Buying a Building With Tenants Included
I am in the process of purchasing a 3 family townhouse. When I went to sign the contract I realized that the seller intends to leave one of the current month-to-month renters in the building (even though the broker told me it would be delivered vacant). The current renter is paying under market rent (about…
I am in the process of purchasing a 3 family townhouse. When I went to sign the contract I realized that the seller intends to leave one of the current month-to-month renters in the building (even though the broker told me it would be delivered vacant). The current renter is paying under market rent (about two thirds of the going rate). I’m wondering what people think about inheriting a building with a tenant under these circumstances, rather than finding my own tenants. For example what if the person decides not to leave? What would be the process for eviction and how long would it take? Finally, would it be better to say no deal if the sellar won’t deliver vacant. Any thoughts, or comments would be appreciated, thanks.
I took on a home purchase with a month-to-month tenant that had to go before I could begin the absolutely required gut rehab of the building…it wasn’t even safe for them to be living there as it was.
If you decide to take this on, know that even with month-to-month status, you must legally evict the tenant in housing court, unless they leave on their own. And to have them leave on their own quickly, you will need to pay them. Crazy, but it’s how it works in NYC, where time is money.
I found that while you need a lawyer to make the eviction process official, it is most cost-effective to meet with the tenant privately and find out what they would need to go. I did this after the lawyer sent the eviction letter, although I’d told them it was coming and it was no surprise given the condition of the house. Maybe it’s possible to do talk before sending the letter, letting them know it will come as part of the official process, but you want that letter in the court system asap.
I wasted months with the two lawyers dancing their dance in housing court when ultimately, it was during coffee at a diner where we agreed on a time frame and payment. I believe if I used the lawyer to send the initial notice and the agreement letter, and spoke to the tenants earlier on my own, I’d have saved months.
Good luck!
the bottom line is: if the tenant is not out, there is a reason for it.
You should check the background behind this story before you close. Why would the seller go through this trouble if the guy is so easy to kick out?
Ask the seller for a copy of the contract he has with the tenant and pass it on to your lawyer to check.
I would also recommend to get a hold the tenant to see what he´s about and whom you are dealing with. Make sure you have somebody there to witness what´s going on in case you land in court later.
Sounds a bit uncomfortable yes, but rather a bit of work now that tons of trouble later.
A year ago I bought a 3 family building where the “tenant” turned out to be a previous owner of the building.
He is now suing 4 people at once including me, insisting that the sale was illegal. I am not even allowed to enter the building.
The tenant is a month-to-month, they have no tenure – they can be given one month’s notice to quit without giving a reason. If your contract says delivered vacant – insist on that. If the current owner doesn’t have the cojones to do it, they should get their attorney to do it.
Aaaargh! Don’t do it!
In addition to the above comments–if you have work to do on the house (wiring/plumbing/what not) you will want the place empty.
This is not the time to ‘be kind’ (sorry Slick). Don’t sign the contract until it’s clear, and to your liking.
Insist.
Also, IMO $50K held for eviction/legal fees probably is not enough.
Back up the closing; but don’t sign.
You asked.
Happy Holidays!
if it’s just a matter of being kind to the tenant to allow them to find a bit more time, offer to go to contract but hold a substantial amount ($50k)in escrow pending tenant moving out by a certain date. Any legal expenses plus unpaid rent for period beyond that date will be deducted from escrow.
Your contract should read “delivered vacant.” Doesn’t matter what the broker says – go to the contract.Debt Consolidation
I would first clarify the ambiguity with the broker. The seller’s broker is responsible to correctly disclosing the terms of the deal including the situation of vacancies; that said the seller may just be cautious of signing a contract dependent on the tenant may be changing their mind. Ask the seller why they cannot or do not want to deliver it vacant. It may just be the seller’s lawyer not wanting their client signing on for something that is out of their control.
Find out the legal status of the tenant; yes they could be rent controlled, how long have they and/or their ancestors been there? Yes, tenants can inherit rent controlled apartments even in a three family house.
Even if they are not rent controlled I am assuming that if the tenant is paying way below market rent, then they have probably been there for a very long time and even if they do not have legal rights there maybe local politicians to deal with regarding displacing minorities, the elderly, the poor etc.
Once you have worked out the real situation; if they are free market tenants on a month to month tenancy; the worst case scenario is you evict them on a holdover, takes maybe 6-7 months at most and less than $1,000 in legal fees, while the tenant still continues to pay the rent (use & occupancy). Not worth a huge decrease in price & maybe losing the deal. Most tenants can be encouraged to move sooner if you really do decide that you want them to go.
If they are rent controlled, or the current owner has no idea how long they have been there or how they came to be there, then maybe it would be better to walk away from the deal.
To further clarify – broker wants the deal to get done so they’ll get paid – will tell you anything. Could maybe say same for lawyer, but their take from one deal is so little, and in my experience, they generally do represent you, while the brokers (either of them, if there are two) do not, really.
Yes to getting the contract to say the place will be vacant – if that’s how you want it (and I would with a tenant paying 2/3 of market) and that’s how it was presented to you you’d get it, you should get it. No amount of haircut on the price will make up for having to deal with a tenant who is rent protected and/or doesn’t want to leave.
But if you are in NY, forget your broker at this point – you want to work on the contract negotiations directly with your lawyer, who will deal with the sellers lawyer. You don’t need – or want – your broker getting in between you and your lawyer now – their job is done.