First reader Mike gives me compliments and then he asks me a question. This is a sure way to be featured on the blog. As a woman the easiest way to my heart is through flattery.
Reader Question About Assuming Existing Tenants
I’ve been following your posts for some time now. Partly because I’ve been considering getting into landlording and partly because your stuff is just so damn entertaining. Now I’m starting to get more serious about finding a rental property. I’m new at this so it may take me some time to find the right one. But I figure I can shorten my learning curve by talking to experts like yourself.
Here’s something I’ve been wondering about. Should I be concerned about existing tenants? They could be great or terrible. In your experience is it better to assume the existing tenants or start fresh with your own? Is it possible to do credit checks on them before putting in an offer? And if I don’t want them can I legally ask the seller to give me vacant possession?
Mike in Toronto
For truly good questions, there are no easy answers. Lets go one at a time….
Should you be concerned about existing tenants?
- Yes, you should be very concerned.
In your experience is it better to assume the existing tenants or start fresh with your own?
Again it depends, if they are good tenants or not. It is easier and you will start making money right away. As a manager I have found that when you rent to people yourself, you rent to people that you can relate to and have some kind of connection with. The existing tenant has already been through the turmoil of a sale of the property and lots of showings and has possibly years of accumulated resentment against their former landlord. It’s a bit of a crapshoot. Some of the tenants will be very good, the hard part is telling which is which.
Is it possible to do credit checks on them before putting in an offer?
Not that I’m aware of. Once you purchase the property, you should ask for and receive tenant files and information. You should also get a Tenant Acknowledgement from the lawyer. This is an official document stating if they have last month’s rent, how much the rent amount is and if they have any rent arrears.
However; nothing at all is keeping you from using your eyes, ears and mind to evaluate the tenants. Credit is only about 30% of the application decision in my process. First and foremost is my evaluation and judgement of the tenant’s presentation, appearance, appointment setting and attitude. I’d love to be able to do home visits on all my potential tenants but I can’t, it’s just not practical. You will have a golden opportunity to do a “home inspection” so you can see exactly how the people live, if they are clean, if their cat poos in or out of the litterbox and so much more.
How they treat their existing landlord and the real estate agent will tell you volumes about how they will treat you once you are their landlord. Watch, look and listen.
And if I don’t want them can I legally ask the seller to give me vacant possession?
Uh boy. Well you would have to tell the owner that you need the property for your own use. Good news is that I am not aware of any buyers getting in trouble for the previous landlord giving notice in bad faith. Technically you are only supposed to give notice if you are actually going to live there, but if you have any doubt that the tenants are excellent, this may be your only chance to get them out. Some landlords will insist that you assume the tenants knowing the problems that can happen at if the tenant’s contest at the Landlord & Tenant Board.
This only really works with small properties obviously. It’ll be a hard sell to explain to an adjudicator why you need two or three full sized apartments in a four plex obviously.
The Most Important Question
Why is the landlord selling the property? Generally you won’t find landlords selling great cash flow, trouble free properties unless they are dead (estate sale), retiring, buying other properties, getting divorced or making their problem tenants into your problem tenants. You cannot count on the real estate agent t0 tell you that you are taking on a trouble tenant.
There is another category of landlords who have just discovered they do not like being a landlord. This business is not for everyone.
In every business transaction there is risk. What if the landlord is selling the property with their problem tenant in it? What is your plan? Are you so strapped for cash that going even one month without rent will mean that you’ll have to eat baloney sandwiches for a month until the rent gets paid? Do you have a contingency fund for legal fees and do you have a solid understanding of what tenants rights are in Ontario? I always recommend that landlord go to the Landlord & Tenant Board just to see that part of the business.
My feeling is that if a tenant is so bad that it causes a landlord to sell a property, it is worth a significant discount on the price. I’ve dealt with some of the worst tenants that this city has created and it can take years and tens of thousands of dollars in legal fees and expertise to evict a tenant. For instance I know of one lady that has a beautiful unrentable main and second floor of a house for over a year, because her basement tenants have 4 unneutered male cats living in a one bedroom apartment. It smells disgusting. Now that owner gets to go to the Landlord & Tenant Board to prove a smell.
Another lovely lady I know had a realtor estimate that her horrible tenant would cost her $70,000.
Specific Red Flags
- The tenant does not cooperate with showings
- The tenant will not fill out sale related forms
- Their home is unusually messy, smelly etc.
- The tenant hates their landlord
- The tenant complains a lot about minor maintenance issues
- The tenant brags about taking their landlord to the Landlord & Tenant Board
- The tenant seems “crazy” or “not quite right in the head”
- The place smells like weed
- The tenant suffers from Meth teeth or is drunk when you get there.
- The tenant is a “victim” of anything.
- So many more… but that’s a start.
As in most real estate transactions, Buyer Beware!