I'm considering an investment property that I'd likely want to hold for maybe a small handful of years before selling. The current tenant is an adult family home with a handful of residents, plus the owner's family is living in the place.
I'm concerned that a prospective buyer, who would likely want to convert the place to something else, would not want to deal with this building, because of the nature of the current tenant's business. It's one thing if there's a gym and they buy out the lease, and the gym closes, but I bet there's all kinds of complications if somebody lives there and, for a living, takes care of the elderly.
As a buyer, how much would this situation influence your decision? When I go to sell in a few years, will the presence of this tenant make the deal highly unattractive because of logistics?
Not entirely sure on this, but I believe a lot of investors prefer to take the place with a tenant on a month-to-month lease. That leaves the ability to complete renovations (by removing the tenant after monthly lease ends), and then re-rent. Alternatively, even if they don't intend to renovate, they may simply not want the current tenant in-place.
On the podcast, Brandon constantly says most of his bad tenants have been ones that he has "inherited" from previous owner's not properly screening their tenants!
I hada client who wouldn't purchase property because it was vacant and he wasn't comfortable with the potential rents. I like @Charles Kennedy 's month to month option.
A current tenant can be a liability, especially on SFR's. I prefer to screen and approve my own tenants and not inherit one.
Adult family homes are great for cash flow, yes it may be more difficult to evict them even if they are on month to month. In general, I think buyers looking to re-purpose the home will not want to evict such a vulnerable segment of population.
Thanks for the insights! Sounds like it's a pretty big risk factor if I'm looking at short term.