Buying a multifamily already occupied????

Question

Hello All! I have been curious about what to do if I find a deal that already has tenants. What if I can't view the units or screen my own tenants? Would you still buy the place? How would anyone handle this situation? Any advice is appreciated.  Thanks

Roy N. · Answer

@Michelle Franco

It is normal to purchase multi-family buildings with tenants already on-board  - after all, would you really want an empty 50-unit apartment building?

Viewing a property with tenants in-place is easily accomplished.  The Vendor may wish to ensure you are a serious - and capable - buyer before disturbing the tenants.  To get into the property earlier, you could ask to tour the common areas, mechanical rooms, and a few vacant units before you make an overture.

Once you have done your initial analysis based upon the pro forma / memorandum of offering from the Vendor and decided to pursue the deal, you will either submit an offer of purchase an sale directly (on a small property or straight forward deal that required little additional diligence) or you will submit a Letter of Intent (LoI) outlining your intended offer, the materials you require to complete diligence and the timeline to an agreement of purchase and sale.

In the materials you will request from the Vendor, will be information on all existing leases and any other agreements between the landlord and a tenant.   From this information you will prepare estoppel certificates for each tenant, review them with the tenant, make any adjustments based upon the information provided by the tenant and then have the tenant attest (sign with a witness) the estoppel.  You would then share a copy of the estoppels with the Vendor and work through any discrepancies between the estoppels and the information supplied by the Vendor.

You would go through a similar exercise with any service/supply contracts for the property (i.e. snow removal, janitorial services, HVAC, leased laundry units, etc.).

It's all steps in the process and why it can take 90 days, or longer, to close a deal on a mid to large property.

Nicole A. · Answer

Has the seller or agent told you that you can't view the units? I've been able to view properties with tenants in place. If you can't see the inside, how does the outside look? How is it compared to the rest of the neighborhood? And how is the neighborhood? It would need to be a good rental neighborhood.The seller should be able to tell you how much longer the tenants have on their leases, how long they've been there, and who is behind on rent. If it turns out you want the property, but not the tenants, you could either tell the seller to deliver the property empty on closing day, or on closing day you immediately start the eviction process.