Buying out a Tenants Lease

2 Replies

Hello Everyone,

I just had an offer accepted on a three unit house. It is a duplex with a detached third unit in the back. All three apartments are tenanted and have lease agreements that do not end until August of 2016. My plan was to move into one of the units, complete the renos over the year, and then do the same for the next two units by not renewing one tenants lease each year. This would allow the house to be financed as owner occupied instead of investment property which is a big difference in down payment. 

So I have two options how I see it:

1. I leave all apartments the way they are now and keep all tenants until their leases are up next year. I do repairs to the outside of the house in the mean time until their leases are up. At which point I can then not renew one of the leases and move in to do the necessary repairs and then continue that path for the next two units. But this will require 25% down for investment property instead of the 20% I would like. 

2.I attempt to buy out one of the tenants leases so I can move into that apartment to complete renos and also so I can finance the house under owner occupied. 

My dilemma is how do you go about asking a tenant to buy out their lease with out ruffling their feathers and starting out on the wrong foot as the new owner if they were to say no we do not want to leave. While asking them if I can buy out their lease do I mention how I will not be renewing their lease once it comes to an end in order to move in and do renovations, to give them motivation to move now? Or is that setting my self up for destruction and failure? 

Any advice and personal experiences would be of great help  here. Thank you very much!! 

If you don't know any of the tenants, and all are equally credit-worthy and good payers, send a letter to all offering a cash bonus to tenant who signs an early exit agreement by X date. Be sure to create a sense of urgency by emphasizing the value of the bonus and that the neighbors are receiving the same offer. I would not get specific with them about why you want to offer this bonus other than stating "it is in my best short-term interest financially". 

If the rent is below market rates already, or the tenants enjoy where they live, you may just be stuck with it until next year. 

Moving is a PITA. You have to make it worth their while. I don't think 500 is gonna do it. I would offer to pay for a moving truck and X amount of $$$.