Questions about investing in an occupied multifamily

Rental Property Investor · Member since 2022 · 40 posts · 38 votes

Hi All!

Looking at a two-family with tenants in place paying below market rents in MA. My plan is to owner occupy one of the units. As the potential new owner, how do you deal with removing the existing tenant? Do you propose the new rent increase and if they don’t agree can you ask them to leave? I know it depends on whether or not they are TAW or lease but just curious to understand how others with more experience go about purchasing a multi with existing tenants.

What are some strategies to incentivize a tenant to leave peacefully?

Thank you.

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Patricia Steiner

Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes

All offered above - and this one: make the offer contingent upon "vacant possession" at closing. That puts the burden of negotiating early termination of the leases on the seller as well as the seller ensuring the property is empty of all contents and trash by the time of closing. Let's face it - the seller selected the tenants and if you buy the property with the existing tenants, you're stuck on doing anything until lease end as the tenants have an enforceable lease. If there are short-term leases and/or none, let the seller provide the 30-day notice and deal with security deposit issues and more.

Hope this helps...

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Frank Avallone II
Lender · Morristown, NJ · Member since 2022 · 153 posts · 71 votes
3y
Hi @Bianca Rodrigues,

Here are a few options for you:

-Check the terms of the current leases: If the tenants are on a month-to-month lease, you can give them a 30-day notice to vacate. If they are on a fixed-term lease, you will need to wait until the lease is up before you can ask them to leave.

-Offer the tenants a buyout: You can offer the tenants a financial incentive to leave the property early. This could be a lump sum payment or help with finding a new place to live.

-Use the "owner occupancy" clause: Many leases in Massachusetts include an "owner occupancy" clause, which allows the owner to take possession of one unit in the property for their own use. If this clause is included in the tenants' leases, you can give them notice that you plan to move in and they will need to vacate the unit.

-Use the "substantial renovations" clause: If you plan to make significant renovations to the property that will require the tenants to vacate, you can use the "substantial renovations" clause in their leases. This allows you to give the tenants a 60-day notice to vacate while the renovations are being completed.

It is definitely a good idea to consult with an attorney on this.

Hope this helps!
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Patricia Steiner
Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
3y
All offered above - and this one: make the offer contingent upon "vacant possession" at closing. That puts the burden of negotiating early termination of the leases on the seller as well as the seller ensuring the property is empty of all contents and trash by the time of closing. Let's face it - the seller selected the tenants and if you buy the property with the existing tenants, you're stuck on doing anything until lease end as the tenants have an enforceable lease. If there are short-term leases and/or none, let the seller provide the 30-day notice and deal with security deposit issues and more.
Hope this helps...
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Brett MerrillBusiness Member
Rental Property Investor · Ludlow, MA · Member since 2016 · 114 posts · 48 votes
3y
Hi @Bianca Rodrigues. Both @Patricia Steiner and @Frank Avallone II have given excellent advice and options. It also relies heavily on how you plan on purchasing the property. Most lenders require that you occupy the home within 60 days of closing. Obviously this does not allow for time for an annual lease to expire and is a little risky when planning on cash for keys after closing as they can always change their mind and refuse to leave. The best option is definitely the vacant possession if that's possible. Hopefully they are currently month to month and the seller is able to give them notice so that is vacant and ready for you to occupy upon closing.
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Ishmael Johnson
New to Real Estate · NY · Member since 2020 · 196 posts · 29 votes
3y
@Frank Avallone II
If one decides to go with the owner occupancy route, what is the exact process of that. Will the owner have to occupy the property for a duration of time, will the owner occupant have to prove he/she is occupying the residence in any way?

Along with the Substantial renovations clause, does this have to in ones lease or is this an option that has to be approved by a judge?

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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
My recommendation is that your offer require one of the units to be vacant, preferably 1-2 weeks prior to closing so you have time to verify and inspect.
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Douglas Snook
Attorney · Attleboro, MA · Member since 2015 · 412 posts · 165 votes
3y
You need to know what kind of tenancy they are under BEFORE you even purchase! You need any leases from the current owner, a transfer of any security deposits and last months rent, list of exactly who is in the unit etc etc.
You say you want to occupy one of the units so just give them a 30 day notice. What about the other tenant? Do you want to keep them? Do you want to renovate the unit? You may just want to get rid of both tenants.
If you want to keep one of them, at a higher rate, you need to terminate the current tenancy and offer them a new one at the higher rate. However, you may not just want to increase the rent. You may also want them to fill out an application to be sure they can afford the higher rate, you may also want to offer them a written lease with your terms (like no pets, no smoking etc) or other terms and conditions.
So I guess what you might want to do is concentrate on the unit you want, get that vacant and in the meantime just keep going with the other unit. Once you get your unit, you can then turn your attention on the other unit.
Assume for the moment the are tenants at will. You need to send them notice a 30 day Notice. As an example if you served them this week, they would have until the end of February to get out. If they don't leave, you have to go to court.
Just my two cents.
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Nathan Harden
Real Estate Agent · Puyallup, WA · Member since 2022 · 551 posts · 378 votes
3y
My advice would be to make your offer contingent on either the property be delivered to you at market value rent or vacant. This will save you a headache in the long run. Let current landlord work with the current tenant and if all goes well, you have a tenant paying market rent when you take possession. If not, then you still win because the unit is vacant and now you can place your own tenant.
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