Purchasing duplex we currently live in, with existing tenant

7 Replies

Hello, we've been living in our duplex for 5 years and our landlord decided to sell and offered it to us first. We're going to be "accidental landlords" so to speak, and have current tenants in the unit next door. We've been up front about attempting to buy the house and they seem positive about it and want to stay. Currently, they're paying month to month at a lower than market rent rate. What's the best way to come in to this purchase regarding their (lack of) lease? Is it ok to sign a lease with them without running a background check (we really don't want to lose them right off the bat) and how much more can we ask them to pay in rent? The market value appraisal indicated that their share of rent should be $925, but the current landlord was only charging $750, and let them live next door for $700/month because the space would otherwise have been empty. We're also trying to get new windows installed immediately, which should significantly decrease their electric bill. How should we approach a lease signing with them? We have lived adjacent to them for a few years (it's a long story, but they were sharing our half of the duplex which was modified to two living spaces and they were downstairs), and we're friendly enough with them and they have history of paying rent, so we definitely want to keep them happy. I also want to at least raise their rent to $750, with the understanding that we will probably raise it another $50 after a year. Any help would be more than welcome! (Current status of sale: 95% likelihood it's going to happen in the next 2 months.)

First of all, I would not consider this an accidental landlord situation. In my opinion your just happening to buy the property your already living in. If I were you, I would look at other properties as you may be able to buy a better or equal property or the same amount or less that what the landlord is offering you. Contact a Realtor and ask them to start sending you listing for multi-family properties in areas you want to live in.

As for the lease situation. I personally wouldn't want to rent to friends because of situations like these. If you consider them a friend then you may not want to buy that property, buy something else, get market rents, and save the friendship. If they don't have a signed lease then they are on a verbal month to month rental situation. I don't know Tennessee laws so you should consult with an attorney about this. But in CO you could have them sign a sign once the property is yours or give them the minimum amount of time to get out. Probably about 30 days notice. If I were you, I would want to bring it up to market rent, or something very close to it. You could tell that market rent is X amount of dollars, but because you like them, you don't want them to leave, and your going to put in new windows which should help with the utility bill, then you will only charge the X dollars - $50. Make sure you get their security deposit from the landlord.

Originally posted by @Baley Whary :

Hello, we've been living in our duplex for 5 years and our landlord decided to sell and offered it to us first. We're going to be "accidental landlords" so to speak, and have current tenants in the unit next door. We've been up front about attempting to buy the house and they seem positive about it and want to stay. Currently, they're paying month to month at a lower than market rent rate. What's the best way to come in to this purchase regarding their (lack of) lease? Is it ok to sign a lease with them without running a background check (we really don't want to lose them right off the bat) and how much more can we ask them to pay in rent? The market value appraisal indicated that their share of rent should be $925, but the current landlord was only charging $750, and let them live next door for $700/month because the space would otherwise have been empty. We're also trying to get new windows installed immediately, which should significantly decrease their electric bill. How should we approach a lease signing with them? We have lived adjacent to them for a few years (it's a long story, but they were sharing our half of the duplex which was modified to two living spaces and they were downstairs), and we're friendly enough with them and they have history of paying rent, so we definitely want to keep them happy. I also want to at least raise their rent to $750, with the understanding that we will probably raise it another $50 after a year. Any help would be more than welcome! (Current status of sale: 95% likelihood it's going to happen in the next 2 months.)

 I would not worry about running a background check on your neighbors. You have already lived next to them for some time, and I am assuming that if there was a problem, you would already know. 

I would however get them to sign a new lease. I would keep them paying on month to month. Also how much is rent for comparable units in your area?

I have 3 concerns about your "deal."

1. Is the property a conforming use as a duplex? When you say, "the duplex which was modified to two living spaces" that sounds like a red flag.  Conversions are seldom ever done well.  Are all utilities separate and metered separately?

2. What do #BR/#BA ####sq ft units of similar age & condition to this one rent for in your area?  Living in the area for 5 years, you should be pretty familiar with what the real rent rates are.  When you say, "The market value appraisal indicated that their share of rent should be $925" that sounds like an unusual interpretation of what you get from an appraisal.

3. It sounds like your landlord is "creative" in a lot of ways.  That's not always a bad thing, but sometimes people think its being creative when you disregard zoning and building codes to do whatever you want with a property.  I would be extra cautious about verifying that you really want to own this property and not let the "great deal falling in your lap" cloud your better judgement about the real value of this property.

Hi Baley-

Congrats on your upcoming purchase!

I would ask them to sign a lease- whether it be month to month, or 6 month, or 12 month.  I would increase their rent a little like you said- $50 or $75 a month every 6-12 months seems fair.  I would be anyone else buying the duplex would increase it quicker than that.  I would let them know about the windows and any other pending improvements so they feel like they are getting something for their money.  Also, give them a little time to adjust (maybe 60 days, which might be the minimum amount of time anyways) to the new price and let them know they are free to shop around.  If rents are that much higher they will gladly pay the increased rent to stay!

I would not run background checks on them- you live next door to them and if there hasn't been an issue in 5 years likely they are fine.  If I inherit tenants that want to stay when I buy a property, I do the background check before they sign a new lease but I pay for it.

As for the property being "non conforming", that may or may not be an issue.  You likely already have a pretty good idea of what the issues might be since you live there, but still don't skip the inspection!  

Kelly

thanks! Good advice so far. To clarify, it started as a duplex but was modified. Yes, previous owner was fairly creative, but we're going back to the original duplex set up and re-doing the basement on our side to make it 3 beds, 2 baths, and extra den. The market value appraisal was based on comparable rental properties and returned the market value of rent based on those comps. And we're not friends with them, just get along fine enough with them to want them to continue renting. 

Originally posted by @Anthony Gayden :
Originally posted by @Baley Whary:

 I would not worry about running a background check on your neighbors. You have already lived next to them for some time, and I am assuming that if there was a problem, you would already know. 

This is extremely bad advice in my opinion.  Living next to someone - even closely with someone is entirely different than having someone financially obligated to you and living in a property you own.  This is a business, treat it like one and you will save yourself a lot of heartache.  Not only that - if you want to raise the rents, you'll need to know they can afford it.  This is accomplished through screening to verify income - screening includes background checks.  

So screening part of your processes from day one and let them know that is how you conduct business.  If they are they great as tenants, they will have no problem with it.  If you think an application fee will scare them away, offer to cover it perhaps.

With that said, I would also consider this:

If market is around $900/mo and you keep them for $700/mo.  Over one year you are losing $2400. If they aren't willing to pay market rents, transition them out, improve the property (new windows etc) and get someone in at market rates.  You may lose $700 for the month of vacancy, but you'll still be up at the end of the year.

I hope this helps.

Originally posted by @Michael Roy :
Originally posted by @Anthony Gayden:
Originally posted by @Baley Whary:

 I would not worry about running a background check on your neighbors. You have already lived next to them for some time, and I am assuming that if there was a problem, you would already know. 

This is extremely bad advice in my opinion.  Living next to someone - even closely with someone is entirely different than having someone financially obligated to you and living in a property you own.  This is a business, treat it like one and you will save yourself a lot of heartache.  Not only that - if you want to raise the rents, you'll need to know they can afford it.  This is accomplished through screening to verify income - screening includes background checks.  

So screening part of your processes from day one and let them know that is how you conduct business.  If they are they great as tenants, they will have no problem with it.  If you think an application fee will scare them away, offer to cover it perhaps.

 Well, you could screen them if you like, but that won't change the fact that you already spent X number of years living right next to them and are already friendly with them. 

My answer would be completely different if you weren't already living there, and weren't already friendly with these people. 

Treat it like a business, and don't chase away your paying customers.

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