How to Buy a Tenant Occupied Property
If you’re in the market to buy a home, you may come across a listing for a tenant occupied property. While this situation can make a purchase a bit more complicated, it may have some benefits as well.
Know the Tenant Terms
Before you decide to move ahead with the purchase of a tenant occupied property, you need to know the tenant terms. Is there a month-to-month rental contract in place or a fixed-term lease? What does the seller (landlord) plan to do with the agreement when the property is sold?
As a buyer, you can transfer a rental or lease agreement but there are certainly unknowns with this. If the home will be used as an investment, the potential profits of already having a renter in place could be a significant benefit. However, no one wants to inherit a bad tenant – one that isn’t upkeeping the property, is late making payments or has other irresponsible traits.
If you plan on living in the home and it is tenant occupied, it is possible to negotiate an agreement where the seller offers the tenant an early lease termination incentive such as a cash deal. Additionally, the sales contract can be written with a closing date pushed out until the lease is up.
Still, it’s possible that buying a property with a tenant may end up costing you less since many buyers are looking for a move in ready home and aren’t willing to wait.
Viewing the Home
Setting up a time to view a tenant occupied property can be tricky because of the additional parties involved. It’s not just working out a time to see the home with the real estate agent and a motivated seller. The seller must also get permission from the tenant before showing the home. The tenant has the right to 24-to-48-hour advanced notice, depending on the state in which the property resides. Additionally, the tenant may not feel comfortable having the home shown with their belongings in place either. They may opt to be at the property at the time of the showing, which can make things a bit more complicated, too.
Notifying the Tenants of Property Sale
To ensure the best relationship with the tenants, knowing and honoring the terms of their contract is vital. Upon the agreement to purchase a home, ask the seller for copies of rental or lease agreements. Also ask to be included in communication between the current seller (the tenant’s landlord) and the tenants. There should be clear and honest communication about the plans for their rental or lease upon the transfer of ownership. Tenants should be notified that their lease and deposit will be transferred to the buyer at closing. It is important to be aware of and respect tenant’s rights when the house is being sold.
Whatever you decide about purchasing a tenant occupied property, know the laws. Tenants with time left on their lease are not required to move because the property is sold. Weigh the risks and benefits of having a tenant in place. Be open and honest in communication. It may end up putting cash in your pocket to be flexible and purchase a tenant occupied home so before you pass one by, be sure to consider your options.