Latest / Results Driven / Episode 185: How to Wholesale Houses With Tenants Without Getting Burned

Transcript

Episode 185: How to Wholesale Houses With Tenants Without Getting Burned · Results Driven

• 0:00
  SPEAKER_00: Now, what we've done in the past is let's say that the seller doesn't want the tenant to know about this until inspection is passed.
• 0:07
  SPEAKER_00: The seller, we've always recommended, hey, you can tell them that, hey, my I'm changing insurance companies so they have to do an inspection, or hey, I'm refinancing the house so they have to do an appraisal.
• 0:17
  SPEAKER_00: These are all reasons why somebody would have to do a full-blown inspection in the property without them thinking that you're selling the property.
• 0:23
  SPEAKER_00: If you want to wholesale properties that other investors are afraid to touch, you need a process that helps you identify the risk before the risk becomes your problem.
• 0:36
  SPEAKER_00: Are you a driven real estate investor tired of inconsistent deal flow and ready to scale your business?
• 0:42
  SPEAKER_00: I'm Tiffany High and I'm Josh Hyde.
• 0:44
  SPEAKER_00: And this is the Results Driven Podcast, where we share proven strategies to build systems that faster sales, grow your team, and create a self-sustaining business with predictable income.
• 0:56
  SPEAKER_00: Whether you're a one-person operation or building a team, our mission is to give you the tools, support, and mindset chips you need to succeed.
• 1:04
  SPEAKER_00: Let's dive in.
• 1:09
  SPEAKER_00: Can you wholesale a property if there's already a tenant living in it?
• 1:13
  SPEAKER_00: This comes up all the time because you will lock up a deal, start looking at the numbers, and then the seller says, Oh yeah, there's a tenant in there.
• 1:20
  SPEAKER_00: And now the investor starts panicking.
• 1:23
  SPEAKER_00: Can I still wholesale it?
• 1:24
  SPEAKER_00: Can I market the property while the tenant's living there?
• 1:26
  SPEAKER_00: Who is supposed to communicate with the tenant?
• 1:28
  SPEAKER_00: How do I get buyers through the house?
• 1:30
  SPEAKER_00: What paperwork do I need?
• 1:31
  SPEAKER_00: And probably the biggest one, what happens if the seller keeps telling me, don't worry, the tenant will be out by closing.
• 1:37
  SPEAKER_00: And then closing day comes and the tenant is still sitting there.
• 1:40
  SPEAKER_00: The first thing I want you to understand is that a tenant-occupied property is not automatically a bad deal.
• 1:46
  SPEAKER_00: Actually, some of our best deals were tenant-occupied, but you cannot underwrite it the same way you would a vacant house.
• 1:52
  SPEAKER_00: You are really evaluating two things, the property itself and the situation attached to the tenant.
• 1:57
  SPEAKER_00: Sometimes that tenant actually makes the deal more attractive because you're selling it to a landlord who wants an occupied rental.
• 2:04
  SPEAKER_00: Other times you're inheriting somebody else's nightmare.
• 2:07
  SPEAKER_00: The entire skill is figuring out which one you have before you close.
• 2:12
  SPEAKER_00: I'm gonna walk you through the exact questions that we ask the seller, what documentation we collect, and how we communicate with the tenant, how we manage our buyer access, and then how do we underwrite the worst case scenario before we decide what to do with the deal.
• 2:27
  SPEAKER_00: We have dealt with a lot of situations where the property itself was not the hardest part of the deal.
• 2:32
  SPEAKER_00: The situation around the property was the tenant-occupied deals are a perfect example.
• 2:37
  SPEAKER_00: A lot of new investors see a tenant and immediately think, problem, get out, but that is too simplistic.
• 2:43
  SPEAKER_00: Sometimes the tenant is paying market rent, has a clean lease, takes care of the property.
• 2:48
  SPEAKER_00: And your landlord buyer loves the deal more because they don't have to do anything and place anyone inside the property to take it over.
• 2:55
  SPEAKER_00: Other times the tenant is six months behind, nobody has a copy of the lease, there are verbal agreements everywhere, and the seller swears they are moving out even though nothing has actually been done.
• 3:06
  SPEAKER_00: Those are two totally completely different deals.
• 3:08
  SPEAKER_00: So the goal here is not to be afraid of tenant-occupied properties.
• 3:12
  SPEAKER_00: The goal is to get enough information that you know exactly what you're buying into.
• 3:17
  SPEAKER_00: So what I'm gonna do next is we have what we call a tenant-occupied seller questionnaire that my team has at their desk or on their computer.
• 3:26
  SPEAKER_00: And there's a lot of questions to ask when a tenant is involved.
• 3:28
  SPEAKER_00: So I'm gonna go through some of these.
• 3:30
  SPEAKER_00: Some I'll go in more depth with, some are common sense, and then talk to you a little bit about well, what if they don't have a copy of the lease or something like that?
• 3:38
  SPEAKER_00: Question number one, is there a written lease, right?
• 3:41
  SPEAKER_00: Because we want a copy of it.
• 3:43
  SPEAKER_00: And at least by our state law, we inherit that lease when we buy the property.
• 3:49
  SPEAKER_00: So if there isn't a lease in place and the tenant is going to stay in the property after closing or be living there at time of closing, you'll need what you call an e-stoppable signed.
• 4:02
  SPEAKER_00: An e-stopple is a written, like shortened lease, essentially.
• 4:07
  SPEAKER_00: And it has like the start date, expiration, is it a month-to-month status, occupants, the rent, due date, security deposit, if there's any prepaid rent, when was the last payment made, utilities, deposits, pets, tenant-owned appliances, side agreements, any repairs or disputes, et cetera.
• 4:24
  SPEAKER_00: It's like a smaller lease, essentially.
• 4:27
  SPEAKER_00: And the new owner and the tenant all sign it so that we know what we're physically taking over by state law.
• 4:35
  SPEAKER_00: You're going to want to have that, by the way, if there's not a written lease.
• 4:39
  SPEAKER_00: Now, if they're in a situation where the tenant is a problem and they are not paying rent, they won't communicate, et cetera.
• 4:49
  SPEAKER_00: And so maybe they won't sign the E stopple, then we have to plan on an eviction.
• 4:53
  SPEAKER_00: Now, every state is different with their eviction laws.
• 4:57
  SPEAKER_00: So you need to get educated on your state laws.
• 4:59
  SPEAKER_00: You can even leverage AI to go in and say, hey, I live in this city, state, and county.
• 5:04
  SPEAKER_00: Give me the exact step-by-step process to evict a tenant who is non-paying, and it'll probably line that out for you.
• 5:11
  SPEAKER_00: Now, in my state, we have a whole process, but what I would really recommend for investors is that you have an eviction attorney on your team of attorneys.
• 5:20
  SPEAKER_00: Okay.
• 5:21
  SPEAKER_00: And my guess is you can go into your Facebook groups, your local investor Facebook groups, and just say, hey, when I run into properties that need a tenant evicted, who's the best eviction attorney in town?
• 5:32
  SPEAKER_00: Okay.
• 5:33
  SPEAKER_00: Now they're not that expensive.
• 5:34
  SPEAKER_00: At least around here, they're not.
• 5:36
  SPEAKER_00: So instead of me trying to figure out the process and messing one part of it up, I hire an eviction attorney and they handle the entire process.
• 5:44
  SPEAKER_00: From the time I close that deal, they take over all the notices, the notices on their door, the communication, everything moving forward all the way through the eviction.
• 5:54
  SPEAKER_00: And it costs us like four to six hundred bucks, depending on the situation.
• 5:58
  SPEAKER_00: Now, what's really important if you run into the situation like that is most eviction attorneys, that's all they do.
• 6:05
  SPEAKER_00: So they're just like in the court all day doing evictions.
• 6:09
  SPEAKER_00: Now, they'll be able to tell you, like, hey, the courts are backed up, expect six weeks or eight weeks or whatever.
• 6:16
  SPEAKER_00: And then always ask them, hey, what's worst case scenario on timeline?
• 6:19
  SPEAKER_00: And let's assume they don't get out of the property even when they've been evicted.
• 6:23
  SPEAKER_00: So in our state, it takes about four to six weeks to do the eviction.
• 6:28
  SPEAKER_00: And then if they don't move out, it could take another four weeks for the sheriff to show up and get them out of the property.
• 6:34
  SPEAKER_00: Okay.
• 6:34
  SPEAKER_00: And so ultimately we want to get familiar: is this a problem tenant or a good tenant who wants to stay and is paying market rent?
• 6:41
  SPEAKER_00: Or is it a good tenant who wants to stay but is paying below market rent?
• 6:45
  SPEAKER_00: Right?
• 6:45
  SPEAKER_00: Those are all different situations.
• 6:47
  SPEAKER_00: Now, I'm getting sidetracked here a little bit, but if once we say, is there a written lease, we want to get a copy, right?
• 6:53
  SPEAKER_00: Because you are legally obligated to assume that lease when you buy the property, can you send a copy of the lease?
• 6:59
  SPEAKER_00: Like you need to make sure that your purchase agreement in the additional terms and conditions has contingent review and approval of the tenant lease with this property.
• 7:10
  SPEAKER_00: That is really important.
• 7:12
  SPEAKER_00: Because if you do not add that, they could probably fight you and say, no, no, no, you sign this purchase agreement, you're assuming everything with the property.
• 7:18
  SPEAKER_00: Okay.
• 7:19
  SPEAKER_00: We want to know when was the lease start and end date.
• 7:22
  SPEAKER_00: Now, every state's different on this as well.
• 7:24
  SPEAKER_00: Like in our state, how you can evict someone or give them notice to leave the property is very different.
• 7:30
  SPEAKER_00: On let's just say it's a 12-month lease from April to April and they're in January right now, right?
• 7:37
  SPEAKER_00: That's very different than if they're in a month-to-month lease on how we can provide notices to move out of the property.
• 7:43
  SPEAKER_00: Again, those are all things that I would get educated on on your state, city, and county.
• 7:49
  SPEAKER_00: And I would also then take that education and call an eviction attorney locally and just get familiar with what's happening in the court system.
• 7:57
  SPEAKER_00: Because every judge is different, every county is different, et cetera.
• 8:00
  SPEAKER_00: So you want to know are they month to month?
• 8:02
  SPEAKER_00: How much is the rent, right?
• 8:04
  SPEAKER_00: That's a big deal.
• 8:05
  SPEAKER_00: We want to know is it a problem tenant, right?
• 8:07
  SPEAKER_00: Or a tenant that wants to stay in, and are they paying below market rent or at market rent?
• 8:12
  SPEAKER_00: Are they current, right?
• 8:14
  SPEAKER_00: Because if I inherit this lease and they are not current, and when I say current, they could be one day late and now you can still start the eviction process.
• 8:22
  SPEAKER_00: When was their last payment made?
• 8:24
  SPEAKER_00: And a lot of times before, let's just say we review the lease and we approve the lease and we're taking over the property.
• 8:30
  SPEAKER_00: I want proof of that rent deposit, right?
• 8:34
  SPEAKER_00: So I make the seller send me a deposit in their bank proof of a statement.
• 8:40
  SPEAKER_00: Okay.
• 8:41
  SPEAKER_00: How much was the security deposit?
• 8:43
  SPEAKER_00: Is it on the lease?
• 8:44
  SPEAKER_00: Is it clear?
• 8:45
  SPEAKER_00: Was the last month's prepaid?
• 8:47
  SPEAKER_00: Like we want to know all the details around this lease.
• 8:49
  SPEAKER_00: And if they don't have a copy of the lease, we have to ask as many questions as possible.
• 8:53
  SPEAKER_00: Who pays the utilities, them or you?
• 8:55
  SPEAKER_00: I unfortunately back in the day when I bought my first set of rentals, bought a package of 10 houses and had no idea that I paid utilities.
• 9:05
  SPEAKER_00: I think it was on the lease, but unfortunately, I did not pay attention to that part of the lease.
• 9:09
  SPEAKER_00: So that$250 a month that I was planning on cash flow went straight to utilities.
• 9:13
  SPEAKER_00: Obviously, I fixed it on the next turn around, but lesson learned.
• 9:17
  SPEAKER_00: Who actually lives in the property, right?
• 9:19
  SPEAKER_00: So even though Sally signed the lease, does they have kids?
• 9:23
  SPEAKER_00: Are they married?
• 9:24
  SPEAKER_00: Like who's living in the property?
• 9:26
  SPEAKER_00: Are there any pets and is the pet on the lease, right?
• 9:29
  SPEAKER_00: Because guys, if you don't own rentals or you haven't flipped enough houses, there's no such thing as turning a rental after they move out who had a pet who doesn't pretty much use up their whole security deposit on floors, paint, et cetera, from the pet.
• 9:42
  SPEAKER_00: Are there any verbal agreements with the tenant that are not in the lease?
• 9:45
  SPEAKER_00: This one's important because a lot of times you might run into situations where a family member is renting it or mother, brother, sister, aunt, uncle, whatever, and they do things verbally.
• 9:56
  SPEAKER_00: Well, my aunt said I that she would do this or whatever.
• 9:59
  SPEAKER_00: And we need to get an understanding of what those could be.
• 10:02
  SPEAKER_00: Have you promised anything about moving or staying?
• 10:05
  SPEAKER_00: Right.
• 10:05
  SPEAKER_00: So maybe the tenant doesn't know they're trying to sell and they are current on rent, but maybe they're below market rent and they're just, they just don't want to talk to them, don't want to tell them, they're scared.
• 10:15
  SPEAKER_00: A lot of times that'll happen because they'll be like, well, I don't want to tell the tenant because what if you don't buy my property?
• 10:19
  SPEAKER_00: I don't want them to move out and then not get cash for the mortgage, right?
• 10:22
  SPEAKER_00: Do you want the tenant to remain or are you expecting them to leave?
• 10:26
  SPEAKER_00: We want to find out, like, again, do they know you're wanting to sell the house and are they willing to be out by closing, or what's their situation?
• 10:33
  SPEAKER_00: And how can we help the situation if the numbers look like they're gonna make sense?
• 10:37
  SPEAKER_00: Has a notice already been given to the tenant?
• 10:39
  SPEAKER_00: So let's just say they're behind on rent.
• 10:42
  SPEAKER_00: Have they followed the state policies of how to evict the tenant?
• 10:46
  SPEAKER_00: This will help you understand what then you're taking over, what mess you're taking over.
• 10:50
  SPEAKER_00: Are there any current disputes, repair issues, or other problems with the tenant?
• 10:55
  SPEAKER_00: That one's important.
• 10:56
  SPEAKER_00: And pay attention to how their voice sounds when they answer that because they might want to hide something.
• 11:03
  SPEAKER_00: We've had an issue in the past where we bought a house with a tenant in it who was behind, which we actually planned to keep it as a rental, but get the non-paying tenant out.
• 11:14
  SPEAKER_00: And as we took over the property, this was back before I knew to do all of this, right?
• 11:19
  SPEAKER_00: I found out that they were disputing and not paying rent because they found what they thought was mold in the basement.
• 11:26
  SPEAKER_00: So they felt that they were in a strong stance of, I'm not paying rent until you fix this.
• 11:31
  SPEAKER_00: I was not aware of that.
• 11:33
  SPEAKER_00: And so we ended up having to handle that situation differently and get an attorney involved.
• 11:38
  SPEAKER_00: So we just want to understand like, do they hesitate in their voice when they're like, no?
• 11:42
  SPEAKER_00: But you're like, oh, okay, just want to make sure, because you know, in the past, sometimes I've had tenants where they've sent complaints about repairs or washing machine or dishwasher or mold, and maybe they weren't paying rent because of that.
• 11:53
  SPEAKER_00: So it's just policy that I ask because maybe this something will come up.
• 11:57
  SPEAKER_00: Has a tenant agreed to leave or is anything in writing?
• 12:01
  SPEAKER_00: Notice that I'm asking a lot of questions about is something in writing?
• 12:05
  SPEAKER_00: Because if it's in writing, you're assuming it.
• 12:07
  SPEAKER_00: If the tenant is supposed to leave, when are they expected to be out?
• 12:11
  SPEAKER_00: Like what's the agreement of that time frame?
• 12:14
  SPEAKER_00: Now keep in mind, at least in our state, you cannot talk to the tenant.
• 12:19
  SPEAKER_00: The seller has to talk to the tenant.
• 12:21
  SPEAKER_00: So if you're going to communicate with a tenant, you probably legally need to have the seller on the phone.
• 12:25
  SPEAKER_00: I get it.
• 12:26
  SPEAKER_00: Some investors are like, hey, is it okay if I call the tenant?
• 12:28
  SPEAKER_00: What's their phone number?
• 12:30
  SPEAKER_00: But you really should check state laws because technically the landlord is who has to communicate with them.
• 12:35
  SPEAKER_00: Now you can help them communicate.
• 12:37
  SPEAKER_00: You can get on calls with them, you can help them draft letters, you can help them, but it has to come from them.
• 12:41
  SPEAKER_00: What has been communicated to the tenant about this sale so far?
• 12:45
  SPEAKER_00: Now, again, a lot of times they don't tell the tenant because they're afraid they'll rush out of the property thinking they don't have a home and then they're stuck.
• 12:52
  SPEAKER_00: Who should communicate with the tenant about access and showings?
• 12:56
  SPEAKER_00: So, what we could do, um, again, reference your state laws, but we can get on the phone with the tenant together and say, hey, I'm the one that's gonna be uh looking to buy the property.
• 13:06
  SPEAKER_00: Can we coordinate times with you?
• 13:08
  SPEAKER_00: Now, what we've done in the past is let's say that the seller doesn't want the tenant to know about this until inspection is passed.
• 13:15
  SPEAKER_00: The seller, we've always recommended, hey, you can tell them that, hey, my I'm changing insurance companies so they have to do an inspection, or hey, I'm refinancing the house so they have to do an appraisal.
• 13:25
  SPEAKER_00: These are all reasons why somebody would have to do a full-blown inspection in the property without them thinking that you're selling the property.
• 13:32
  SPEAKER_00: If you want to wholesale properties that other investors are afraid to touch, you need a process that helps you identify the risk before the risk becomes your problem.
• 13:40
  SPEAKER_00: And that is exactly what Josh and I teach inside of our free results-driven REI community.
• 13:45
  SPEAKER_00: Every week we go live and break down how we evaluate real deals, how we handle complicated seller situations, how we underwrite risk, and how we build the acquisition and transaction processes that move a property from the first conversation all the way to closing.
• 14:00
  SPEAKER_00: The reality is the more problems that you can confidently solve, the more opportunities you're going to have to make money.
• 14:06
  SPEAKER_00: But the key word there is confidently, not recklessly.
• 14:09
  SPEAKER_00: You need to know what you are stepping into and price that risk accordingly.
• 14:14
  SPEAKER_00: Guys, the community is completely free.
• 14:16
  SPEAKER_00: I'll put the link in the description and pin it to the comments.
• 14:19
  SPEAKER_00: Join us and I'll see you inside.
• 14:22
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• 14:26
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• 14:29
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• 14:35
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• 14:39
  SPEAKER_00: We'll see you next time on the results driven podcast.
• 14:42
  SPEAKER_00: We'll see you next time on the results driven podcast.