A lease-purchase deal with a renter already in the home will be the same as usual, but it\u2019s the details of their lease and the math that matters here. As in every deal, you just need to know how to navigate the terms and become that master transaction engineer.<\/p>\n
What does that mean? You\u2019ll evaluate the property and circumstances, and decide whether it\u2019s a sandwich<\/a>, a subject to<\/a>, or owner financing.<\/p>\n Related: <\/strong><\/em>Buying Investment Properties with Existing Tenants<\/a><\/em><\/p>\n We\u2019ve bought more than one property with a tenant in it, but in this particular example, we started out with a sandwich and later converted it to a subject to. This strategy substantially upped the profit margins, almost like a payday No. 4.<\/p>\n Think about that for a minute. Because we have it subject to (we own it versus a lease purchase with a date coming up to cash out the seller), we\u2019re able to NOT pressure the tenant buyer. They can enjoy the home longer before rushing to cash out.<\/p>\n If they cash out early or on time, great. If they don\u2019t and you have to give them an extension, you\u2019re back in the driver’s seat. You could change the price, terms, or anything else you\u2019d like. That\u2019s where the payday No.4 was just created\u2014additional principal pay down, maybe more monthly, and maybe a higher price.<\/p>\n During the viewing, you should tell the seller your exact plan. Tell them you\u2019re OK with inheriting a tenant, but you need to do the homework first and meet the tenant. Tell them, \u201cI want to view your home while your tenant is there.\u201d<\/p>\n Ideally, it would be a meeting just between you and the tenant(s)\u2014not the seller. That way you and the tenant can speak freely.<\/p>\n Related: <\/strong><\/em>How to Handle Inherited Tenants: Reviewing Leases, Raising Rent & More<\/a><\/em><\/p>\n You can pick their brain and get good information, like whether they\u2019re disgruntled or not, whether the property has some challenges. Ask about things you may not hear about if just speaking with the seller.<\/p>\n It\u2019s also good to meet with them to see if you want to deal with them for months or years to come. Are they communicating well with you? Are they keeping up the home or is it a complete mess?<\/p>\n After the meet and greet, you can let the seller know what you\u2019ve decided. \u201cMy term of X (hopefully 36 months or more) begins when I either convert your tenant to my buyer or when their lease ends and I fill it with my own buyer.\u201d<\/p>\n Have the terms start when the tenant leaves or when you\u2019re able to convert them. If you like the tenant, you can convert them into a tenant-buyer using the usual process. If the tenant doesn\u2019t want the home or can\u2019t qualify for your buyer process, toward the end of their lease (say 90 days or so) start marketing the home.<\/p>\n If the home is beat up or unkempt by the tenant, just wait it out. In our case, we had about 18 months left. I typically start marketing for my buyer just before the tenant is out.<\/p>\n The risk here is they back out or sell the property. That said, on the other side of that coin, the tenant could default and leave earlier.<\/p>\n Don\u2019t be intimidated by it. That\u2019s just the business. And when you\u2019re comfortable with deal structuring, you\u2019ll be able to pivot in any direction necessary<\/a>.<\/p>\n![\"row](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/03\/cap-rate.jpg\" "\\"\\"")
<\/p>\nHow to Handle Properties With Existing Tenants<\/h2>\n
Be Transparent With the Seller<\/h3>\n
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<\/p>\nMeet With the Tenant One on One<\/h3>\n
Establish the Terms With the Seller<\/h3>\n
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