase contract that the purchase is contingent upon a new lease signed between myself and the new tenant - with a new security deposit given to me and first months rent prior to the closing? Is this even permitted?
3. Additionally, Can I make the purchase contract contingent upon my satisfactory review of the tenants application on file, tenants rental history, and owners credit/criminal background check? And I even allowed to receive this from the owner/management company.

I just want to make sure that I have a quality tenant that is legally obligated to pay me (meet the terms of existing lease at a minimum or a new lease) on the day of closing. Lastly, it just seems that asking the existing tenant to sign a new lease effective on the day I close and hand me over a check for a new security deposit and first months rent when I don't even own the property yet a tough thing for them to do? Maybe the funds could be kept in escrow. I would appreciate any insights u have

Bests
0 votes Thank Flag Link Tue Oct 29, 2013
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