Under contract multifamily with empty unit.
Hello BP friends, I have my first multifamily under contract and one of the units is empty. Can I ask the current owner to have it rented before closing? Is there anything else I should ask for or stipulate or is that something that you just fill when you take possession? Looking forward to hearing some sage advise...
If I were you I would wait until closing and fill it yourself. Better to have your own vetted tenant rather than trust the seller to put a good tenant in there.
100% agreed with Kevin, vacant is better. Fill it with a tenant who meets your screening requirements after you close.
Totally agree. You want a quality tenant and not the first one that can sign on the dotted line. Maybe you could ask if you could advertise and sign their lease to get it filled? That could be a win/win with you getting it filled with a quality tenant and they get the extra income/unit filled? Worse case the closing doesn't happen and they have it leased with no effort?
Quote from @Patrick O'Shea:
Totally agree. You want a quality tenant and not the first one that can sign on the dotted line. Maybe you could ask if you could advertise and sign their lease to get it filled? That could be a win/win with you getting it filled with a quality tenant and they get the extra income/unit filled? Worse case the closing doesn't happen and they have it leased with no effort?
This is a good approach.
I've found that the first year is the most difficult year financially (cash shortage, repairs etc). Having said this, I always try to have as much income as possible from day one. The only way I would want it vancant at closing is if I wanted to renovate for a rent increase. Otherwise I'd prefer it rented. I'd try to rent it myself or ask the owner to rent it as if he were going to continue to own the bldg. The less units in the bldg, the more I would want all of them rented.
However since you're not the owner yet, you may not have a choice (unless it was written in the contract).
@Celeste Carter-McAfee your PSA should address this situation when units are not rent-ready. In my PSAs, the language states that the seller gives a credit at closing ranging from $750-1500 per unit. I recommend that you lease the unit instead of the seller.
There is a difference between rent ready and a down unit. A down unit is one where there might have been a leak and all the drywall needs to be replaced, flooring, etc. This is negotiated differently, and a credit at closing could range from $15k to $25k per unit depending on the shape of the unit.
@Brian Adams thank you. That is a wonderful idea for my next buy. I appreciate it very much.
@Kevin Luttrell thank you so much. Great advice.
@Peter Nikic oh I like that idea. Thank you so much.
@Patrick O'Shea thank you so much. Great strategy.
@Taylor L. thank you very much.
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Yea if I were on the receiving end, I would just put the first person who is willing to pay that price in without any vetting because it wouldn't be my problem after we close.
A better strategy might be to get the current owner to raise rents on existing tenants with a one year lease if they are paying below market rents.
#2 General Landlording & Rental Properties Contributor
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#2 General Landlording & Rental Properties Contributor
- Real Estate Consultant
- Cleveland
Quote from @Celeste Carter-McAfee:
Hello BP friends, I have my first multifamily under contract and one of the units is empty. Can I ask the current owner to have it rented before closing? Is there anything else I should ask for or stipulate or is that something that you just fill when you take possession? Looking forward to hearing some sage advise...
Hello, IMO you should not be buying anything ,,,,,, yet. You need to learn 1st. If you are asking about this ( very trivial issue ) what else is it you do not know ? Evictions, screening ,repairs, ect. Connect with someone doing deals , learn and apply what you learn, BTW, better you vet the new tenant, but again do you know how to do this ? I am sorry I am so direct, but this is not a place to make " friends " its about helping others not get hurt and telling them what they need to hear vs want .
Good luck
PS have you looked at last 12 months rent, visited the property met the tenants, ? How do you know they are actually paying ?
@Bob Stevens Thank you. I can see how you would think that. We have been buying and selling for 20 years with flips and buy and holds SFH, just never a multi family. I appreciate your reply though....
Yes - it is important to know the basics, but You learn by doing.
I don't know this asset, or @Celeste Carter-McAfee, he is trying to learn, so let's try to help him.
#2 General Landlording & Rental Properties Contributor
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#2 General Landlording & Rental Properties Contributor
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Quote from @Brian Adams:
Yes - it is important to know the basics, but You learn by doing.
I don't know this asset, or @Celeste Carter-McAfee, he is trying to learn, so let's try to help him.
I get it , but nobody should buy a MF, ( not sure if this is a 3, 5, 20 ) unit not knowing the basics, could get crushed . I am all for jumping in with both feet and learning, but not with 100ks and 100ks of thousands .
@Bob Stevens I get it and I am sure your message was trying to be helpful.
Last year I bought a 1,000 unit apartment complex and I am still learning.
#2 General Landlording & Rental Properties Contributor
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#2 General Landlording & Rental Properties Contributor
- Real Estate Consultant
- Cleveland
Quote from @Brian Adams:
@Bob Stevens I get it and I am sure your message was trying to be helpful.
Last year I bought a 1,000 unit apartment complex and I am still learning.
well my friend I thought I had big balls, LOL, I started with a duplex, then 6 unit, ( I have flipped about 500 in the cleveland markets ) , last BIG buy was an 81 unit .
all the best
@Celeste Carter-McAfee do not rely on the seller or request the seller to fill the vacancy. The best thing you should do is interview property managers who have experience with your particular type of property in the same area who can teach and educate you along the way. Leverage your learning and your time. It will be well worth the mgt fee if you choose a decent prop mgt company
Hi @Celeste Carter-McAfee, a strategy we've used, assuming the unit is rent ready, is to ask the seller in the contract to allow you to market and show the unit once all contingencies are removed. With the condition that a new tenant's lease would not start until after closing. If anything it gives you an extra week or two to market the unit.
@Stephanie Trevizo Wow, that is a great idea too! I appreciate it very much.
@Joseph Guzzardi Jr thank you for the reply. I appreciate your advice.
Fill it yourself! You can get highest rent + best tenant. Best part is you get to vet them :)
One of the biggest benefits when you buy a building with vacant units is that you get to select your tenants. Build a strong criteria and screen every applicant. Turnover is your biggest expense. Choose wisely!!!
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Out of curiosity, were you able to get a lower valuation due to the vacant unit? considering the NOI is lower than what im assuming his target sale price was?
If your concerned about rental agreements, you can get "estoppel agreements" signed by the tenants. Search for it on BP and you can get details. It sounds like you have SFH property management experience, but if you don't I found Brandon Turners "Managing Rental Properties" book helpful to get me up to speed. If you got that down and are looking for a multi-family buying focus, his "The Multifamily Millionaire, Volume I: Achieve Financial Freedom by Investing in Small Multifamily Real Estate" also is good.