How do I handle this tenant situation on a duplex purchase?

5 Replies

I'm currently looking at my first deal which is a very large duplex in the downtown area where I live.  All of the numbers seem to check out well so my concern is more with how to handle the current tenant situation.  I will be using a conventional loan to obtain the property so I will have to occupy one side of the home for some time. Both sides of the duplex are currently rented out, however they are paying half of what the current market value rent should be which I found out prior to seeing the units. Hearing how much they were paying made me nervous that perhaps the building was in really rough shape, but to my surprise it's a lot nicer than I expected. It'll need paint, trim and doors, all cosmetics.  I spoke to the tenants during my tour and come to find out one tenant has been there for 12 years and the other for 3 years... They are paying 470 a month and 550 a month for 3 bedroom and 1 bathroom units that are 2000 so ft each. Units like that in the same area are never under 1000$ a month.  Their leases are up at the end of Feb 2018 and as far as I know they have not renewed. My ultimate goal is to take over the property free of tenants so I can renovate one side and rent it as quick as possible and then move on to the other side. What would be the best way to handle this when putting in the offer?

First, speak to your agent. Know your position in the market. Then, I guess you just need to make it a contingency and a major one. Because there is no guarantee the tenants will leave after you close. 

Keep in mind, if you are asking the seller too much on the offer, he may also feel like you are making it hard for him to sell you the property, or may choose another offer with better terms. In other words, try to be fair and competitive if you really like the house.

Good luck!

Taoufik

@Ty Zaczkowski A lot of this will depend on your local landlord-tenant laws.

That said, I'd make my offer contingent on the current tenants not being renewed at their current rents.  You can either set a new rent in your offer or require that the leases not be renewed at all before closing.

From the sounds of the situation, I'd think that not renewing, so that you can rehab is the best option.

Don't forget to take "before" videos to document the condition of the units as they were shown to you.  If the exiting tenants do any damage, that should be the subject of a holdback at closing - and of course, don't forget to do your final walkthrough the day of closing to document the property's condition at that time.

@Charlie.

Im just curious. My understanding is: not renewing the lease does not necessarly mean they will just leave after the lease expires? They may demand more time to find suitable housing then he is maybe forced to renew?

Am i missing something?

Thanks

Taoufik

We are leaning towards making the contingency of only allowing month to month leases to be signed by the current tenants after the current lease is up.  We're worried if we ask for no renewal of the lease the current owner may this k it's too much of risk in case the transaction were to fall through for any reason. If they are on month to month when and if I take over they can be given proposer notice by me and hopefully avoid any conflict

You say you will have to live in one side of the home? If so maybe you want to deliver one side vacant? Alternately look at what the leases say on renewal and have the owner renew month to month? It is going to take time to reno, is it an issue to have one tenant renting while you reno the other unit?

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.