Tenant Buyer Trashes Property.. who is responsible

[R/E Possibilities 0]

Who is responsible for damages if the tenant buyer thrashes the property.

 

Here is the possible sinario. Interest rates go up and property values go down over the next two year. The tenant buyer realizes that the value of the house won't be anywhere close to the lease option price so he is not longer motivated to take care of the property. He then trashes it. Who is responsible for the damages? Am I as the investor on the hook? Does the contract specify?

 

Also, if the tenant buyer stops paying rent do I, the investor have to pay the rent for him to fulfill my lease agreement with the seller?

 

Thanks,

 

Ed

[MichaelC 160]

Ed, just for a moment I'm going to play along with your scenario. It is the worst case scenario, by the way, but it's good to cover all bases. So I'm glad you asked.

If for any reason your tenant/buyer does damage, then yes, you have got to make good and repair those damages. Now, before you up and quit your real estate career before it even begins, you must realize and accept a few things in this business.

Bad tenants do exist. And every landlord will have a "tenant from hell" story to relate one day. Don't kill the messenger. That's the reality. I'd be doing you a disservice by telling you otherwise.

However, one of the reasons we opt for lease purchasing versus leasing, and tenant/buyers versus tenants, is to try and avoid just this type of scenario. As anyone on this board already knows, there are numerous advantages when dealing with an individual or family who view the property as if it's their own because they are in a rent to own situation. Of course, this doesn't guarantee us that all will work out perfectly each and every time. We do our due diligence when screening applicants and we make our best effort to avoid mistakes and problems. In so doing, situations like you describe above should be the exception, by far, rather than the rule.

Also, if the tenant buyer stops paying rent do I, the investor have to pay the rent for him to fulfill my lease agreement with the seller?

Are you asking if you are responsible for rent payments to the homeowner if suddenly and unexpectedly you should find yourself with a vacant property in month six of a twenty four month agreement? The short answer is yes, you are on the hook for rent payments. The good news is that in my contract between me and the seller I have a number of safety nets which allow me to get out of the deal if it isn't working as expected, and limit my liabilities to one month's rent. So we can breathe easy.

[grannyguru 0]

Wouldn't your liability for t/b damages be a great reason why a seller would be assured you will pick a great t/b to put into his house?

 

Another reason to do business with you, instead of just going ahead on his own?

 

Seems to me that a l/p through any one here would be a super deal for a seller, because if he does it by himself then he becomes the landlord, and has no one but the tenant to look for for damages.... but if he includes you in the deal, not only is the deal done right, but the seller has another layer of protection....you!

 

Of course, I look at this differently: I am so darn happy to have the opportunity to do it WHILE HAVING THIS FORUM and Michael to help me that people are asking me what's different with me!

 

The reason: I DIDN'T do this years ago because I was plagued by many of the same fears voiced here... legitimate concerns sometimes.... So, to protect my family, I didn't "risk" these things. Result: can anyone say ENRON?

 

I wasn't with ENRON, but my company and industry did the same thing to me... dot com, downsizing, outsizing... finished with 9/11 and the recent corporate dive.

 

NOW I can do this without concern because, as a result of my inaction and paralysis, I have nothing left to lose, and they would have to stand in line to get it.

 

My point is: there are risks to everything you do.

 

Also: this is another reason why you should do business as an LLC. Am I right Michael?

 

However: thank you for the question and voicing your concerns: I know I need to know as much as I can about the pitfalls and how to deal with them!

 

Alice

[MichaelC 160]

Good post, Alice. And, yes, operating as an LLC is another way to limit your personal exposure in any deal you do.

My advice to all new investors: be well aware of what can possibly go wrong, and have a contingency plan in place for when something does happen. However, don't let fear be your action killer. Plan your work, and work your plan.