Five Tips for Buying a Property with Tenants
Whether you are interested in a buying a home to use as a primary residence or an investment property, it’s possible that the property is currently occupied by tenants. If that’s the case, there are a few things you should consider before deciding to go through with the purchase. Read on for some tips.
1. Leases that are already in place must be honored by the new buyer.
Before your sign a purchase and sale, you should have an Attorney review any and all leases associated with the property. You should know the lease terms, since as the new owner, you will be obligated to honor those terms. You should know the lease length. Most residential leases are twelve months, but could be longer, and you would want to know that.
On occasion new buyers offer buyouts to current tenants, so that they could legally sever their leases. This would be a good option if you want to renovate the property and raise rents.
Every lease is different, so do not make any assumptions about the lease without reading it. If the tenant is a tenant at will, which means there is no contract in place, you may, upon the purchase of the property give any tenant at will a 30 Day Notice to Quit, if you choose to do so, but you must be careful to comply with Massachusetts Law.
2. Make sure the Seller agrees not to change the rent before closing.
Though unlikely, it is possible that a landlord could change not only the rental amount, but the terms prior to your purchase. There are ways to ensure this does not happen through crafting a careful purchase and sale agreement.
3. Inspect the Rent Rolls
Now, this is less legal advice and more practical advice, but it makes sense to review the records of the current owner to ensure that the current tenants have been paying rent on time. You have a right to ask those kinds of questions. If there is a tenant that is in arrears with rent or just not paying on time, you would want to know all of that information. The Seller is not obligated to tell you that, or much for that matter. Ask, or have your counsel ask the Seller these kinds of questions. Remember they are not required to tell, but they cannot make a misrepresentation when asked.
4. Understand the Security Deposit
Ask if any of the tenants had given security deposits upon the commencement of their lease. You need to include specific language in a purchase and sale to address this issue. Security deposits can be a costly legal matter if they are not handled properly in Massachusetts. If a tenant gave a security deposit, and you never asked for it from your Seller, you could still be liable for that deposit, as the new owner.
5. Inquire about current tenants
I would want a confirmation from the current owner that there are no current, past or pending lawsuits against the Landlord/Property. This will not only give you an idea of the “climate” of the building but also let you know what kind of risks if any are associated with this property.
Being a Landlord can be a very rewarding and lucrative experience, just be sure to have good legal counsel assisting you along the way.