Flipper/Rehabber · Long Beach, CA · Member since 2017 · 155 posts · 118 votes
I’m in negotiation with a seller on a small multi family property in riverside, CA. They are out of state owners and are currently paying the mortgage for a friend to live there for free. She is a senior citizen and can’t afford to pay rent I guess?
I offered $330k
Seller countered at $340k + 1 year lease for their friend (old lady) @$1000/month
(Market rent is $1050-$1150 /month)
They will not budge on helping out their friend. Any advice on what I should do next?
you could counter at $330k or even less and keep the "friend" because that seems to be the most important to them. If the friend doesn't pay rent they would go through the same process as any other tenant in the same situation. If you don't want to inherit any tenants your only option may be to move on.
you could counter at $330k or even less and keep the "friend" because that seems to be the most important to them. If the friend doesn't pay rent they would go through the same process as any other tenant in the same situation. If you don't want to inherit any tenants your only option may be to move on.
We just bought a two unit in Riverside for about that price. If they are going to “Force” their Tenant on you, then I would ask for a price discount. As bad as this sounds from a moral perspective, if they want you to be nice to this tenant, you can take advantage of that in the form of a price reduction.
@Aaron Klatt
I’m worried that since the previous seller is out of the area, and they would be liable for rent. I would run risk of “serving notice” to someone that is not actually living in my property. Not sure how that would work. Might need a lawyer to draft that document.
That’s true I may go that route. But the reduction would have to be more than the monthly rent would be. I value that monthly rent more than the reducing my loan amount. I actually just went up on my purchase price in exchange for no tenant. We’ll see what they say.
If they want to pay the rent make sure they are on the lease and that if they stop they will have an eviction in their name as well, which could damage their credit. Talking to a lawyer would be the safest option though.
@Patrick Fraire I'd counter at $330k + 1-year of rent for this friend with the contingency that the friend sign a lease agreement with you, which would basically be a pre-paid 1-year lease. Put wording in it that after the one-year period she can renew at $xxx and just know going into it that she won't be able to afford this. 30-days prior to the end of the lease (or whatever CA requires for notice) give her notice to vacate and (assuming she doesn't fight it) she's out and you can get new renters in. Definitely document everything in writing and have her sign it all, not the people you are buying the place from. Also make sure it's clear to her from the get-go that you're raising to market rents after her one-year is up so she needs to be prepared.
I'd need a really good purchase price to consider inheriting the tenant since high probability that ends in an eviction and an uncomfortable situation all around.
@Patrick Fraire you’re already raising your bid and talking about walking away due to a $100 a month potential differential over a one year perIod. Obviously this disagreement isn’t based on anything thats fInancIally objective.
Why don’t you run a credit report in her to asses her default risk before any more emotional decisions are made and more money wasted
@Brett Goldsmith why is this a “high probability” eviction situation when absolutely no risk analysis has been done? All I see is an ex landlord who likes her old tenant and doesn’t want to lose her apartment after a sale
@Steve B. If I had a better understanding of her family situation, income, game plan for after a year, etc, I may feel slightly different.
Initially I see a tenant who has had free rent for quite some time and who needs help. The sellers are trying to get her one last helping hand because they know they need it. Now you have a tenant who is used to be taken care of and hasn't paid rent like a normal person for quite some time. Now they may need to go back out into the wild and pay normal market rent, deposit, etc. I see potential challenge.
I've worked with a lot of people who are low income and to me it's a red flag. We can use the word red flag instead of high probability as I agree I don't have enough info. Either way I'd still want a good deal to inherit a tenant on a property I'm not going to initially cash flow on and run the risk of even a low probability eviction.
@Patrick Fraire
i feel like i suggest this in every rentback situation, however, it may not work as well in this situation, but have you considered twlling them to leave $5-$10k in escrow with the stipulation that it be used to evict the tenant if you arw forced to evict. if you give them some extra skin in the game, they will come back and help get her out in a year
@Patrick Fraire
I agree with what some of the others have said. You should try and reduce their asking price down to 330 because keeping the friend their for another year seems pretty important to them. I'm sure they know it's a bit of an odd request therefore they might be willing to negotiate a little more.
The mortgage would cost you almost twice rents, then factor in vacancy/repair/capex reserves and you are majorly negative cash flow assuming you are financing with a typical down payment. Yet they want you to rent it out to them for a year, or 12K out of your pocket???? I'd offer them 318K and leave the tenant there on a month to month tenancy for a year. If they balked I'd WALK no questions, especially at this stage in the market. You will be majorly being scammed if you take their deal as is.
to clarify...the rental income I posted was regarding the 1bed/1 bath unit. The other unit to be (house hacked) rented by myself. Pro forma rent of $1400/month.
The market rent I posted was as-in condition, not pro forma.
After expenses I will be paying market rent for a unit I am occupying plus gaining yearly equity equal in an “up and coming” community.
Make a financial decision and know what your option are. How easy is it to evict in that area? What are the costs? Will the tenant accept a raise in rent? Do you want to keep the tenant? Are you ok with your own personal mental threshold evicting the current tenant? Does this all fit into your financial goals? If not, find another deal. There are tons of them out there.