So after using my BP gained knowledge, analyzing and offering on too many properties to count I got a great deal under contract. Now to figure out the next steps.. Any and all advice is very much appreciated. Everything I learned on BP and put to practice is the reason I have this opportunity.
I know it makes most financial sense to move into the property to keep my living costs down. Units are a 3/2 ($1,300) and 2/1 ($1,100). I prefer to move into the 3/2 (need the size) to keep my down payment requirement low to free up capital for another purchase . Also it needs slight updating to bring rents to market (+$300).
The tenant in the 2/1 is very ideal, working at sea and only home 10 days a month. I prefer to keep him in place as there is low wear and tear. His rent is also below market by about $300 w/ updating.
The current tenant in the 3/2 is long term (3+ yrs) and has expressed she wishes to stay. She seems like a good tenant with the exception of two pets and seems to have a friend living in the property who is not on the lease. Her lease is up August 31st. Closing is scheduled for mid June.
My plan is to wait until after the closing to notify the tenant of non renewal. However, I just read the leases and it states she must notify landlord of renewal 90 days prior to the leases termination date. This means she will be submitting a renewal notice prior to my closing.
Do I have to honor that renewal?
Should I inform the listing agent (current property manager) of my intent prior to closing? I don't want it to affect the deal.
I also want to make the transition as easy as possible for her and provide as much notice as I can. I just don't know how long I am required to move into the property after closing if I state to my lender it will be my primary res (FHA or Conventional). Does the unit have to be vacant at time of closing?
Thank you again for any advice!
@David Collier Jr Depending on the underwriter they might want to see a "Notice to Vacate" for the unit you will occupy
You cannot give the tenant notice until after closing (since you don't own the property), but it sounds like you may need to communicate all of this to the seller (via the participating brokers/realtors if applicable) and have them do so.
If the current owner renews the lease, then you'd normally have to honor it.
The timing (June closing, August move in) is perfectly reasonable and should be fine. However, as stated above, your mortgage underwriter is likely to want to see something in writing documenting the tenant's non-renewal, because if the current owner renews her lease, then you couldn't move in for over a year, and that certainly would not fly.
Note that even if the seller verbally agreed to the plan, there is nothing that requires them to follow it, per se (it's their property up until closing, and they can do what they please with it), other than the potential for it to derail the sale.
For that reason, I would even suggest going so far as putting this in a contract addendum, which would serve as both 1) the aforementioned documentation for your lender, and 2) something more legally binding requiring the seller to follow through with the plan.
100% agree with putting it in writing on the contract via an addendum that the unit needs to be vacated prior to closing (or provide copies of signed non-renewal notice). If you're using FHA or a similar low down payment financing option, you're underwriter is going to want proof that you are going to be living there.
Or you could give her the option to stay, but you'll increase rent to market and move into the 2/1, although a tenant being there for 10 out of 30 days is really great -- if you go this route, you'll still need proof of non-renewal for this tenant too.
@Melvin List - My lender stated that a notice to vacate will suffice. Thank you for that. Hopefully the current property manager can assist with getting me that notice from the tenant for closing.
@Jeff Copeland - I agree I need to communicate my intentions to the seller considering the lease states the tenant must submit an intent to renew 90 days prior to renewal date (08/31). That 90 day deadline to renew is 15 days prior to my 06/15 closing date. If I communicate my intentions to move into the 3/2 unit, I am hoping the property manager (also the listing agent) will work with me on informing the tenant the possibility of non renewal should we close, and also help me obtain the notice to vacate which I would need at closing. Tenant wishes to stay so we'll see how easy that is to navigate.
@Megan Phillips - The current lease does not state that the contract is terminated in the event there is a change in ownership. I am assuming that means that I am required to to assume the lease and it's terms i.e. lease runs with the land? If so, the tenants lease is up 08/31 which means it would not be vacant at closing.
Thank you Melvin, Jeff and Megan for taking the time to provide your insight.
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