What to do with an inherited rental property?
So you inherited a rental property…
Now what?
Hey guys, it’s Brad from ProbateResource.com. I’m a real estate investor in Metro Atlanta. We buy houses all over the state of Georgia, but we even buy properties in other states and we specialize in probate and inheritance properties.
More often than not, we were getting reached out to by an estate and they’ve inherited a rental property and they’ve never been a landlord before and they don’t know what to do…
Or maybe they’ve been a landlord and they don’t want to be a landlord!
There are a lot of different situations that can occur. So you’ve inherited a rental property, maybe you inherited one, maybe you inherited multiple. What do you do with these properties? Do you sell them? Do you keep them? What do you do?
Do you not want them? There are so many questions.
I’m going to outline a few things that you need to make sure you pay attention to when you inherit these properties.
1. Was there a lease in place?
2. Was there a written lease agreement in place?
3. Is this a month-to-month lease?
4. Is this tenant a family member who’s been there for a long time?
Family members that have been there a long time ALWAYS caused the most amount of heartburn in every single deal that we’ve ever done, where there’s been a family member who has lived there for several years. Many times it’s like they feel like they’re getting the shaft because they’re getting kicked out of this house they’ve lived in.
Many times they’ve LIVED THERE FOR FREE for a number of years and it creates complications.
Lease Agreement
Let’s backtrack though… Maybe they’re just a tenant. Was there a written lease agreement in place?
If there was, GREAT. You need to find that document and make sure that that document is current and make sure that you read through the details of the document because that document is the guide to this property. It is the guide to this tenancy!The lease is the guiding document. So make sure you read that thoroughly and understand it.
Or… there might’ve been a month to month agreement, maybe there was a lease once upon a time, they didn’t really renew the lease and they decided to go month to month.
Well, what does that mean?
That means that there is a different notification period depending on the state that you’re in, if you wanted to get a tenant out of the property. You need to give them proper notice! (If you don’t you can run the risk of a judge throwing out your eviction case, if it ever comes to that…)
Typically a written notice needs to be sent by certified US mail, and it typically needs to be in a certain amount of days.
They have to be given proper notice to vacate. Make sure that you’re following the rules of your state.
In Georgia, where I live, we have the Georgia Tenant Landlord Handbook, and you can look that up online. It’s a great document. It spells out all the terms from the tenant’s perspective and the landlord’s perspective.
So you have this property now, you found a lease or you didn’t find a lease. Maybe there was a lease once upon a time. Was there ever a security deposit paid by the tenant? If you got a tricky tenant, maybe they’ll tell you that there was a security deposit when there really wasn’t a security deposit?
So you need to figure that out…
Did they ever pay a security deposit? And how much? Because if that tenant ever moves out, you owe them that security deposit back, right? So make sure that you’re looking that up, figuring that out!
Tenant Estoppel Agreement
A lot of times, when we buy a property and there’s some ambiguity about whether there was or there was not a security deposit. We will have everyone sign at closing, a document called a TENANT ESTOPPEL AGREEMENT. This is a very common document that’s done in commercial real estate, but we do it in residential real estate too. This tenant estoppel agreement is signed by the seller (the landlord), the tenant, and the buyer. You’re basically coming to an agreement as to the terms of this lease. Was there security deposit? Was there not a security deposit? Who’s owed money? Who’s not owed money? How much is rent every month? Was there a notice to vacate already issued?, etc.
You’re just getting everything in writing. That’s really all it is… getting everything IN WRITING!
Because that document is signed by all parties. By the seller, The buyer, and the tenant, there should be no question as to the terms of this agreement because you’ve all signed this document. You all agree that these are the terms in writing before closing.
Being A Landlord
Let’s say you’ve inherited this rental property. Do you want to keep the tenant in place? Do you want to continue to be a landlord or do you want to sell it? If you want to continue to be a landlord, should you self-manage this property or should you hire a property manager?
That’s really up to you, and you’ve got to assess your personality and figure out whether you want to be a property manager of a property.
Do you want to deal with the phone calls? Do you want to make sure that rent’s paid? Do you want to issue notices and do all these things? If you don’t, then you might want to think about hiring a property manager. I would get referrals because there’s a lot of terrible property managers out there, and there’s some good ones out there. Ironically, they all pretty much charge the same amount of money, which is anywhere from 8% to 10% of the monthly rent is what you’re going to pay on a property management fee.
The turnover in the property management business is very high because the bad ones and the good ones charge the same amount of money.
It’s a very tough business to be a property manager because they’re doing a lot of work and it’s tough job for not a lot of amount of money because it’s almost like a commodity in the industry.
Should you hire a property manager or do you want to self-manage the property…
If you’re going to self-manage the property, you need to make sure that you brush up on all the rules!
Let’s say you want to sell the property?
Should you sell it vacant? Or should you sell it with tenants?
My opinion, and my advice is that, IF AT ALL POSSIBLE, you should try to sell this property vacant without the tenants in place.
Now, if there’s a lease agreement in place, you’re going to have to work something out with a tenant. If the tenant says, “I’m not moving out,” there’s not really much you can do because they have a written lease agreement in place that says they have tenancy until X date, whatever the date is on the lease. So if they don’t want to move, you can’t really force them to move.
Now, if they’re on a month to month tenancy, there is going to be a notice to vacate period. Depending on what state you’re in, it’s going to tell you how long you have to issue. You have to do written notice! like I mentioned before, and give that tenant notice as to when they’re going to vacate the property.
Why should You sell it without the tenants?
If you’re selling a property with tenants in place, you are severely limiting the buyer pool of the potential buyers for this property. People that are looking at this property to live in, to be their own personal home, either A) Aren’t even going to look at the house in the first place because they’re just going to see tenant occupied and they’re going to move on to the next one. B) They’re going to look at it and they’re going to say, “Hey, I really want to live in this house that I’m buying and I want to move in on closing, but I can’t because there’s a tenant in place, so maybe I shouldn’t buy this property.”
Then your other set of buyers are going to be investors and investors only care about ROI, return on investment. So they’re going to look at this rental property and say, “Is this a good return on my investment? Yes or no?”
There are formulas that landlords use to figure out whether it’s a good investment for them, and they’re only going to look at it strictly from an ROI perspective. So don’t be surprised if you get some really low ball offers because you might have a property that YOU THINK is a great property AND IT PROBABLY IS A GREAT PROPERTY! But that property is a better property for an owner-occupant buyer (someone who buys it to live in it to be their own personal home) not a rental property. If you were to run the numbers from an ROI perspective on a rental property, it might be a terrible rental investment, but it might be a really good single family home for someone to live in as their own house.
Not every property makes a good rental property. So if you get some low ball offers, it might just be that the investors saying, “Look, to make the numbers work as a rental, I need to buy it at this.” Don’t take it personal. If you don’t like it, just say no.
Some investors, if they’re savvy enough, will see that, oh, there’s two or three months left on the lease. I’ll just wait it out. I’ll suck it up for a few months, make a negative ROI, and then I’ll get the tenant out of the property when their lease is up, and then I’ll fix it up, sell it, re-rent it, whatever.
You have to understand who you’re dealing with as potential buyers.
What if there’s ANOTHER WAY that you could not have to deal with tenants and still make money off this property every month?
Mailbox Money
We call that mailbox money! I have another website, which is www.mailboxmoneyhouse.com. There are a lot of videos I put up there explaining mailbox money strategies.
I’m going to briefly talk about what’s called seller financing. Or we call it creative financing sometimes where basically we’ll take the rental property off of your hands, we’ll take the tenant off your hands, and we’ll give you a little bit of money every month so you can still get cashflow off of this property every month. CASHFLOW WITHOUT THE HEADACHES!!!
Now we’re the landlord, so we make money, AND YOU make money and everybody’s happy.
You don’t have this property headache to deal with anymore because it’s our problem. Then through the seller financing aspect, you’re going to still get a monthly check in the mail every month.
That might be something to think about on that property. So if you want to ask us about that, we’d be happy to talk to you about it.
If you want to sell the property as-is with the tenants in place, you don’t want to mess with it, we’d be happy to make you an offer on the property. If you want to go the traditional route, I’m actually also a licensed agent with OneSource in Woodstock. So if you’re here in Georgia, we’d be happy to talk to you about listing the property. (If you’re in another State, we have a fantastic network of Real Estate Agents we work with all over the country we can refer you to)
Those are the solutions that I have for you today!