Buying an occupied house
So, we did something recently that we haven’t done in years. We bought a house that was being foreclosed on. Once upon a time, foreclosures were a major part of our business. But I can’t tell you the last time I have been to an auction. What I can tell you is it’s been many years.
We did not buy this house at auction. We bought it the day before it was to be sold on the courthouse steps. And there was someone living in the house when we bought it … Dun dun duuun.
I really don’t like buying houses that are occupied, especially if I know I’ll have to relocate the occupant. I purposely didn’t use the word evict there. You see, we have not had to go to court on most of the occupied houses we’ve purchased. Today, I’d like to go over how we have been able to get people to move on their own and leave the houses in a good condition.
Now, we did not start off as successes in this area. The first house I remember buying with people living in it was in Calhoun. We met with the people and agreed to pay them a sum of money to move out on a particular date and leave the house clean.
They went over the allotted time, and we had to get four — count ‘em four — 40-yard dumpsters to dispose of all the stuff that got left behind. We learned a lot from that deal and the next few until we came up with a great move-out money agreement.
First off, we don’t name the time limit for moveout. We let the occupant tell us what they can do and have them set the date. It’s important to note here that if you’re planning on going to court, you’re required by Georgia State law to give them a 60day notice that they must move since the occupant is something called a tenant at will. What I have found is that the occupants will often chose a sooner time than 60 days out. And since we both agreed on the date they set, it circumvents the 60-day rule.
Once that happens, I ask them if they need any help moving. This question leads to a dollar amount that we plan to pay them as move-out money. Now, something we’ve learned about these funds is they need to be in a sweet spot between something that will maximize your return and something that will motivate the occupant to perform. If it’s not a big enough amount, they won’t work for it. We typically do a couple of thousand dollars. Now, that may sound high, but let me show you what we get in return.
In order for the occupant to receive the full amount of the move-out money, they have to move out by the date and time they set. Next, the house must be broom-swept clean with trash removed and all personal property gone. In other words, in my mind I’m paying the occupant to do the trash out as part of the agreement. I was going to pay for it anyway, so why not have the occupant benefit from it?
Next, we’ve learned that the funds cannot be all or nothing. What I mean by that is we don’t say, “If your aren’t out by the agreedupon date, then you get nothing.” Going that route causes people to lose motivation and they’re more likely not to perform.
Instead, we inserted a clause that states that $100 a day will be removed from the move-out money until they have vacated the property. We’ve found that a $100 a day is an amount that motivates both parties.
And finally, we put a clause in the agreement that says that if they have not cleaned the house out to our definition of broomswept clean, we would hire contractors to do it. Any costs associated with that process, including dumpster rental, will be deducted. And since they will have gone over the agreed-upon move out date, the $100 rule applies as well. Once everything is done, we subtract any deductions and then cut a check for the occupant right there on the spot.
We did this same agreement with the house we bought before auction, and the occupants are on track to get their full move-out money payment.
They got time and money, and we will get a clean house that is ready to start rehabbing. And that makes this a win-win in my book.