TLDR at bottom.
I put an offer in for a two family property in the Albany, NY area. The property was listed as vacant. When I went to visit the property I found a woman living in the upstairs space. I figured, okay maybe they leased the apartment recently. I liked the building so I put in an offer and it was accepted.
I asked for a copy of the lease. The listing agent responded "MTM." I asked my agent for more information. It turns out the person living there is mentally handicapped but she was a tenant for a long time. Her partner passed away recently. The owner is letting her stay there until they can find another place for her to live. I was assured that the building would be delivered vacant.
Some time goes by. I thought I was waiting for my clear to close from the lender. After awhile I am notified that we can set a date so I assume the building is vacant. I ask for a final walk-through. They tenant is still living there. I am now being told that they found a place for her and she will be out by the 30th. I told them I'm not going to close. Now my lender is telling me that I lost my rate lock. He said that my rate lock was extended twice because the seller's lawyer delayed because of this tenant.
At this point I'm very annoyed that I was not told that property was still occupied. I notified my lawyer that I may want to back out of the deal. I don't like that the tenant is still there but I'm as annoyed if not more that it was not communicated to me. I think they would have let me close with the tenant still there if I had not asked for another walk-through.
There some minor repair issues as well.
If it matters the price is $87,000 (plus ~$10k in repairs) for 2 units that could rent for between $1400-$1700. This is my first deal. Any advice would be appreciated.
TLDR: Was lead to believe the building was vacant. Mentally handicapped tenant is on the 2nd floor not paying rent. Closing was delayed. I think I want to back out of deal.
I think there is two things I would consider. 1. What is your risk tolerance? If it is high than you may be able to handle the slow process of getting this tenant out. If this is your first deal you may not have that high of a risk tolerance and if so, you may be right about wanting to back out. 2. If the lender is going to be changing your rate, does that change the numbers on the deal? Depending on what numbers your using, that could swing the deal from a great one to a good one or even maybe a bad one. I would say try to stick it out if you can, it seems like you have a decent deal on your hands, but I would run the numbers again with the potential new rate and just be proactive yourself, to keep the communication line open on when this tenant will be out.