- The Prosperity Blueprint
- Posts
- Essential Contract Clauses for Tenanted Properties: Safeguarding Your Real Estate Investments Through Legal Agreements
Essential Contract Clauses for Tenanted Properties: Safeguarding Your Real Estate Investments Through Legal Agreements
Nicholas Burrus
January 15, 2024
Presented by Astra Properties LLC
Essential Contract Clauses for Tenanted Properties: Safeguarding Your Real Estate Investments Through Legal Agreements
By Nicholas Burrus · 01/15/24
Thanks for tuning in to today’s read! Read time for today is roughly 5 mins.
Happy Monday 🌄
We’re officially halfway through January ❄️
Today we’re discussing buying properties with tenants in them-
Along with ideas on how to protect yourself while doing so.
Let's dive in!
What Clauses Should Be Add to Your Lease Agreement? ✍️
Some lines need to be drawn
Don't let bad tenants, low rent, and inefficient landlords keep you from acquiring a tenant-occupied property.
If the location is good and the price is right, a tenanted property can be a real moneymaker!
Tenants are already living in the property; this saves you the hassle of looking for renters.
You can also earn income immediately and get a return on your investment quickly (if they’re up to date and paying rent)
Of course, challenges are bound to crop up when acquiring a tenant-occupied property - like a less-than-ideal property condition or a problem bad renter.
Good thing there are ways to nip these issues right in the bud: adding very specific terms to the agreement 😎
Here are the clauses you should add to your offer:
Term 1: Pay all fees, deposits, and part of the rent directly to the property manager when the sale is finalized
Don't let tenants or landlords hold on to deposit and prorated rent longer than they should after a real estate transaction has been finalized.
The deposit and all prorated rent payments and fees should go directly to the buyer at the close of escrow.
In some states, the security deposits can be applied to the buyers closing costs
Adding this term to the agreement saves you the hassle of figuring out who has the deposit and wondering when to get it.
Ask for all enforceable contracts and binding agreements immediately after the accepted offer. With this clause, you are not wasting time doing your due diligence. All the documents you need to review should be handed to you at the agreed period, including information related to:
Terms of the current lease
Rental amounts
Outstanding issues or disputes between the landlord and tenant
Current status of the lease agreement
Term 3: Buyer should inspect tenant-occupied units within 3 days of agreement
Some sellers do not allow buyers to check tenant-occupied units without accepting the offer.
You can't see the property's condition without access to the tenanted units first.
Adding this term gives you access to the premises and check the property condition before paying for a professional inspection.
Term 4: Seller cannot change or make new leases without buyer's written approval before escrow closing
This term prevents the seller from extending and changing current lease agreements. And if there are changes made to the agreement, it should be accepted only if approved by the buyer.
This way, the seller can’t surprise you with an amended or altered agreement.
Cause no one likes surprises 🙂
They can only change the lease agreement with your approval.
With this clause, you also have the opportunity to change the agreement to suit your financial plans, such as raising rent after a year and other conditions you consider appropriate as the new owner.
Some things to consider before buying a tenanted property
- 34% of American households are renting their home
- 7 in 10 rental properties are owned by individuals who have only one or two properties
- The average monthly rent in the U.S is $1,343 (a two-bedroom apartment, depends on the size of the rental space)
- Verbal leases are legally binding in states like Idaho, Illinois, Florida, and California. But states that accept oral leases have some restrictions and guidelines in place.
- Dealing with a problematic tenant? Check if the property is located in a very landlord-friendly state. Some landlord-friendly states like Texas, Indiana, Colorado, Florida, and Pennsylvania make evicting a bad tenant difficult (and expensive!).
- Eviction can cause some problem tenants to fight back. If you're buying to hold an income property indefinitely, it takes a few weeks to several months before a tenant leaves.
- If you cannot afford to wait until the bad tenant leaves, you can pay them to go.
Working things out with the problem tenants is the best way to go. The evicted tenants are least likely to fight back if they are paid to leave. It will also saves you time and money in the long run so it’s a win-win.
The first step to solving the problem is to change your perspective: Instead of looking at these issues as problems, think of them as opportunities to build equity and expand your portfolio.
Remember, issues with a property affect its marketability, not its value.
Besides understanding the landlord-tenant laws in your area and reviewing the existing lease, being clear about the lease terms addresses issues with the tenant, property condition, and the current lease.
💫 What Else is Poppin? 💫
Volkswagen x OpenAI's ChatGPT - The Collab No One Saw Coming 🤖
Talking to your car is the FUTURE
Volkswagen announced plans to integrate OpenAI's ChatGPT into its cars and SUVs starting in the second quarter of 2024 during the CES 2024 in Las Vegas.
The AI chatbot will be added to VW's IDA voice-controlled assistant, a feature introduced last year.
The integration won't require opening a ChatGPT account or installing an app - the chatbot comes automatically with IDA using spoken natural language.
VW teamed up with Cerence Inc. to develop the automative-grade ChatGPT integration.
With this new feature, pretty soon you'll be able to talk with your VW car and even make it perform basic tasks like adjusting the air conditioning, getting directions, answering general knowledge questions, or going through your playlist, just like Ewan McGregor in this commercial:
If the bot cannot perform a task, it will reach out to the Cerence servers to solve the problem or, at the very least, explain itself.
Now, if you're worried about your data, VW assures drivers that ChatGPT will not gain access to vehicle data.
All questions and answers will be deleted immediately to protect user data.
Volkswagen is the first car manufacturer to offer Chat GPT as a standard feature in all its car models. All VW models with IDA get automatic access to ChatGPT, and the chatbot is activated using the wake words "Hello, IDA."
Catch the latest episode of the AstraCAST podcast!
Have you subbed to our podcast yet?
You can catch me and Marcos on YouTube, and Spotify! Catch up with us as we bring on guests from all parts of the industry covering everything from real estate, personal development, to growing a business through acquisitions, rentals, and renovations.
Don’t be shy, check us out here!
🌟 Refer a Friend to The Prosperity Blueprint! 🌟
Expand Your Network, Enrich Our Community
At Astra Properties, we believe in the power of community. Our newsletter, The Prosperity Blueprint, is more than just a source of insights on real estate and business strategies—it's a platform for shared growth and inspiration.
Why Refer a Friend?
Shared Knowledge: Help friends and colleagues gain valuable insights into real estate dynamics and business acumen.
Exclusive Content: Both you and your referred friends get access to special content, insider ideas, and events.
Community Strength: Each new member enriches our network with fresh perspectives and opportunities.
