Ask Our Broker With Peter G. Miller: Good Offer?
Question: We’re interested in buying a rental property and using it as our prime residence. We don’t know if the tenants want to stay or go. If they want to stay we would likely pass on the property, we don’t want to evict anyone. How can we find out if a purchase offer makes sense?
Answer: Many single-family rental properties are for sale. The owner will market the property as a rental or residence, depending on which option is most likely to produce the better sale price.
In this situation there are tenants on the property. You’re interested but not if they want to stay. There are several issues to consider.
First, get a copy of the lease. Are the tenants renting month-to-month or do they have a longer rental period? You must honor the terms of any lease they hold. They may remain until the end of the lease term. However, the lease could be near its end, and by the time you have settlement it will be over. In that case you can require the owner not to re-let the property as a condition of sale.
Second, is the property in a rent-controlled area? If yes, do tenants have rights? Is notice required to end their occupancy? Are they due a moving allowance? Do they have first-right-refusal to buy the property? Speak with an attorney for details.
Third, will the owner give you written permission to speak with them? If yes, why not meet and find out their preferences? You can’t know what they want until you ask.
Long ago I bought a rental property. The idea was to refurbish it and rent it again at a better rate. That meant the tenants would have to leave. Would this be a problem?
I met with them, explained what I wanted to do and asked what their needs were. It turned out they wanted to buy a home in a rural area to fix up. Since I was planning to replace the appliances in the property, I asked if they wanted them for their fixer-upper. We struck a deal. They received the kitchen appliances plus washer and dryer while I got an empty house. The property was immaculate when they left. Repairs were easy. Everyone was happy.
Alternatively, you could buy the property under the condition of vacancy 24 hours before closing. The pre-settlement walk-through allows you to see it’s vacant and check for any damages since signing the sale agreement.
Peter G. Miller is author of "The Common-Sense Mortgage," (Kindle 2016). Have a question? Please write to firstname.lastname@example.org.
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