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Most people who buy a house expect the seller to leave behind the oven and refrigerator, but sometimes, a seller can pass along much more than an appliance. If you’re thinking about purchasing a home with tenants, you may be looking at a turnkey investment opportunity. But there are other things you need to take into consideration.
When you buy a home with tenants, you have certain obligations as a landlord – and they’re entitled to certain rights as renters. Before you take on the role of landlord, it’s important to understand the legal requirements of the role, both at the state and local level.
What To Know About Buying a House with Tenants
Investing in a multifamily property or single-family home that already has tenants can be profitable and convenient or costly and cumbersome.
Buying a rental property, with respectful tenants who pay on time, can be a great way to start generating income without the hassle of having to find and screen tenants.
However, if you purchase a new home with non-paying tenants who refuse to leave, you might be in over your head.
Let’s get into the details of what you need to know before you buy a house with tenants, so you can decide if it’s an investment that’s right for you.
Tenant leases are “attached” to the property. So even if a home is sold, all the terms of a tenant’s lease remain the same and apply to the new owner. That means if you buy a home with tenants, they’re entitled to the same terms the previous property owner agreed to.
Every state and city sets its own landlord-tenant laws, so be sure to read up on state and local laws regarding tenant rights. If you’re not sure where to start, check out the U.S. Department of Housing and Urban Development page on Tenant Rights.
Though the specifics of tenant rights laws vary by local and state law, tenants have the right to finish out their lease term at the original price. Simply put, a new landlord cannot legally break the tenant’s lease, hike rent or attempt to evict the tenants.
Obligations of the new landlord
If you purchase a property with tenants in place, you’ll be responsible for maintaining proper living conditions in the home. You’re also bound by the terms in the tenant’s current lease.
As the new landlord, the first thing you’ll need to do is carefully read the lease to understand your obligations. Other common landlord obligations include:
- Complying with all state and local landlord-tenant laws, health codes and building codes
- Maintaining a safe and habitable property for your tenants
- Maintaining all home systems, like the HVAC, electrical and plumbing
- Ensuring tenants have access to running water
- Keeping the property free of environmental toxins, such as asbestos, lead-based paint and pests
- Maintaining the structural integrity of the building
- Responding to any repairs in a prompt manner
Pros And Cons Of Buying A Property With Tenants
Buying a rental property with tenants can be helpful or harmful to your investment, depending on the tenant and the terms of their lease. Let’s review the pros and cons of buying a property that’s already occupied by tenants.
Can You Evict Tenants When You Buy a House?
Generally, you cannot evict tenants when you buy a house, since landlord-tenant laws protect them. An exception to these rules is if the tenant violates the terms of the lease. For example, the tenant failing to make their rent payments would be considered a lease violation. Other lease violations that might allow you to legally evict a renter include:
- Engaging in illegal activity on the premises
- Causing damage to the property
- Unauthorized residents living on the property
- Using a residential property for commercial purposes
- Keeping an unauthorized pet on the premises
Even if a tenant violates their lease, you can’t just kick them out or change the locks. If you want your tenant to move out, you’ll likely have to go through a formal eviction process, which can be complicated, costly and time-consuming.
Tips for avoiding houses with bad tenants
You’ll be taking on some degree of risk when you buy a house with tenants. Fortunately, we’ve got some tips that can help you minimize the odds of buying a home with troublesome renters. These include:
- Looking at the current condition of the house
- Asking for the rent roll (the income generated by rents)
- Comparing deposit amounts
- Reviewing the tenant’s application
Where To Find Houses with Tenants
You’ve reviewed the pros and cons of buying a house with tenants and want to move forward. So where should you go to find houses for sale with tenants? You can speak to your real estate agent and look at your local Multiple Listing Service (MLS). Additionally, you can run your own search online by browsing listings on sites or contacting local property management companies.
Know What You’re Getting Into
If you do your research and understand the risks, buying a property with tenants can be a streamlined investment that saves you time and money. But being a landlord isn’t always easy. If you want to be properly equipped for the challenge, you have to understand your obligations and educate yourself on landlord-tenant law in your area.
If there’s a lease in place and the existing tenants have not violated the terms of that lease, you cannot evict them to sell your house. It’s possible your tenants will agree to leave voluntarily, but wanting to put your home on the market is not just cause (a lawful reason) for eviction.
Before selling a property, the landlord must notify current tenants of their intent to sell the home. Though the exact number of days can vary, most states require 30 days’ notice.
A sitting tenant (a tenant renting a property that’s currently for sale) might have the opportunity to purchase the home through a lease purchase agreement. In other cases, a sitting tenant may have the right of first refusal, which gives them the opportunity to buy the property before the sale is open to other potential buyers.
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The Short Version
- Tenant leases are “attached” to the property. So even if a home is sold, all the terms of a tenant’s lease remain the same and apply to the new owner
- Buying a rental property with tenants can be helpful or harmful to your investment, depending on the tenant and the terms of their lease
- Generally, you cannot evict tenants when you buy a house, since landlord-tenant laws protect them
Aniya Equity. “How Much Notice Should Be Given to Tenants Before Selling the House.” Retrieved August 2022 from https://aniyaequity.com/how-much-notice-should-be-given-to-tenants-before-selling-the-house/