Buying A Rental Property With Existing Tenants: A Quick Guide

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Usually, when you are buying an investment property, it's vacant. Investors often have to fix up the property and put it in rent-ready conditions for tenants. However, some properties sell with tenants living in them already, which can mean several things for someone interested in buying said property. Each investment property comes with its risks and rewards. However, there are ins and outs to buying a tenant-occupied rental property. Every person considering investing should know the potential roadblocks and the benefits of inheriting tenants with your new investment property. See Idaho Code § 55-307.

LANDLORD RIGHTS

Buying a rental property is a huge decision for anyone, and for many, it can be the most expensive purchase they'll ever make. As an owner, you have several options for approaching this new investment, whether it's a single-family or a multiunit property. The most important thing a new owner would need to clarify purchasing a new rental property is whether they intend to occupy the property as a primary residence or not. Depending on the choice, tenants and owners must adhere to different rights and regulations.

Suppose the owner intends to occupy the property as a primary residence. In that case, they must give the current tenants a 30-day written notice to vacate. All existing tenants must comply and move out of the property within 30 days of receiving the notice. However, suppose the owner elects not to live on the property; in that case, the tenants will be allowed to remain on the property for the remainder of the lease agreement or for the 30-day written notice to vacate, whichever is greater. Furthermore, suppose you do not want to wait 30 days or provide notices to tenants because you would like to start fresh or occupy the property; in that case, you can submit an offer contingent on the property being vacated upon closing.

TENANT RIGHTS

Additionally, the original lease agreement between the old owners and tenants creates privity of estate and contract, which serves as a basis for liability between the parties. See 5 Thompson on Real Property, Thomas Editions § 42.03 (2022). This means that the existing tenants maintain all the rights granted to them in their lease by the previous landlord, and the new owner agrees to take on all the obligations conferred to them as the landlord.

There are positive factors in buying a rental property with tenants currently living in it:

  1. That means you already have a cash flow coming in from the start and making your transition easy.
  2. You do not need to remodel extensively, therefore, saving yourself money.
  3. You can find new tenants or stay with your existing tenants.

However, just as you have pros, you have cons in having existing tenants, such as uncooperative tenants, legal risks, and removing some tenants may be challenging.

LEASES

What happens to the current tenants' leases after the owner has sold the property to a new owner? Well, there are a couple of options an owner should consider; you can wait until the lease expires, and then you can either renegotiate with the tenants or seek new tenants. However, suppose a tenant has a month-to-month lease; in that case, you can terminate the tenancy or increase the rent before the start of the new month, provided that there is a reasonable notice given to the tenants (typically 15-30 days).

As stated earlier, tenants will not have to immediately find a new place or renegotiate the terms of their leases because the liability and responsibility of the previous contracts will carry over to the new property owner. However, there are exceptions for owners who buy rental property with tenants who do not want to extend leases or renegotiate contracts with current tenants. One of such exceptions is if the lease agreement has a special condition regarding a property sale (if allowed by your state), containing language such as "in the event of the sale, any existing agreement will be void once a new owner takes over; the property." Another exception is a mutual agreement between the tenant and landlord not to extend the lease agreement.

Overall, whether you're looking to purchase a vacant or occupied property, it is crucial to be familiar with the local and state rules. Buying a property with existing tenants living within it can be very tricky. However, there can also be many benefits associated with it. Call our real estate attorneys today to help guide you through this process.

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