Elderly Owner wants to stay in Multifamily purchase

6 Replies

Looking for some creative solutions. I looked at a 3 unit that is currently owner occupied by an elderly woman on the first floor. I made her an offer and she liked it but she asked me to make her another offer as if she would stay living in the property. She is currently 82 years old. The apartment she is living in is the largest one and would rent for $850/month if she wasn't there.  She does not owe anything on the property and states she does not want to hold financing -- although I don't think she fully understands this and when I meet with her again her daughter will be present to discuss. Obviously if I let her stay at no rent -- I would offer much less.  I feel bad having her stay and paying $850/mo because I feel she won't go for that as it is a lot for someone at her age in our area.   Has anyone ever purchased a building and allowed an owner occupant to stay? Or any creative solutions to this or how it can be structured differently? 


Firstly - Unless you know her situation don't feel 'bad' yet. For all you know, she has other income / assets and just wants to stay where she is comfortable. 

I also, have a couple of tenants (one is over 90) whose units are rented below market. As I do know their situation, I do not have the heart to price them out of their unit but as this is a medium sized MF property I am willing to live with it.

On as smaller property like this and as an investor I don't think you can afford to be very lenient (if at all).


I don’t know how much you are offering for the property but you also have to consider how many months of $850 rent the old lady can pay off of the proceeds from selling the place, especially if she owns it out right, before you feel ‘bad’ for her. Gotta be at least 5-10 years????

A seller carried note, in this case, is an opportunity for her to supplement her retirement income.

I'm going to sandbox here, obviously it's unlikely you will do exactly this, but it's a starting place:

If you want to play the long game, and are yourself young enough to do so, you could pair the seller carried note with peppercorn rent specified in a lease of $1/mo that lasts until she dies. The daughter will like this because now you've taken on the burden of taking care of mom. 

If you're still looking to acquire other real estate, get tight with your lender to set this up such that it doesn't screw with your DTI. (I'm about to make up some numbers, terms, and conditions) The interest only payment on $300k at 3% is $750/mo, and maybe you agree not to refinance it while old lady still lives, but must refinance it within 180 days of her passing away. And you should also offer to pay for the loan servicing, which might be another $100/mo. Throw taxes and insurance in, and we're probably still at <$1k/mo. Will it cashflow with rents from the other two factoring in capex etc? If it'll be a little in the green and not a financial burden, great, this is kind of a "holding pattern" setup.

So let's think of what we've put together with this:

- Old lady goes from having to rent a comparable place for $850/mo, to instead living with $1/mo in rent and receiving $750/mo for the rest of her life, allowing her to live comfortably. She does not have to move, and is in the green $1599 relative to the other option.

- Heirs don't have to take care of old lady, but STILL get their big pay-day when she passes away, and you refinance that $300k, which means the heirs will get a $300k check from your new lender as part of the refinance. 

- You get a property that's a little in the green now and not knocking anyone's socks off, but you lock it in at today's price & loan amount, not the one applicable after it appreciates for another X years. Think of someone locking in the price & loan amount of any core market Bay Area real estate in 2006 or 2012 or 2001 or 1995 or 2014 -- they win at the cashflow game in 2017 no matter what year you pick. I don't know squat about Pennsylvania, so this suggestion might be completely off-mark due to that ignorance. 

There's probably a 0.00% chance you do exactly the above, but that should get your idea engine moving. :)

@April Crossley I agree with @Oren K.

Remember, an offer is just an offer. I was working on a deal to close a 16 unit and making the numbers for cashflow work with my financing was challenging. Needless to say I was in a position where I wasn't sure how to negotiate. Ultimately I showed my hand and gave out all the numbers I was using to asses the property. I explained what return I needed to get and the areas where I wasn't willing to budge.

If you have the cash to buy the property with a conventional loan then you need the property to provide you a return you are happy with. I wouldn't hesitate to show a list of comparable apartments available and what rents are going for. Give her the sheets so she can look at them and explain that you need to be close to them. However, you can follow it up by using a longterm lease and include language that limits your ability to bump her rent in the future. 

Rent $800 a month. Lease terms 5 years. Limited to annual rent increase of 5% after lease expires.

There also may be something she wants done to her unit but doesn't want the hassle or expense of trying to have it upgraded. Maybe its a dishwasher, flooring, or fixtures. I have this discussion with many of my elderly tenants. I say "ok, you want an upgraded flooring and dishwasher. I am ok with providing that to you but I need to increase your rent $20 a month to help cover the cost." Since that tenant was on a 3 year lease I knew I would get $720 in extra income over the following 3 years. 

@April Crossley

In so many words, she is basically asking for a "life estate" in one of the units. While it doesn't happen every day, it's not too unusual. People use it as an estate planning tool all the time. Note that if you grant her a life estate, you may run into financing issues and other complications. 

Not sure if it makes sense to do this as a lease for an indefinite term. My gut instinct says "no" but I would have to think about that. If you were to do that, I would rather structure it as a long term lease (say 10 years) with a termination option upon death with no liability to either parties. But again, even such a lease will likely cause some issues with financing. 

You'll also have to deal with hundreds of other legal issues (e.g. what happens if there is a major damage to her unit? What happens if there is a dispute between the other tenants and her?). You'll also have to make sure that the deal still makes sense as an investor despite her being there.

If I was in your shoe, I probably wouldn't accept this kind of deal since I think it can create a lot of headaches and I don't think it's worth my time/money. But I obviously don't have all the facts. Good luck!  

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.