Occupied Foreclosure - Do I offer previous owner option to rent?

Question

I just purchased an occupied foreclosure (I thought it was vacant). When I met the current occupant it was the previous homeowner who was kind enough to show me around so I could examine the property and explained her original intent was to wait for eviction.

I offered her cash for keys and she asked if staying in the property was an option shes willing to pay market rent. She explained the foreclosure came about after a divorce but as she’s finally been awarded child support she can afford the rent.

Reluctant to offer this option I insisted cash for keys is the best option. Now I’m wondering if I missed an opportunity to simply have a ready tenant. Who has done well in keeping up the property.

The property was to be BRRR’ed and needs little work after examination.

So the question is do I offer the occupant an application for tenancy and assuming she meets the standard let her engage in a lease agreement? If so, do I avoid rehabbing the property?

ARV: 230,000

Purchase: 145,000

Rehab: 20,000 (has not been completed)

Balance owed: 128,000

Minna Reid · Answer

Qualify the tenant like any other. If she has sufficient income and can otherwise qualify for the rental I would be tempted to go with it. Your end intention was to rent anyway. You could put off the repairs and turnover costs until she's gone. Obviously you would want to make sure the reason for the default has been remedied though.

Jorge Almonte · Answer

@Minna Reid

Thank you. I considered this but my gut felt something. It started with her telling me she wasn’t going to move until she got an eviction notice. She ultimately accepted my cash for keys offer but her playing hard ball even about that gave me insight to what she might be like as a tenant. Rather take my chances with new applicants.

Jorge Almonte · Answer

@Kai Kopsch

Thank you. I ended up going cash for keys. She accepted hopefully this will prove a safe route. I chose this in the end to rehab and force equity to also be able to ask for market rent.

Kai Kopsch · Answer

First off congrats on the portages, renting to the former owners can be complicated and get sometimes messy. I would offer Cash for keys.