Can I terminate a lease when purchasing a rental property?

7 Replies

Hello everyone, I am new to real estate investing and looking to get into rentals. I have been listening to bigger pockets pod cast for about a month now and i have been doing research in my local area. I have found a property that I think is a good deal and has about a 20% cash on cash return, the catch is that the lowest paying tenent appears to have a lease agreement with the current property owner until 2030 from what the listing is showing (could be a typo but just Incase I figured I should ask to be safe). If I were to purchase the property is there any way that I can break the lease and have a new one signed? Thank you for for the feedback and help!
@Hayden Norris I’d double check that lease. Most leases longer than a couple years need to be notarized to stand up in court. If it’s a year lease you’ll have to honor it. You can always talk to them and see if they’d like out of the lease but if you’re just getting into real estate investing I may keep them if they’ve been good Tenants. No reason to have a turnover right away and clean and update it if they don’t have much time left. Good luck with it! - Mike

You would really need to read the actual lease, and see what your local laws are to be sure. In my experience you do typically have to honor the lease. I have seen owners be able to negotiate with tenants to move out by offering them cash for keys but could be risky if you need them to move and they don't accept.

2030 does seem like a long lease though, so you may want to double check that to see if thats accurate. 

Good Luck! Aaron

As a general rule of thumb, the lease transfers with the property. You can make your offer contingent on a certain unit(s) being empty, and then it is on the current owner to get rid of them. Of course, by putting something on the sellers shoulders you make the offer less satisfactory, and will need to offer more to compensate. Vice versa is also true, if the seller has a problem tenant, you can make your offer less since you will now need to handle the problem.

All that being said, there si definitely something weird about that lease that will need to be looked into.

Unlikely unless you are talking about some kind of commercial location, and even then unlikely. 

As for existing leases, no they generally go with the property. You can (and should) request copies of the existing leases from the current owner as part of your due diligence once you are under contract but still have a contingency escape - what if the leases contain outrageous provisions? 

@Hayden Norris if it truly is an 11.5 year lease that be a concern for me too. I just don’t see that being the case. I could be wrong but it’s very unlikely. I’d just check into it. Simple phone call and you’ll know.