Should I honor prior owner's future lease to tenants?

Question

So I purchased a 2 family. I am going to live in one and rent the other unit out.

Here is the breakdown.

Owner has Med Students set up to rent 3bed2bath for $1,000 beginning in April-July 2018, I close Feb 17 of '17. Normal monthly rent is between $1250-$1500/month. The owner was going to be doing some work on unit while they lived there, also there were only going to be two people living in the unit instead of 3. Legally, I don't have to honor the contract. I'm tempted not to honor it, especially since it will be a year of well below market rent $.

MY plan.

Talk with the two tenants, have them find another roommate and charge $1500/month. This seems reasonable to me.

My Fear

Most med students and other potential students will have signed a lease for that year. I don't want to run risk of having no tenants for a prolonged period and being on the hook for the entire mortgage.

Any advice will be greatly appreciated.

Thanks,

Jake

Andrew Johnson · Answer

@Jake Walroth This is from the perspective of being married to a surgeon (former med student), don't discount the reduced issues that might come along with med students. Noses in books, on campus cramming for tests, writing papers, applying for rotations after graduation, likely no raging keggers, etc. I know I'm overgeneralizing but there is 1.) value is tenants that have been paying on time, 2.) value in tenants that already want to renew until 2018, and 3.) potential lifestyle value in having "easy" tenants that you'll be sharing a wall with.

As for your fear, yes, students sign leases for a year. What I don't know is how the timing works assuming you're renting in a college town to college students. Sometimes PMs are marketing properties in January for July leases. Other times in the spring, it just depends on the cadence of the particular town. College markets can be quirky and they aren't all the same.

Thomas S. · Answer

If there is no signed lease I would tell them the place is now $1500. Plans have changed the previous owners offer is off the table.

Again if there is no lease, there is no contract and you do not owe them anything. Business first.

Jake Walroth · Answer

@Andrew Johnson it's not a college town per say, it's Cincinnati, OH. The property is near the University of Cincy as well as many of the major hospitals in the area. I understand the benefits that come along with renting to Med Students(its one of the reasons I bought the place). I also think it would be reasonable for them to find another roommate, thus not increasing their rent. More to it, this is actually a 4 bedroom unit that the prior owner has always marketed as a 3 bedroom because as a 4 bedroom is would be a little crowded. I just hate the idea of taking $500 less than market rate. My mortgage is $1296, so giving the prospective tenants a $500 discount goes from me receiving $200/month to me paying $200-$300 out of my pocket for mortgage.

Russell Brazil · Answer

Why do you think you legally dont have to honor their lease? In the states where I do business the only way a lease terminates on sale is if the new owner is moving into the unit.

Mike Cumbie · Answer

Do they have a contract yet? If not it is your property and you should plan it out according to your goals for it.

Should I honor prior owner's future lease to tenants?

Should I honor prior owner's future lease to tenants?

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