How to buy multi-family with no lease tenants

4 Replies

The majority of multi-families I have been looking at have tenants in place without a lease.  They are paying month-to-month.  Tenants are well protected here in NY.  Let's assume that the Seller provides bank statements that shows the tenant is paying rent every month,  the Seller is not willing to provide the property vacant, and my goal is to buy and hold.  What other things should I request from the Seller when presenting an offer, if anything?  I have been informed to make sure they are not rent stabilized.  Should I include a contingency that says current tenants must sign a lease with me at or before closing, or is this going to kill the offer?  Or I could also have the Seller provide a notarized statement that states that tenants are free market on a month to month tenancy, with no protections or written agreements.  Though I am not sure how to protect myself should the tenant choose to destroy the apartment, for example.

"Though I am not sure how to protect myself should the tenant choose to destroy the apartment, for example."

Month to month is not the same thing as not having a deposit.  Also "no lease" because you are in a month-to-month period of an existing lease and "no lease" because you don't have an instrument to take to court to evict someone are two totally different situations.  The former requires examination of financials and the latter requires involvement of a real estate lawyer.

Four options:

1. Suck it up and take your chances. Without written lease agreements, tenants are considered month-to-month and should be easier to get rid of or you can put them under a written contract with proper advanced notice.

2. Provide the seller with your written lease agreement and require him to put all tenants on a written lease. Do this far enough in advance that you have time to confirm.

3. Make the purchase contingent on the units being vacant. Closing will take place 30 days after the units are verified vacant by you. Close on the property and start fresh.

4. Don't buy the property.

I like you prefer to buy an empty building. Why? Because I am a builder and architectural designer and I have confidence in my ability to add value to any property I purchase and it is far easier and safer for me to work with empty building and make all things uniform and because if spaces are designed uniformly then whatever I purchase to put in the units I can buy in bulk and save money. Then I like to establish my own rates and leases. When existing tenants are on month to month rental agreements then you can proceed with legal notice of intended changes. Even in places like NY you can work with the legal system but it would be a good idea that whatever you do it is done based on legal console. 

If things cannot be made to work in your favor you can always walk away from the purchase or even making an offer. Chalk it up to the cost of doing business. The fact is that few deals will ever turn out to be ideal concerning multi residential properties. At least that has been my experience.