How do you buy with tenant in house?
Flipper/Rehabber · Lake Mary, FL · Member since 2011 · 28 posts · 6 votes
I have a seller who wants to sell but has a tenant renting the property. I don't have any solid numbers yet but it will prob be a sub2 or lease option deal. How do I nicely get the tenant out so they don't trash the property? So I can get some money out of this deal sooner than later via new buyer's deposit.
Ben L. - that is exactly why I have escrow get the estoppel. If they say they have an agreement, see if the tenant can provide escrow with a written copy. If the tenant doesn't have a written copy, and the seller says there isn't one. I wouldn't worry too much about it. It'd be quite miserable if one showed up after the fact, but I'll deal with that alligator when it shows its head. You may want to ask the seller to have the tenant to vacate before you close, but I would keep moving forward with the closing with them in the house. It could get nasty in there if you take over a property with a disgruntled tenant, but I've been doing this long enough that I don't have those concerns! hahaha
Almost all my deals are private sellers with tenant occupied properties, just bought two today. I prefer not to even talk to the tenants until after we close. Then I go out there and speak with them in person. I bring an application, just cuz they lived there before doesn't necessarily mean they qualify to live there under my program. I give them a day or two to get the application back to me. If everything checks out, I make them sign a new rental agreement. I have yet to get a property with a tenant on a lease. Not that I haven't tried, just most mom & pop landlords are not that professional. Even if they are on a lease, I'd still try to get them to sign a new lease with me. I don't want a tenant living in my property under some other person's rules. I find most tenants are quite docile, especially the long stay ones and you can get them to roll over quite easily if you are nice to them.
It is a scary situation for them and it is important to understand that. I closed on a property two weeks ago with a family that lived in the house 15 years. The house I purchased today has a 20 year family in it. They lived there when the guy I bought from purchased it! Funny that they have seen more landlord turn over than the landlords have seen tenant turn over!
Being there that long, they probably have a lot of friends in the neighborhood, kids in the local schools, etc. I like to let them stay and I let them know that when I go out to meet them. Keeping them on as tenants is much less expensive than doing a turn over and dealing with a vacancy even if they are paying below market rents. Of course I'll raise the rents up, but just a little bit at time.
Make sure you get a credit for any deposit the tenant might have paid. Get them to sign an estoppel stating how much they paid, how much their rent is, if they are on a lease or month to month, and that they have not been offered any kind of deal to purchase the property.
Cash for keys always works nicely. The majority of the properties I wholesale come with tenants and it is how most of my buyers get them out.
Of course, they are already living there and if they are paying, why not see if they might be your buyer. Sure would save a lot of money.
Usually tenants will not leave because they have not had ample enough time to find a new place. I know in Texas, the lease transferes over to the new owner along with the tenants deposit. The tenants must have 30 days notice so they can start searching for a new residence. If anything, help them find a new residence to rent or like Aaron said, a cash option. You do not want to leave a bad taste in their mouth so they do not trash the property or cause any damage to it before they leave
Aaron, I have a similar situation I am going through. I hate to hijack this thread but what if the tenant has been offered to purchase the property in the past by the seller?
That's when you'll have an unhappy tenant if they stay, after you buy. Be sure that if there was some purchase deal for the tenant, that the tenant declines it in writing, and that the offer has expired / passed any deadline for acting. But I would be cautious in this scenario.
Is the tenant willing to move? Is there a written lease, or is it a month-to-month?
Ben L. - that is exactly why I have escrow get the estoppel. If they say they have an agreement, see if the tenant can provide escrow with a written copy. If the tenant doesn't have a written copy, and the seller says there isn't one. I wouldn't worry too much about it. It'd be quite miserable if one showed up after the fact, but I'll deal with that alligator when it shows its head. You may want to ask the seller to have the tenant to vacate before you close, but I would keep moving forward with the closing with them in the house. It could get nasty in there if you take over a property with a disgruntled tenant, but I've been doing this long enough that I don't have those concerns! hahaha
Almost all my deals are private sellers with tenant occupied properties, just bought two today. I prefer not to even talk to the tenants until after we close. Then I go out there and speak with them in person. I bring an application, just cuz they lived there before doesn't necessarily mean they qualify to live there under my program. I give them a day or two to get the application back to me. If everything checks out, I make them sign a new rental agreement. I have yet to get a property with a tenant on a lease. Not that I haven't tried, just most mom & pop landlords are not that professional. Even if they are on a lease, I'd still try to get them to sign a new lease with me. I don't want a tenant living in my property under some other person's rules. I find most tenants are quite docile, especially the long stay ones and you can get them to roll over quite easily if you are nice to them.
It is a scary situation for them and it is important to understand that. I closed on a property two weeks ago with a family that lived in the house 15 years. The house I purchased today has a 20 year family in it. They lived there when the guy I bought from purchased it! Funny that they have seen more landlord turn over than the landlords have seen tenant turn over!
Being there that long, they probably have a lot of friends in the neighborhood, kids in the local schools, etc. I like to let them stay and I let them know that when I go out to meet them. Keeping them on as tenants is much less expensive than doing a turn over and dealing with a vacancy even if they are paying below market rents. Of course I'll raise the rents up, but just a little bit at time.
Braden Souder Another good idea would be to market the real estate as investment property. Nowadays, it's so hard for many buyers to get financing. So, many of the sales are being made to those with cash, or real estate investors. As you know, most investors have no intentions to live in the properties they invest in anyway. So, marketing it as rental property with a tenant may actually help you sell it faster.
Just be sure to get a copy of the rental agreement or lease from the owner. That way, you can answer any questions potential buyers may have as far as the monthly rental amount, when the lease ends, etc... Also, make sure the seller and buyer are both clear about who will be responsible for returning the security deposit when the tenant does move.