Buying out a tenant's lease?

4 Replies

I am looking at a small multi-family that would need to be financed as owner-occupied. Unfortunately, both of the units in the building I am looking at are currently occupied by tenants on leases that won't expire anytime soon. Has anyone ever bought out a lease of an existing tenant or made delivering one unit vacant as a contingency of the sale?

The leases on both units have a lot of time left on them (9ish months) that just doesn't align with what we are trying to do and we would not necessarily want to inherit the tenant in the lower unit anyway. The lenders are saying that we would need to occupy the property within 60 days and have a signed notice to quit.

Any creative ideas welcome!

Another follow on question would be: If I buy the property now as an investor and then move into it once the tenant's leases are up, would I be able to refinance it at a lower rate since it would be owner-occupied?

@Maureen Campbell , I will advise you to be honest with the lender in your intent. Saying you will owner occupy, then not moving in within 60 days is mortgage fraud, which is a felony. (Not saying you were planning this, just giving you some facts you may not be aware.)

I think buying now and then refinancing in 9 months will just cost you double closing costs and probably be a wash or maybe even cost more than leaving it as is. Who knows what rates will be in 9 months? The Fed keeps hinting at an increase.

If you have identified a tenant that you would like to remove, connect with the current owner and have them ask the tenant to leave. See first if they are even willing to move without offering them any money. Or offer to pay movers. 

What is it worth to you to have them out? $500? $5,000? This is called Cash for Keys, and with 9 months left on their lease, they may not want to move for a small amount. Have you made the offer already? It sounds like you haven't.

Mindy Jensen, Real Estate Agent in CO (#FA100049656)

@Mindy Jensen Thanks for the response Mindy. I wasn't planning to buy it as owner occupied unless it was for sure going to be available for us to move in within 60 days. Unfortunately, it is a moot point now since the property is already off the market.

In the future, would there be any issues if I did the reverse? Buy it as an investment (at the higher rate) and then move into it after one of the tenants leases is up? We are currently renting and would ideally like to buy a duplex or triplex and live in one of the units, but would like to know our options if we can't get the leases to line up perfectly again.

There isn't any issue doing that, although you will be paying a higher interest rate when you purchase as an investor rather than an owner occupant.

Lots of properties have tenants on month to month leases. Those leases are much easier to not renew. Read up on your state's landlord tenant laws to see what sort of notice you have to give. Conveniently all 50 states are different.

Mindy Jensen, Real Estate Agent in CO (#FA100049656)

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