Ethics of buying from a seller who's kicking out a tenant

14 Replies

Hi everyone, Im a first time home buyer, and i recently had an offer accepted on a house that im looking do a live-in flip on. I was really excited about it until I went to tour the house, and met with the tenant who currently is renting out the place. He started off by telling me how bad the house was, and how i shouldn't buy it because of all of the problems he it had, and then switched gears and started saying how he and his brother will struggle to find a place to live if i buy the place. Im really torn by this, because on one hand, I see this my first step towards financial independence, but on the other, im essentially displacing someone while taking part in the gentrification of this town.  Any advice on how to navigate morals while getting into real estate? 

@Pacifico A Comia I understand and empathize with your concerns but you need to focus on your business and goals. What the current owner is doing is not your moral dilemma. Do you know the tenant was telling you the truth? In this business, as bad as it sounds, you should assume people are lying to you. Just make sure you don't close on that house until the tenant is gone. You don't want the previous owner's headache becoming yours for a couple thousand off closing costs (believe me I know)

@Pacifico A Comia Make sure you get ALL inspections done and then buy it. Also make sure the tenant is gone first.

If the owner wants to sell it, in this market if you do not buy it, someone else will in likely less than a week after it goes back on the market.

A good inspection will turn up most of the large things that are wrong with a property. Some can and do slip by of course but hopefully nothing major. The tenant was only trying to buy himself more time.

Focus on the inspection and do not let a tenant who likely has had 60 days or so to look for a new home to get in the way of your investment portfolio or new home!

There have been lots of tenants displaced by the rise in home prices as landlords are selling properties to take profits and mitigate risks. The heavy handed government covid responses screwing over many landlords has contributed to this trend. As long as the owner isn't violating contractual requirements with the tenant, it's not your issues. As others stated, make sure the property is delivered vacant of both the occupants and their stuff. (ie, do a walkthrough the morning of closing and make sure everything is out of the house). Don't move forward on closing if there's "abandoned" property in the house as this can be a complication.

Where is the moral dilemma? It's more likely than not that little to none of that is true. What's an under-market rent tenant going to say? I can't wait to leave to pay market rent. They had a good run, now it's time to get out. What they are really saying is we can't find a place for the same money. They can find a place, they are just comfortable with low rent, which is probably why the seller is tired. Just make it part of the contract that the house is delivered empty or you will all be living together there.

Originally posted by @Pacifico A Comia :

Hi everyone, Im a first time home buyer, and i recently had an offer accepted on a house that im looking do a live-in flip on. I was really excited about it until I went to tour the house, and met with the tenant who currently is renting out the place. He started off by telling me how bad the house was, and how i shouldn't buy it because of all of the problems he it had, and then switched gears and started saying how he and his brother will struggle to find a place to live if i buy the place. Im really torn by this, because on one hand, I see this my first step towards financial independence, but on the other, im essentially displacing someone while taking part in the gentrification of this town.  Any advice on how to navigate morals while getting into real estate? 

 If I want steak instead of bologna I have to pay for it. Housing ain't free, this tenant's inability to act like an adult and pay for the roof over his head isn't your problem. In addition, sounds like he's only telling you the house has problems to deter you from buying it because he's aware he's living on the owner's dime.

The ethical problem is lazy and tired landlords who fail to raise rent. This creates a situation where someone is far below market value and it makes it hard for them to relocate without a gigantic rent increase. You have no responsibility in this situation. If you don't buy it, someone else will. 

Investors who buy a property and displace a tenant or raise rent are not the problem. If a seller is asking market price for the property and rents are below market, the buyer has no choice but to raise rents.

@Pacifico A Comia

I would just make sure it is vacant when you close and there are no surprises during inspection in case the tenants claims hold any merit. I wouldn’t feel bad about the tenant having to move. There are other places to live. You have to make the best business decision for yourself. You are not responsible for other ADULTS. That is the responsibility of the previous owner.

Along these same lines.

I've been in talks with a quad owner for years.   He up and listed it for sale with an agent for about 40% more than we were discussing.

He was shocked to hear the new owner will need to raise rents 30% ($300/mo) to make it pencil.  He knows his tenants well and is sad to hear that.   I would have kept rents the same.

Owners don't realize their gain is on the backs of the renters when they sell. I personally have a hard with that when I sell MF. I know my people and realize higher valuations mean maximizing rents and NOI.

@Pacifico A Comia regardless of what you choose to do, I want to applaud you for having the moral compass that you have. In this industry it's easy to simply see the money, and in turn look past those associated with the houses that we're buying, who are usually facing some kind of crisis. 

Don't ever lose that compassion. Having it I believe will lead you to bigger & better deals, and help you when it comes to picking & choosing which leads to follow.

@Pacifico A Comia I once bought a house from a property owner who was renting it to his stepdaughter. He had listed it with a friend and I think we were the only ones to get in because we waited an hour after the appointment for her to show as no one was to enter the house without her present. Similar story when we saw the house to yours.   Found out she had been there for a few years at well below market and she wanted to tank the sale. However, You should have seen the relief at closing of those parents. 

Yes, some of the condition she reported were  true  but some was of her own making and all of it manageable.  However, when you consider ethics how ethical is it of the tenant to leach off her parents  or in your case the owners like that?  I appreciate issues people may have but below market rent sets people up for a hard fall. Change is hard but neighborhoods in disrepair don't do anyone a favor.  If it is what you want, does it matter who is moving out? 

There are some who are concerned about displacing people.  To some extent, if someone wants to sell their rental house, you'll have to get it vacant as there are few buyers who want it rented.  Even if this wasn't a gentrifying area.

My area has some new regs that help tenants that are getting displaced.  One is that you need to give the tenant a 120 day notice, if they are a longer term tenant, provided it isn't a suit for non payment.

If you can't do it, then pull out of the deal.  But the seller is going to sell this to someone else.  You conscience is clear but the results are the same.

@Pacifico A Comia

Sounds like a tenant using covid excuse. If the property was such a dump, why are they still there? Why are they being kicked out? Most likely for non payment. Many municipalities had rental assistance that tenants never used. I know, even if you gave them a direct link and contact to get help, they still didn't take it