I left the closing table of my latest house excited to get started furnishing and listing my first out-of-state home on Airbnb. I was also excited, nervous, and unsure about a brand new challenge… telling the long-term tenants, who had never met me, that they needed to find a new place to live. This problem certainly isn’t new, but it is one that takes some thoughtful tact to ensure its resolution goes smoothly.
I found out very early on in the purchase process that the seller had a tenant occupying the home. If I were planning to use the property as a long-term rental investment, this would be great news. The transfer of landlordship would be relatively smooth. I would just need to review the lease agreement, evaluate the renter, and make a plan to get the rent up to the market rate. The switch from long-term to short-term renting created an obvious issue: I would need to kick someone out of their home. This post will be written from the lens of shopping for a new house, but the principles are all applicable for existing long-term rental owners.
How To Handle The Transition
This process is an emotional dance that may test your moral maturity, especially since we are assuming the renter did nothing wrong (this isn’t an eviction – we’re just telling the people they need to leave). It is also risky for your investment, as these conversations could result in negligence and destruction of your property if not handled well.
Step 1: Understand The Lease Term
If the incumbent renters still have 8 months (for example) on their lease and you want to get started with your Airbnb listing sooner than that, you should probably find another property or just wait patiently for the lease to expire (if you already own the house). If you are house shopping like I was, you may have a conversation with the seller/seller’s agent to see if the tenant has expressed interest in moving out early (if you own the house and have a good relationship with the tenant you could also have this conversation with them) but, otherwise, it isn’t worth the legal trouble and bad karma to try to kick a renter out before their lease is up. Personally, I would have just moved onto another property.
If the lease agreement ends in 3 months or so, I wouldn’t be nearly as discouraged. When you take into account the fact that it may be a month before you’re at the closing table for a new purchase, plus the fact that you’ll be making money (hopefully) from the rent while you wait after closing, the renter will be moved out before you know it. Plus, any extra time can be used to shop for furniture, research the area, and find cleaning and maintenance services.
Lucky for me, the lease agreement with the tenant was month-to-month. Jackpot! This was the best possible scenario. After closing, I just had to go meet the renter and ask him to start looking for his next home. Now is when the tact comes into play.
(Note: There is no hard and fast rule on how long you should be okay with waiting for a lease to end. The decision depends on how eager you are to get started with your Airbnb. I use 8 and 3 months in my go/no-go examples but these are just examples.)
Step 2: Make It Personal
I went straight from the closing table to the house so I could introduce myself to the renter. I wanted to make a personal connection so, to him, I wasn’t just another greedy landlord or corporation viewing him as an asset. When I saw he wasn’t home, I left a note in the mailbox asking him to call me.
When he called the next day I introduced myself and let him know I was the new owner of the house. I then learned about him, a student at the local university with a side job at a great sandwich shop, which he encouraged me to try. Now that we knew each other a little better, I wanted him to know that I was on his side. I asked about the living conditions and what I could do to make him more comfortable. I could tell he really appreciated that and that the previous owner made no such contact. Once we saw each other as humans, it was time for me to break the news to him.
Step 3: Save Some Details
Just because you plan to turn the home into a listed unit on Airbnb doesn’t mean you have to tell the tenant that. Remember, you want the person renting to see you as a person, not someone who is kicking them out for an opportunity to make more money.
What I told the tenant in my house is something along the lines of “I’m sorry to say it, but I did buy the house to use it myself”. “Using” the house is completely accurate to your intentions and runs the lowest risk of rubbing the other person the wrong way. They don’t need to know what you want to use it for and it’s pretty unlikely they’d ask. If you already own the house, you could say something as simple and vague as “I am getting ready to do something else with the house and, unfortunately, I can’t renew your lease”. This is a respectful way to get your point across that doesn’t place any blame or maliciousness onto the renter.
Needless to say, the renter in my house took the news well and said he would start looking right away. I told him to tell me if there was anything I could do to assist in his search. Seeing that I live 350 miles away and was probably far less familiar with the town than he was, there was a slim chance he would actually need my help. Nonetheless, it doesn’t hurt to let the renter know you are there to make the transition easier for them.
Step 4: Be Specific
You want everybody to be clear on when the house is to be vacant. This is where the month-to-month agreement may actually make this process more tricky than one that has a certain end date. With my conversation happening in the middle of the month…December of all months…I wasn’t going to make the guy leave by the new year.
Rather, I asked him how long he would need. I already knew when I wanted him to be moved out (the end of the following month) but I wanted to ask him how long he might need. Luckily, he came back with “the end of January or early February”. Perfect. This way the timing was his idea and I get the move-out date I wanted. If he had said a date too much further off, I would be able to ask about his circumstances and either come to an agreement or stay firm with my timing if need be. Fortunately, we were on the same page.
Step 5: Sweeten The Deal
Now that you have made a personal connection, broken the news in a thoughtful way, and come to an agreement on timing, there’s still more you can do to incentivize a renter to leave your house in great shape. In theory, the security deposit’s whole purpose is to provide that incentive. However, it isn’t always the case.
To most serial renters the security deposit is already lost. If they get the whole thing back after moving out, this money will go right into their next home as its security deposit. And, the money probably came from a previous unit’s deposit before this one. The longer they’ve been in your home, the longer it’s been since they’ve seen the check. Because the money is so far removed from their pockets, it doesn’t quite do the motivating a landlord hopes it will.
When I spoke to a few real estate investors on the subject, they advised me to sweeten the deal a little bit by offering extra money to the tenant in the form of keys-for-cash. Now, I didn’t use the phrase “keys-for-cash” with the tenant (it sounds too corporate) but I did tell him that I wanted to give him “a little extra” with his security deposit after moving out, assuming everything is left in good shape. This way it’s sort of an additional “thank you” to them, as opposed to just threatening to withhold a security deposit they likely forgot about anyway. For me, $200 seemed like the right amount to offer a college student paying a cheap rent price. He seemed like a nice guy who didn’t really need too much buttering to get him not to flush a bunch of tampons down the toilet. For your scenario, you may want to increase the amount. Think of it as an investment in preserving your property. The better condition its in when you get the keys, the quicker you can get it listed on Airbnb and making you money.
When the final walkthrough goes flawlessly and you hand the tenant a check in exchange for the keys, you can feel happy that both parties walked away smiling. Or, at least, that you did everything you could to keep everybody smiling. The most important thing is that you treat other person or people with respect. You may own the property but they have called it home for some period of time. You have now put them in a position where they need to find a whole new home and that should not be taken lightly. It is your responsibility to ensure everybody wins in this transaction. When you do that, you are truly running a respectful and responsible business.