Engineer · Montclair, NJ · Member since 2015 · 103 posts · 57 votes
I'm under contract for a 3 unit, the owner wants to stay on as a tenant and is willing to sign a lease (initially the property was advertised as owner would like to stay but not required). I'm ok with this as I figured we could do a 1 year lease and would act as a good transition for both me and the property. The owner has come back and wants a 3 year lease slightly under market value. I've countered and agreed to his low number for a 1 year lease and he still insists on a 2 year lease with option to renew. Am I being unreasonable by not wanting the owner to stay for a longer period? I will be owner occupying another unit and I'm afraid of the old owner trying to take advantage of me being the new owner becoming a headache down the road. I would also like to note the existing owner is using his 2 bedroom unit as a 3 bedroom and using almost all of the common basement storage for himself.
@Jonathan S.. There are several factors that would determine whether or not I would do this. I wouldn't do this if this is your first purchase. You need to be an experienced landlord and know that the seller will not be able to run over you, or think they are in charge. Also, how good of a deal is this? They want to stay for 2-3 years, at below market rent? Ok, then they need to accept a lower offer that makes up for that cost to you. $100 a month below market rent, for 3 years, is $3,600. They need to lower their asking price by probably $4k or more. And no, they do not get the option of extending the lease. You are always going to control that option. Oh, and he needs to get his junk out of the basement, or he needs to pay an extra fee for use of that storage area. And, at the end of the day, if he's going to be a pain, you simply do not agree to this deal.
He knows it isn't a dealbreaker for you at this point so he is trying to squeeze you in negotiations. If it's me unless I'm getting a great purchase price it is market rent or nothing. I'm certainly not signing a multiyear lease with the guy.
Why does the owner want to stay as a tenant at all? Sounds very fishy to me...
States one of his roommates is 85 and on a wait list for assisted living that could take 3 years also he wants to retire and move south but hasn't made the decision yet
He knows it isn't a dealbreaker for you at this point so he is trying to squeeze you in negotiations. If it's me unless I'm getting a great purchase price it is market rent or nothing. I'm certainly not signing a multiyear lease with the guy.
At this point its been stated he wants 2 years with option to renew or its a done deal. I read that as 2 years with option to renew, he'll just renew and get the 3 years anyway, which I'm not particularly fond of.
Bottom line is you are the new owner and you dictate the decisions that are going to be made for your property.
As long as there is no language in the contract that says him staying there was part of the sales agreement, I think you will be ok.
But if you are going to make this decision, make sure he is out of the property prior to closing because if he is not then this scenario can turn into another fiasco.
@Jonathan S. unless this is deal of the year or something I'd say you should be commanding market rate at the very least or walk away or at least threaten to do so.
@Jonathan S.. There are several factors that would determine whether or not I would do this. I wouldn't do this if this is your first purchase. You need to be an experienced landlord and know that the seller will not be able to run over you, or think they are in charge. Also, how good of a deal is this? They want to stay for 2-3 years, at below market rent? Ok, then they need to accept a lower offer that makes up for that cost to you. $100 a month below market rent, for 3 years, is $3,600. They need to lower their asking price by probably $4k or more. And no, they do not get the option of extending the lease. You are always going to control that option. Oh, and he needs to get his junk out of the basement, or he needs to pay an extra fee for use of that storage area. And, at the end of the day, if he's going to be a pain, you simply do not agree to this deal.
Bottom line is you are the new owner and you dictate the decisions that are going to be made for your property.
As long as there is no language in the contract that says him staying there was part of the sales agreement, I think you will be ok.
But if you are going to make this decision, make sure he is out of the property prior to closing because if he is not then this scenario can turn into another fiasco.
Good luck!!
My offer was accepted based on him staying. We are in attorney review and he blindsided me with the request for a three year lease. I countered with 1 year and he said no it has to be three years and provided an explanation. I can't help but feel like hes trying to run the show here and even with my lack of experience I can feel that is not right.
@Jonathan S.. There are several factors that would determine whether or not I would do this. I wouldn't do this if this is your first purchase. You need to be an experienced landlord and know that the seller will not be able to run over you, or think they are in charge. Also, how good of a deal is this? They want to stay for 2-3 years, at below market rent? Ok, then they need to accept a lower offer that makes up for that cost to you. $100 a month below market rent, for 3 years, is $3,600. They need to lower their asking price by probably $4k or more. And no, they do not get the option of extending the lease. You are always going to control that option. Oh, and he needs to get his junk out of the basement, or he needs to pay an extra fee for use of that storage area. And, at the end of the day, if he's going to be a pain, you simply do not agree to this deal.
This is my first purchase so I do feel slightly over my head. My big issue is the lack of control I feel. I want to make sure i'm not just pushing the deal away off the bat and I'm willing to negotiate but it seems like hes demanding what he wants as if he is automatically entitled to it.
If I view him as a standard tenant the tenant almost never gets to just dictate the terms of their own lease and the landlord just accepts it.
If you haven't done so already work through each scenario. Start with walking away from the purchase all the way to keeping him on for 3 years where he stops paying rent and you have to go through eviction.
If the deal is worth the worst case scenario then move forward. If this is a barely squeak by scenario where his rent is going make you go bankrupt or if your not going to be able to make your payments without his rent then walk.
I guess what I am trying to say is find your comfort level in this deal. Make the decision based on numbers and not on feelings.
Once you work through the scenarios, the decision should not be that hard for you to make in my opinion. It should be glaring at that point.
I see one of two ways this goes. Either what he says is true and they will be a drama free tenant that just wanted secure housing for three years or it will be a struggle with every decision you make. I think this calls for a good old face to face conversation. Explain your concerns. If you can leave the situation feeling like he won’t question everything you do then I say go for it. I would have no language in the sale saying he can live there. That needs to be a separate document. I’d also add $50 a month to the lease to pad it up a little more in your favor. I’d also walk away if anything else funky happens between now and closing. Best of luck
Let him stay for 3 years at the reduced rate, vacancy kills and if you have even 1 month vacancy during that time it will have been worth it to just have a steady tenant in there. I’ve done this where the owner stayed as a tenant and they take care of the house like they still own it... there are still there years later! This situation is a blessing for you, say thank you and sign me up!
@Jonathan S. Sounds like the owner wants to sell first but take his time moving on due to his roommate. Makes sense to me. Make sure his lease is “as is” and make sure you photograph his unit on closing. How do you think he will take advantage of you? Demanding repairs? Calling the shots? The lease spells out the terms. It is likely you will need to repaint and rehab his unit anyway, so why not kick the can down the road?
Why does the owner want to stay as a tenant at all? Sounds very fishy to me...
States one of his roommates is 85 and on a wait list for assisted living that could take 3 years also he wants to retire and move south but hasn't made the decision yet
So, he wants to force you to commit to a 3 year rent price fix, but intends to break the lease if he feels like it.
Before I even read this one, I was actually saying out loud NO NO NO!
A former manager or owner is going to be a pain of a tenant. He will be trying to run the show - well, when I was the owner, well, I never did things that way....
Just say no. Just say you'd rather start fresh with your own tenants and you don't want to be tied in with a lease, and/or that you may want to refurbish the unit or just whatever.
He's already showing you what kind of tenant he'll be. A pain in the rear. And if he knows these tenants already, he'll be sabotaging you by talking with them about how you should be doing things differently, etc. Just, OMG, please don't rent to him. I"m getting high blood pressure on your behalf ha ha.
I highly suggest you start out with month to month agreements anyway, but not with this guy. You don't have to rent to him at all, and so I wouldn't. But, when you look for new tenants, start out with M2M so you can kick them out if there are problems. Leases only benefit tenants. Tenants can always break a lease, landlords never can.
I would charge above market value rent on the storage, drain him dry and counter his counters as much as possible. I am new to BP but this guy is trying to make you feel small by the demands you listed. Don't let him get to you and hold true to your desired path.
@Jonathan S. Doesn't seem like a bad deal to me. He is not offered any additional perks being the previous owner. He is "just another tenant" and should be given the ground rules early and often. What do you have stated in your offer to purchase contract regarding this landlord tenant arrangement? Additionally I would set the max on security deposit the state allows and be sure to set the rent at market price. If he gets the term, you should get the price. Seller/Tenant cannot have it both ways. That's not a WIN/WIN. All the best. doesn't seem like a bad problem to have. One last thing, was the contract predicated on this arrangement? If not, then he has no leverage, if so, then you don't have any.
I have done a lot of these and kept a number of owners over the years. How strong is your stomach? One little he took advantage of me and you’re in for an epic court battle
@Jennifer Sierchio because as a previous owner he can see he was taken advantage of and it will be incredibly hard to get him out. In some cases the judges may even award him back the building. I went through one like that. Never again
To avoid future problems, I would not buy a rental property with an owner being my tenant. I’d want him out because he’s gonna act like the house is still his. There are a lot of red flags here already: he already occupies almost the whole basement, he wants under market rent, longer lease terms... not good, too demanding too soon. You don’t want that headache.
3) he will continue to overstep boundaries—it’s been his place for so long he won’t suddenly say “ oh goodness you are right, I’ll move all my stuff”
4) he can’t be trusted, he likely planned this from the beginning
There are ways to try and protect yourself, though I doubt they will work:
1) charge above market rent not below...he should pay a premium
2) hold some of the sale proceeds in escrow till he moves out
3) written agreement separating use of basement from renting, maybe charging separately so if he fails to pay
It is going to be a problem. If you are doing it I would hold firm to the one year you agreed to or walk. And I would have a good chunk of money in escrow.
Is everything up to code? 10 to 1 he reports you for a violation.
Research protections for seniors. He may be impossible to move if he digs in his heels
You’re already under contract, so any rent concessions you give him are solely for his benefit. If he wants below market rent, reduce purchase price by the amount you’ll lose out on.
In general, I don’t recommend letting the seller stay. Especially in a situation like this where I’m already getting a bad vibe.