Listen to This BEFORE Buying a Rental with Tenants (Rookie Reply)

0:00Ashley Kehr:Today, we're diving into three real-world scenarios submitted by rookie investors just like you. From tenant appliance swaps to analyzing a deal and launching your first property. We're covering it all. So whether you close five deals or you're prepping for your first one, you're going to want to take notes.

0:17Tony J. Robinson:That's right. We're breaking down what to look out for legally, financially, and operationally in situations that can just kind of sneak up on new investors. Plus, we'll share how we would handle them based on our own experience investing in real estate across different markets.

0:35Ashley Kehr:Let's jump into our first question. It comes from Todd in the BiggerPockets forums. So this question is, should I let my tenants swap in their own appliances? I have a prospective tenant who is interested in moving into a vacant unit. They asked if they could swap out the stove and fridge for their own appliances. I have a shed on site so I could store the existing appliances for free. I would also make it clear that they are responsible for repairs to their appliances. Is there anything I'm not considering that would make it a bad idea to let them swap in their own appliances? Appliances, hot topic for me because I dread having to have appliances repaired, replaced.

1:23Ashley Kehr:We have a great company we use, but it's usually a very expensive repair to get these appliances, to have somebody come in and take care of them. So I think, personally, it is a great idea to have tenants bring their own appliances because you don't have to worry about maintaining them, repairing them. One big thing is, okay, the fridge doesn't work. All of their food they have to throw away. Landlord, we want you to pay for all our food. Here's our$600 grocery bill of all the food we shoved into that fridge. It's their own responsibility to figure out what to do with their food if the fridge breaks down.

2:08Ashley Kehr:So that's why I love it when tenants bring their own appliances, because it does cut down on the maintenance request and issues that can happen to kind of butt heads in a situation like that where they want you to, you know, like we've we had a circumstance before where the fridge stopped working and we brought over a cooler with ice for them to put it in. But it's like that is not convenient for me to do. So that's why I'd rather not have the appliances. at all.

2:39Tony J. Robinson:I couldn't agree more, Ashley. I think appliance repair is like one of those silent things that can just kind of leak profit from your properties. And you're fortunate, Todd, that you're in a situation where the guest or the tenant wants to bring their own appliances. Like in the short-term rental space, I can't tell someone, hey, bring your own fridge when you book my Airbnb. And we spend an obscene amount of money with all these different refrigerators and stoves and microwaves and all these different things that break just from normal wear and tear. So I agree wholeheartedly with Ashley. I think if they want to bring their own appliances, absolutely positively, I would let them do that.

3:20Tony J. Robinson:I think the only, I guess two things I would just call out is I would want to specify in the lease that the unit does not come with whatever appliances they're bringing in and that they are responsible for keeping their own appliances and working condition. And, you know, I guess I don't know how much of a risk this is, but maybe it's worth putting in there as well. But just like, I don't know, what if someone's, you know, say they brought in their own stove, you know, and say their stove malfunctions and causes some sort of damage, you know, maybe a fire to the entire unit. And just making sure you have some sort of language in there that would also hold them accountable if their appliances and their neglect led to some larger issue with the property.

4:10Tony J. Robinson:But overall, I like the idea.

4:12Ashley Kehr:That's interesting you bring that up because we have a resident that just moved in and we weren't supplying the appliances. And she asked if my maintenance guy can actually hook up her stove. and we talked about it and we decided no we thought it was more of a liability if he hooked it up incorrectly or like there was something faulty with her stove that would come back on him because he's the one that connected the gas so we ultimately decided no that we weren't going to connect their stove to the property that they would have to handle that and then we did have another issue that's currently still ongoing where we did supply the stove and they put in a maintenance request that the stove was smoking when they would try to cook.

4:59Ashley Kehr:So we sent out our appliance vendor and he went out and he said that everything is working correctly, that at the time it had been around Thanksgiving or whatever. And he said there was grease and he thinks like when they cook their turkey, whatever, grease, like filled all into the stove. And it's just in like, nooks and crannies, but he said it's just, it's grease from whatever what. And he said, it just needs a really good deep cleaning. And so they keep submitting maintenance requests that their stove is smoking. So we have the appliance guy going out there for the second time. So after this time, which I'm assuming he's going to say the same thing, it needs to be cleaned.

5:40Ashley Kehr:I need to figure out what my course of action is going to be. Am I going to tell them like, sorry, you need to clean it as we told you before, or am I just going to replace the stove? So I don't have the headache of this constant maintenance request for the stove, but then what's going to stop it from happening again, where they're not cleaning it and whatever. So that's something I will have to decide that does the cost outweigh, you know, the headache of this continuously happening. And they are great tenants. I mean, they take care of the property, They pay their rent on time. So it's just one of those things where it might be worth it to just buy the new stove and kind of hopefully be done with it.

6:24Tony J. Robinson:But I think you also bring up a good point, Ashley, of conditioning your tenants to behave in a certain way. And I think swapping the stove for them maybe could reinforce the wrong behavior because it's the stove this time. But what if it's the microwave next time? What if it's, you know, and then it's, they keep pulling out all their hair in the shower and they keep clogging the drain. It's like, okay, well now, now the shower is the issue. So yeah, maybe there is something to be said about what, what kind of behavior do we, uh, do we want to reinforce with the tenants as well?

6:56Ashley Kehr:Yeah, that's actually a really great point too.

6:59Tony J. Robinson:When, when the, when the tenants move out because they're mad about the stove, you can come back and, uh, and blame me.

7:03Ashley Kehr:I guess to kind of wrap up this question is make sure whatever you decide to do, you have it written specifically in the lease agreement. If the lease agreement is already signed, just add an addendum. Stating that as of this date, they are supplying their own appliances and things like that. Also, wherever you're, if you're storing your appliances in the shed, just like make sure that like no, you can tell I live in the country by this comment. No mice are getting in and, you know, building nests inside the stove or the oven too by the shed. Okay, we're going to take our first ad break and we'll be back with more questions right after this.

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9:54Ashley Kehr:Okay, welcome back.

9:56Tony J. Robinson:All right, guys. So our second question for today comes from Arisha. And Arisha asks, I'm considering investing in the Los Angeles market and looking at a four-unit multifamily property that's already tenant-occupied. I know LA is incredibly diverse with some great neighborhoods and some that are more challenging. I've already pulled data on the zip code, demographics, crime, rent trends, et cetera, but I don't want to base my entire decision on just that. For those of you experienced with LA or multifamily investments in general, a few questions. Number one, what other strategies do you use to make sure you're not walking into a money pit or dealing with bad tenants from the start?

10:35Tony J. Robinson:Number two, do you request leases or payment histories before closing? Number three, how do you evaluate tenant quality when it's an occupied property? And finally, number four, any red flags you look for when it comes to older buildings in LA. Again, a lot to unpack here. And let's maybe just take it question by question and ask, Ash, you're the resident multifamily expert on the show here. I love how I just crown you with all these experts.

11:02Ashley Kehr:And I just can't wait to disappoint you and lose that title.

11:06Tony J. Robinson:But let's go to the first question here. It says, what other strategies do you use to make sure you're not walking into a money pit or dealing with bad tenants from the start? I've never purchased a property with inherited tenants. So I'll always lean on you when it comes to this, Ashley, but let's maybe handle that part first, right? How do you make sure you're not dealing with bad tenants if you buy something that's already tenant occupied?

11:26Ashley Kehr:Yeah. So first you're looking, you're going to hopefully walk the property and you'll see how well the tenants are taking care of the property. You'll also get a lot of information from the tenant being home. When you do the showing there have been so many times I have had tenants say to me like, this needs to be fixed, this over here, make sure you look down over there in that corner. There's something going on there. And you get tons of information as to if they're real concerns or not, but at least you're getting stuff pointed out to you, which I always think is great. So just doing the showings while the tenants are there, even though it is very uncomfortable walking through someone's home and looking at stuff and them being there in the house, but you'll get a lot of information from most tenants will tell you a lot of stuff.

12:17Ashley Kehr:The second thing is to get copies of the lease agreements and then to also send the tenants. And this usually you have to wait until you're under contract to do, but send a stopble agreements. We have one of these at biggerpockets.com slash resource, and you can get a copy of the estoppel agreement. And it's basically you send them to the tenants with the owner's permission, and it's just asking them to verify all of the information that is in the lease agreement. Or if there's not a lease agreement and you're just going by the rent rider that's attached to the purchase contract, you can verify that what the seller is telling you is the same as what the tenant is saying.

12:55Ashley Kehr:And you'd rather have a discrepancy before you close on the property and get to the bottom of it after you closed on it and now you have to try to figure out how to handle this discrepancy. So those are kind of like the big things that you can do as far as getting to know if it's a quality tenant. I did just create a tenant screening guide with RentReady, and you can find that in the resource hub by going to biggerpockets.com slash tenant screening. And this full guide gives you how to screen a tenant. But this is also a great resource to read through before you even do any screening, even if you're inheriting tenants.

13:34Ashley Kehr:And maybe you can talk to the seller, maybe talk to the agent on what the actual screening process was for the seller of the property too. So do they have a copy still of the rental application that was filled out? Do they have a copy of any of the screening reports that were filled out that they could give to you? And, you know, if they decide not to give those to you or whatever, you know, maybe that's a red flag and they probably would have to get the tenant's permission to give, you know, especially if it had their social security number on it or whatever, Maybe they can black it out. But I think asking for all of that information is a great way to see, did they actually do their due diligence in the proper screening to get quality tenants in place?

14:23Tony J. Robinson:Um, Ash, you know, so many good points. And I guess one follow-up question, and maybe you can educate me here, but if there's a, you know, say, say she buys a fourplex, all four units are tenant occupied. There's leases that take us through the next six months. Can the new owner run a new like screening process, background check, credit report, like all of those things, even though the tenant's already there, or do they typically have to wait for that lease renewal period?

14:52Ashley Kehr:I mean, you could do it at any time, but you're going to need to get the tenant's permission. So you're going to need their social security number, most cases to do any of this screening. The Estoppel agreement will have a lot of information that would be on a rental application, but you can screen the tenants at any time. It's just, you'll need their permission. And like a lot of property management software, it's third party in a sense that you're actually not doing the screening yourself, a third party is doing it for you, the tenant actually requests the reports and asks for the reports to be sent to you as the landlord.

15:33Ashley Kehr:Because if you actually were doing the screening yourself and getting somebody's social security number, running these checks on them, you would, so I actually did this before and I was a property manager, we would do all the screening in-house and we actually had to have these verification inspections done to make sure there was a lock on our office door to make sure there was a lock on our filing cabinet and they would want to see where the applications were stored and make sure that we had security on our computers and things like that so no in most cases no matter what software you're using to screen the tenants, you're most likely going to have to have them like actually start the process of ordering the information.

16:21Ashley Kehr:And also you should never order any kind of screening report without a tenant's permission or an applicant's permission at any time anyways. So you could send a letter and say, I'm just letting you know I'm running screening reports, things like that. But I would get, you know, have them sign something that they're getting permission. Or if you just send them the link from like the property management software, like Rent Ready has a great screening process where the tenant just goes in, they get an email with the link and they go and fill in their information and then you get the report. So you could just send that to them, whether they will fill it out or not.

17:00Ashley Kehr:But I don't think that you can force them to actually do it because you can't even force an applicant to do it because if they don't do it, they're just not getting to rent the property.

17:12Tony J. Robinson:But I guess what's the repercussion for folks that are already there? Like, hey, if you don't fill this out, then it's just like an immediate non-renewal at the end of your lease?

17:21Ashley Kehr:Well, that really depends on state laws as to if you can do a non-renewal and how long until you can do a non-renewal, how many days notice non-renewal. But yes, you could say like if you don't, because a lot of states you can non-renew for no reason. You can just decide you're not going to renew new villies. In some cities, counties, like it is almost impossible in some areas to do a non-renewal. But yeah, you could definitely do that as a reason if your state allowed it or non-renewal and say, this is your notice. You can either accept, do the screening report or a non-renewal. But also I would make it clear that if their screening report doesn't come back as to what you want, making it clear that you may not be renewing it, that just because your screening doesn't guarantee.

18:17Ashley Kehr:But yeah, you could definitely do that when the leases come up and it is time for that renewal to decide if you're going to keep the tenants in place. But I think I honestly would not do that because I think that you're already going to know a little bit about the tenants from the history of the previous landlord. And if you're having to wait till a renewal period, you're seeing how they are. Maybe if they just moved into the property right before you bought it, you won't have any kind of background information on their payment history or, you know what they're like but you still you would still have to have them for another full year till their their lease is up so yeah personally i would i would say that i wouldn't i think you would have a you already have those tenants in place and it's like well let's see how it goes but you bring up another good point actually about like the

19:11Tony J. Robinson:the local laws and regulations and that was kind of the last part of this question was are there any red flags you look for when it comes to older buildings in Los Angeles? And this is just new or old building, but really making sure that you understand, hey, what are the local landlord tenant laws, both in California and specifically within Los Angeles County? I'm in the neighboring county, right? So even for me, I don't even know what all the laws are for Los Angeles County, but just really making sure you understand what your responsibilities are as a landlord in Los Angeles County, that you understand what your limitations are as a landlord in Los Angeles County, that you're abiding by those laws because it can get a little bit tricky.

19:57Tony J. Robinson:But I think in general, just like general red flags, always make sure you do an inspection on your property during your due diligence. You're buying a multifamily property in Los Angeles. It's not going to be cheap. So making sure you get a really, really thorough inspection done, you bid out whatever comes back to see what is it actually going to cost for me to fix these things. And if it's cost prohibitive or if it doesn't make sense and not being afraid to walk away from the deal, I think the mistake we see with a lot of new rookies, multifamily, single family or otherwise, is that sometimes they invest so much energy and they're so excited once they go under contract, they start to force the deal to still make sense.

20:38Tony J. Robinson:But sometimes you get into that due diligence period and you identify things that make the deal not make sense. And you've got to be able to recognize that and not get so caught up in the emotional aspect of it all. But yeah, those are, I guess, some of the red flags I would look out for. Anything else on your side, Ash, from a red flag perspective?

20:56Ashley Kehr:No, I think just how you mentioned to get an inspection on the property, but also ask the inspector, like, hey, could you make me a list of what's going to need to be fixed in the first year? What's going to need to be fixed in the next three years, the next five years, and then the next 10 years? And that will kind of give you an idea of what your capital improvements would be down the road. So like you can look at the, you know, how old the hot water tank is and say, on average, the lifespan of this type of hot water tank is 10 years. So it, you know, you, it's eight years old, you probably got two years till you need to replace it.