Should I allow existing tenant to stay/how does it work?

Question

I'm purchasing a property with an existing tenant who has expressed a desire to stay. I'm very new to this; how does this work?

- Do they sign a new lease with me or does their existing one transfer? If the existing one transfers, can I still increase the rents? Their rent is currently below market price.
- How is the pre-inspection done. Since they have a lot of stuff in the house already, it's hard to determine accurately the state of the house which will be needed when they move out.
- Should I still run the background check and everything on them/process them as a regular applicant? They're a family of four children so I prefer to not uproot them.

Does anyone have experience with keeping a tenant after purchasing a property? Recommend or no, and for what reasons?

Thanks!

Eric Lin · Answer

Thanks Jennifer! This was immensely helpful and detailed. Cheers

Jennifer T. · Answer

Before closing, have the tenant and seller sign an estoppel agreement so everyone is on the same page as to what the rent and security deposit is.  At closing, the seller will have to turn over the tenant's security deposit to you plus whatever the pro-rated rent is.  For example, what if the seller says "They don't have a security deposit, they used it for July's rent last year when they were laid off."  But the tenant says, "Yes, of course I have a security deposit that is still fully intact."  An estoppel agreement protects from situations like that.

You can and should have the tenant sign a new lease with yourself, because the contract will now be with you.  BUT, you cannot have different terms if the current lease is still in effect.  However, if the current lease is in a month-to-month status, then you can make changes to it, but will need to give appropriate notice after closing.  Usually a 30-Day notice for an amendment to a lease, but check your local laws.

You're right.  You have no way of knowing the condition of the house when the tenant moved in.  But it really doesn't matter.  Because you know the condition of the house NOW and that is what you are already buying.  For a security deposit with an inherited tenant, I will only subtract for NEW damage that happened after I bought it.  I'd suggest taking pictures so you have evidence of the current condition around the time you are buying it.

I personally don't run background checks on inherited tenants.  They're already living there anyway and, even if there was something in their background I didn't want, I couldn't make them move over that unless it was already a month-to-month lease.  But I've seen other people on BP who feel differently.

I don't have a lot of experience with inherited tenants.  But the experience I have had is I "100% would never have rented to any of them, if I'd done the original vetting", lol.  I could also see it being a situation where it works out fine.  It becomes more problematic, if you will also be raising the rent when you are able to.  Which you should do!  I'm not saying that.  But it can understandably cause hard feelings on the tenant side.  For an inherited tenant, I will put the new rent at slightly below market rate if I want to keep them.  Basically, make it cheaper for them to just stay, but without my feeling like I'm subsidizing an almost stranger's rent!