Would you buy a property with long term tenants?

28 Replies

From your experience, is there any advantage of buying a property with long term tenants living in there?

I only see disadvantage such as, most of the time their rent is not high enough and you won't have enough cash flow.

What is your experience?

It really depends on how the previous landlord manage the property... I have bought property with long term tenants and had to inform them to move due to low rent and not caring for the property which is due to the lack of landlord involvement. I know other people that took over long term tenants and had great experience but i do know the previous landlord was very involved. If you know the rents are low...just automatically assume they are going to leave when you come in and charge the higher rent.

Originally posted by @Andre Taylor :

It really depends on how the previous landlord manage the property... I have bought property with long term tenants and had to inform them to move due to low rent and not caring for the property which is due to the lack of landlord involvement. I know other people that took over long term tenants and had great experience but i do know the previous landlord was very involved. If you know the rents are low...just automatically assume they are going to leave when you come in and charge the higher rent.

 In Canada its illegal to evict somebody just because the rent is low. If the tenant is paying on time and keeping the property "nice", than its hard to evict them.

But like you were saying, if the house you bough was not taken care, and you could see some damages, than this is an excuse to legally evict a tenant.

@Leandro Zhao just to clarify.... the property i took over that had tenants in place... they were on a month to month. I gave them 60 day notice to vacant so they have enough time to move. Would been different story in they were still in leases then i would had to honor that until the end

Originally posted by @Leandro Zhao :

From your experience, is there any advantage of buying a property with long term tenants living in there?

I only see disadvantage such as, most of the time their rent is not high enough and you won't have enough cash flow.

What is your experience?

 I guess you don't know what happening in Toronto. Rental increase is capped at 2% annually. What landlords are trying to do is called renoviction to force tenants out so they can get a new tenant/lease at a much higher lease amount.. Not encouraging you to do that  but that's what's happening  

Originally posted by @Hai Loc :
Originally posted by @Leandro Zhao:

From your experience, is there any advantage of buying a property with long term tenants living in there?

I only see disadvantage such as, most of the time their rent is not high enough and you won't have enough cash flow.

What is your experience?

Thanks for sharing, I did not know that this is happening. I'll will look more about this topic.

 I guess you don't know what happening in Toronto. Rental increase is capped at 2% annually. What landlords are trying to do is called renoviction to force tenants out so they can get a new tenant/lease at a much higher lease amount.. Not encouraging you to do that  but that's what's happening  

 

Originally posted by @Leandro Zhao :

From your experience, is there any advantage of buying a property with long term tenants living in there?

I only see disadvantage such as, most of the time their rent is not high enough and you won't have enough cash flow.

What is your experience?

 To answer your original question

If your strategy is long term hold for cash flow and if the numbers don't work in your market you need to move on to another market. In Toronto for single tenant rental there is like no cash flow if you plan on putting the minimum 5-20% down. Its an appreciation play and all the investors know that. 

Investors try and be creative renting out rooms or floors in multi level homes. This is done in Toronto all the time and by doing so can generate cash flow but is more cumbersome in management. 

If you thinking about short term rental it should be able to generate solid cash flow but its more active whether your managing it or not..

We do it pretty often. A lot of the investment properties in our market have tenants in place at the time of purchase. It's not ideal, but if the numbers still work then I'd still pursue it.

For my personal investments: After purchasing a houses with tenants in place I give them the option to renew at the market rate + run a credit check but if I know from the previous sellers that the tenant is a problem I move forward with giving them a 30 day notice to vacate. 

Originally posted by @Leandro Zhao :

From your experience, is there any advantage of buying a property with long term tenants living in there?

I only see disadvantage such as, most of the time their rent is not high enough and you won't have enough cash flow.

What is your experience?

In our market, with capped rent increases and no reliable way to evict a tenant without fault, I would only buy the property if I knew that I was getting a deep enough discount or felt comfortable that the tenant would take cash for keys (signed N11).

 

If I ever sold my properties any landlord would love them!  My friend who owns a building down the steet from my property wanst to steal them from me..lol. I have 2 two family houses in NYC and all four doors are rented to the same tenants for over 12 years.  They are elderly, healthy, retired, live very comfortably, make minimal to no noise at all, very clean and they pay on time all the time. When the rents increases, although I haven't raised the rent in five years, they don't complain. I painted the units three times during those 12 years and they stay with their children to keep the place vacant for 2 days.  They also know that they pay a little less then what the market calls for.  The tenants in one of my two family homes got together and gave my wife and I $1000 when they found out we had a newborn.  If I ever sold they come with the house and anyone would love them!!

My parents had long term rentals, on stayed in the house 23 years and the other I think it was 40 years.  When my parents passed and I had to sell the houses to spilt with 11 heirs, one left willingly.  They had 8 years to buy the houses and knew when my mom passed they would have to be sold.  The other pulled every 'poor me' tactic in the book to stay.  They were appointed an advisor and advocate to try to force me to let them stay longer.  They tried to force an ADA accommodation to let them stay longer.  Basically they wanted the way under market rent as long as they could have it.  They tried the media--poor old folks being forced out by greedy heirs.  They wanted us to sell the house with them in it, but I wanted to fix it up and get what it was worth.  After 40 years it was way to cluttered to sell, plus 4 adults and grandkids in a 3 bedroom 1 bath house, 900 square feet, it was fully packed.

So, long story, but a problem with long term tenants is they don't always leave willingly, even with months of notice.  And sometimes they are so accustomed to the low, low, low rent that they can not find anything nearly similar for the amount they can afford.

Oh, and sometimes their deposits are so low they are sadly inadequate.  ONE OF MY MOM"S WAS $25 and the other was $50.

@Leandro Zhao

You should know what their rent is and whether it’s a good cash flowing property before you purchase.

If it is good cash flow, then yes I would definitely buy a rental with long term tenants. I already try to lock in 2-year leases with an escalation clause with my tenants when possible. I want them sticking around.

Vacancies cost money.

Vacancies do cost you money.

However I would double check the market rent to make sure they aren't too far below market rate.  Condition of the property is something else I look at.  That's great they are long term renters, but if they trashed the place and left it in poor shape it will cost you more than a 1 year tenant that is clean.  It's unfortunate I see some older landlords sort of taken advantage by some tenants.  One I am currently working on is almost 250 dollars below market rate.  He has had them in the unit over 10 years and never raised the rent!  When I asked why he said he didn't want to burden them and was afraid they would leave.  This gentleman has 3 properties like this.

Cash flow.  Make sure it cash flows an amount that you are comfortable with.  Everyone is different on what they like.  Low cash flow and units in poor shape would be a huge red flag for me.

Give the tenant some notice if you are planning on raising the rent.  They will either accept it and stay or leave.  In which case your new renter would pay the higher rate.

Originally posted by @Lynnette E. :

My parents had long term rentals, on stayed in the house 23 years and the other I think it was 40 years.  When my parents passed and I had to sell the houses to spilt with 11 heirs, one left willingly.  They had 8 years to buy the houses and knew when my mom passed they would have to be sold.  The other pulled every 'poor me' tactic in the book to stay.  They were appointed an advisor and advocate to try to force me to let them stay longer.  They tried to force an ADA accommodation to let them stay longer.  Basically they wanted the way under market rent as long as they could have it.  They tried the media--poor old folks being forced out by greedy heirs.  They wanted us to sell the house with them in it, but I wanted to fix it up and get what it was worth.  After 40 years it was way to cluttered to sell, plus 4 adults and grandkids in a 3 bedroom 1 bath house, 900 square feet, it was fully packed.

So, long story, but a problem with long term tenants is they don't always leave willingly, even with months of notice.  And sometimes they are so accustomed to the low, low, low rent that they can not find anything nearly similar for the amount they can afford.

Oh, and sometimes their deposits are so low they are sadly inadequate.  ONE OF MY MOM"S WAS $25 and the other was $50.

I'm sorry for your lost :(.

Thank you for sharing your story. 

What was the end result of this?

 

@Leandro Zhao . I don't even ask how long the tenants have been there. It matters not. How much is rent, and how long does the current lease have left on it. If the current tenants have been there 3 months or 30 years, it doesn't matter. When their current lease is up, the rents will be market rate (which usually means raising the rent). Now, the current rent and length of lease does matter on how much my purchase offer is.

Originally posted by @Leandro Zhao :
Originally posted by @Lynnette E.:

My parents had long term rentals, on stayed in the house 23 years and the other I think it was 40 years.  When my parents passed and I had to sell the houses to spilt with 11 heirs, one left willingly.  They had 8 years to buy the houses and knew when my mom passed they would have to be sold.  The other pulled every 'poor me' tactic in the book to stay.  They were appointed an advisor and advocate to try to force me to let them stay longer.  They tried to force an ADA accommodation to let them stay longer.  Basically they wanted the way under market rent as long as they could have it.  They tried the media--poor old folks being forced out by greedy heirs.  They wanted us to sell the house with them in it, but I wanted to fix it up and get what it was worth.  After 40 years it was way to cluttered to sell, plus 4 adults and grandkids in a 3 bedroom 1 bath house, 900 square feet, it was fully packed.

So, long story, but a problem with long term tenants is they don't always leave willingly, even with months of notice.  And sometimes they are so accustomed to the low, low, low rent that they can not find anything nearly similar for the amount they can afford.

Oh, and sometimes their deposits are so low they are sadly inadequate.  ONE OF MY MOM"S WAS $25 and the other was $50.

I'm sorry for your lost :(.

Thank you for sharing your story. 

What was the end result of this?

 

 The last try the renters used was asking for an accomodation through ADA.  They wanted an open ended time to leave, but at least 6 months additional to 2 years because the man was disabled with a bad back.

As with everything you have to go through the process, so I asked for the doctor statement about the extent of the disability--recovery and accomodation.

That is when the doctor blew it for them.  He wrote that the man was going to have surgery on his back sometime in the future from 2 weeks after they were to have moved out to 2 years and then depending on how the surgery went he could have several years recovery time when he would have lifting restrictions.

so, I told his advocate that according to doctors statement he was not currently disabled and he needed to move out before his surgery and he was disabled  Also no one was requiring he lift anything, 4 adults lived in tbat house, plus one can hire help.

They did move out! Thanks to the doctors very well written letter.  I think the doc knew what was happening.  They moved from LA suburb to the desert and even then they had to sell one of their $40plus vehicles.

@Leandro Zhao As part of your offer to buy, you can negotiate a vacant building as a condition. If the cash flow doesn't work with the existing tenants, then you might want to look at another place. Read up on the landlord and tenant requirements to evict tenants. In Toronto, you have to give tenants 1 month rent rebate, if you evict them regardless of reason. I have long term tenants in Toronto(some for 15 years...) so I feel the pain every month when the rent increases are only 1.2-2.3% per year. So you have to stay on top of increasing rent every year. Keep in mind, these tenants are your clients, they are helping you pay down your mortgage so there are pros to long term tenants. 

There are areas where there is no rent control like Alberta. So if rent control is your concern, then look in those areas. 

@Anthony Wick that's great, but unfortunately the law here doesn't work like that. Tenants have "security of tenancy" and when their lease ends, you cannot evict them. You also cannot increase rent by more than the prescribed amount (inflation up at 2.5%, 2019 was 1.8% and 2020 is 2.2%), and need to give them 90 days notice to increase their rent by the prescribed amount.

Also, it's not cumulative. So if you didn't raise rent for one year, or 10, you're only allowed increasing by the basic amount the year, not for previous years.

You can put whatever you want in the lease but if it goes against the tenancy law, it will be found to be invalid.

There is a reason they have lived there since the dawn of time . It’s usually not because they enjoy the sunrise over trees the hummingbirds and the yard . More often than not it’s because the last person was a hobby landlord that allowed them to do whatever they wanted and never bumped the rents to market prices because they were scared of a vacancy ! Worry about the rental rates not how many years they say around and stunk the place up 

@Leandro Zhao

If the tenants were properly screened and well managed, and the current owner is providing you solid documentation such as the move in condition report and such, it could be a big win.

That being said, I would imagine that if things were going smoothly, the owner wouldn’t be as inclined to sell, so in that case, I would strongly consider either requiring the place is vacant at closing, or I would factor in eviction costs into my purchase offer.

@Leandro Zhao

Sorry, I just realized you are in Canada, and I’m not sure how your laws are on these matters, so consider my above statement as unlikely to apply in your situation.