If a property you’re considering purchasing—whether as a primary residence or as an investment vehicle—currently has tenants, there are a few things you should consider before shopping for home mortgages.
Tenants Have Rights
First and foremost, the existing lease remains in effect. Leases are “attached” to the house, not the owner. Which means you can’t raise the rent; add, subtract, or modify clauses, or evict the current tenant before the end of the lease’s term. You especially don’t want to threaten, attempt to intimidate the current tenants or change any locks—or you could land in legal trouble!
If there’s no lease attached to the property, you may be able to legally evict your tenants as long as you give notice (usually 30 days, though your state may be different). Be sure to consult a real estate professional before taking that step as there are laws designed to prevent landlords from throwing someone out of their home without notice.
So What If You Really Need the Property Vacant?
- Most importantly, don’t schedule the close of your new house with the move-out date of your current home. Stuff happens, and if the current tenants either can’t or won’t move when they’re supposed to, you’re now the one without a place to live.
- Limit yourself to properties that have clauses allowing the seller to terminate the lease if the property is sold or transferred.
- Make the house being vacant a condition of the offer. This requires the seller to either break the lease or offer an incentive to the tenants to leave early.
- Offer the current tenants money to leave. This may seem galling, but remember what your most important goal is: moving into a new home as soon as possible that hasn’t been trashed by the previous tenants.
Offering enough money to cover moving costs, first and last month’s rent, and maybe a nice dinner out might save you months of frustration.
The Old Landlord’s Obligations Are Now Your Obligations
If you have to wait until the current lease ends, you’ll be inheriting the typical landlord obligations for maintaining a safe and habitable property for your tenants. The specifics will vary, but assume you’ll at least need to keep:
- Hallways and stairways clean.
- Floors, walls, roofs—basically all of the structural elements—safe.
- Electrical, plumbing, and HVAC in proper working condition.
- Access to running water and hot water as well as heat.
- Trash containers in good condition and picked up regularly.
- Rodent and any other vermin infestations out of the home
Requirements of habitability vary according to local laws, so consult with a real estate professional to make sure you’re in compliance. Also, be sure to check if the lease has any other specific obligations such as mowing, maintaining appliances, or cleaning gutters.
Get Fully Insured
Rental properties carry risk so make sure you consult with your insurance provider and get fully covered.
Don’t Forget the Security Deposit
As the new landlord, you’ll be responsible for your tenants’ security deposit, pet deposit, prepaid rent, etc. Make sure you get all of that money from the seller, or else you’ll be on the hook for it when your tenants leave.
You may also have to set up a trust account to hold your tenant’s security deposit. Again, consult with a real estate professional in your area.
Formally Note the Condition of the Property
If your tenants take their frustration at moving out on your cabinets and windows, or if the normal wear and tear are a bit above normal, you’ll need proper documentation of the change in the condition of the home between the time when you assumed ownership and your tenants moved out.
It Will Happen
It can be frustrating to finally land your dream home only to find it leased to someone else. But such a situation represents only a small delay. With some patience and a little savvy, you can be unpacking boxes in no time.
Would you like to know more about buying a tenant-occupied property? Answer a few questions here, and a home lending expert will contact you.