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.
In addition to a large security deposit to keep him honest, I'd offer him a one-year lease that can be renewed, if both parties agree to renew it - to keep him honest again.
I wouldn't sweat being under market rent a little bit on a good deal. If you have to update that unit have it vacant at least a month to re-rent you are still ahead on being a little low on the rent and cash may be low after the purchase as well.
I’ve had it happen one time. At this point you have negotiated favorable terms that allowed them to sell. Now it is time for them to accept rental terms that are favorable to you. It is your property now. In my circumstance, it was a 2 month period after my purchase where they stayed in order to transition to a new residence. An extended agreement would be case by case for me. They would have to be someone I would accept as a tenant otherwise.