Buying A House With Tenants: How To Protect Yourself
Erin Gobler7-minute read
April 23, 2021
Buying a home is a huge decision, and for many people, the most expensive purchase they’ll make in their lives. But it can also bring unexpected or unwelcome complications. At some point, you may find yourself buying a house with tenants.
For some, buying a home with a tenant might be the ideal situation. But for some, it might be an unwelcome inconvenience. Either way, it’s important to understand the legal implications of such a purchase and how you can protect yourself as a new landlord.
What Happens If You Buy A House With Tenants?
Whether it’s a single-family home or a multifamily investment property, a home with existing tenants can be complicated. Remember that the property you’re buying is someone else’s home. The existing tenants maintain all of the rights granted to them in their lease, and you agree to take on all of the obligations of a landlord. Before putting yourself into this situation, be sure you fully understand the state and local laws and what you’re getting yourself into.
Tenant Rights: What It Means To You
Before buying a house with tenants, it’s important to understand exactly what rights those tenants have.
It’s also important to note that a tenant’s rights will vary considerably from one state to the next. Some states have laws that are much more favorable to landlords, while others prioritize the needs of tenants. It’s not necessarily a bad thing to buy a rental property in a state with laws that are more favorable to tenants, but you need to understand what you’re getting yourself into.
Perhaps the most important thing to be aware of is the existing lease terms. It’s likely that the current owner and tenant signed a legally binding agreement allowing the tenant to live there during certain dates, as long as they pay rent. Depending on the state you’re in and the terms of the lease, you may or may not be able to ask them to leave.
Rental leases also generally guarantee a tenant the right to live in a safe and healthy environment. Keep in mind that as the new property owner, it will be on you to maintain that.
As a landlord, you have certain responsibilities to your tenants. And it’s not just the lease terms that you inherit from the previous owners. State and local laws also dictate certain obligations that you have to your tenants.
Some of the 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
- Maintain the HVAC system, electrical, plumbing, etc.
- Ensure the water heater works and that tenants have access to running water and heat
- Keep the property free of environmental toxins such as asbestos, lead-based paint, and pests
- Maintain the structural integrity of the building
- Responding to any repairs in a prompt manner
One legal risk you face when buying a home with tenants is that the property may not meet the current requirements. If the previous owner didn’t properly maintain the home, you might be liable for that lack of care when you close on the property. Depending on state and local laws and the terms of your lease, there could be legal or financial consequences.
When buying a rental property, it’s important to understand not only what your obligations are but whether the previous owner met those obligations and maintained a safe and healthy home for their tenants.
The Pros And Cons Of Buying A Property With Tenants
There are both advantages and disadvantages to buying an investment property or any other home with a tenant. Before making this type of purchase, be sure you fully understand the implications.
No need to find tenants: Finding a tenant for your property can be a long and expensive process, especially in certain housing markets. When you purchase a property that already has tenants, you have the advantage of not having to find new ones yourself. Even if the current tenants leave after their lease expires, you have a bit of time to get ready after owning the home for a while.
Instant rental income: With the benefit of not having to find new tenants comes the perk of having immediate rental income when you close on the home. One of the risks of owning a rental property is that if the property sits vacant, you’re on the hook for the mortgage with no rental income to cover it. When the home already has tenants, you don’t have to worry about that right away.
Property up to code: Rental property owners have certain legal requirements they must meet to ensure a safe and healthy environment for their tenants. Assuming the home’s previous owner met their legal responsibilities, you won’t have to spend any money updating the home.
Inherited legal risk: When you purchase the property, you’re immediately liable for anything on the property that doesn’t meet the legal requirements. Hopefully, the previous owners maintained the property, and this won’t be an issue. But landlords have a legal responsibility to their tenants, and if the previous landlord didn’t live up to that responsibility, you could end up paying the price.
Lease terms must be honored: When you buy a property that has existing leases, you must continue to honor those lease terms. Depending on how the previous list was written, this could certainly be disadvantageous to a new owner. The previous owner may not have written the lease in a way that’s favorable to the owner, and it could make your time as a landlord difficult. You can’t change those terms until the current leases expire.
Difficult to remove a tenant: Evicting a tenant can be difficult and expensive, even in the best of circumstances. Some states make it more difficult than others. You might find that even if you have a tenant who doesn’t pay rent or abide by the lease terms, that removing them is a lengthy process. Additionally, if you purchase the property hoping to live where there are currently tenants, you can’t remove them for that purpose alone. You’ll have to wait until their lease ends.
Should I Buy A House With Tenants?
When deciding whether to purchase a home with existing tenants, consider your goals for the property. If your plan is to live in the home yourself, then buying a home with tenants probably isn’t ideal. You’ll have to wait until their lease ends before you can move in. You’ll also run into another slew of issues if the lease term ends and the tenant won’t leave. Even if you plan to keep the property as a rental, it’s still important to do your due diligence. Ask the current owner to see the lease agreements, so you know what you’re getting yourself into.
Can I Evict A Tenant When I Buy A House?
In general, new landlords must honor the lease terms. However, there are some situations where you can evict an existing tenant. First, you can evict the tenant if they are not abiding by the terms of the lease, such as not paying their rent each month.
It’s also possible to place terms in your purchase contract requiring the current owner to terminate the lease before the close of the sale. They could rely on the terms of the lease that allow them to do so or offer them an incentive to leave. Finally, some states allow for owner move-in evictions, which allow property owners to recover possession of a home occupied by tenants if they plan to live there.
What Happens If I Bought A House And The Tenant Won’t Leave?
You may run into a situation where a tenant is legally required to leave the home but won’t do so. The first step is to research and understand your state’s laws. Each state has its own regulations when it comes to landlord-tenant relationships and evictions. Know how the process works in your state to ensure you’re fully complying with state laws.
Before taking legal action, start by speaking with the tenant to see if you can reason with them. This is the simplest, cheapest, and least confrontational option. However, as you try this strategy, be aware that it may not work.
Next, look through the lease agreement to ensure you have grounds to evict the tenant. Most leases give the property owner the right to terminate the lease if the tenant violates any clause within the agreement. If that’s the case, you can serve the tenant with a formal eviction notice. The notice will stipulate the number of days within which the tenant must leave the home. If the tenant leaves, the matter is resolved. If the tenant still doesn’t leave, you may need to go to court or enlist the help of your local sheriff, depending on your state’s laws.
Through the eviction progression, it’s important to follow the legal process. Avoid confronting or harassing the tenant. Additionally, your state’s laws may prohibit actions such as changing the locks or turning off the utilities.
The Bottom Line
Depending on your point of view, buying a house with tenants may either be the best-case scenario or an unwelcome problem to deal with. It can be convenient for real estate investors to purchase a home with an existing tenant. They immediately have incoming cash flow and don’t have to worry about finding their own tenant. At the same time, someone purchasing a home to use as their primary residence will likely find existing tenants to be an inconvenience.
The most important thing is to fully understand your state and local landlord-tenant laws, so you understand your rights and responsibilities before taking ownership of the property. And if you’d prefer the house to be without tenants, you might consider a contingent offer allowing you to back out of the contract if the tenants don’t agree to move out.
See What You Qualify For
Buying A Rental House: What You Need To Know
Home Buying - 6-minute read
Miranda Crace - May 21, 2021
Buying a rental house is a big decision with big financial implications. Let’s look at what you need to know when investing in a rental home.
What Is A Multifamily Home, And Is It Right For You?
Home Buying - 5-minute read
Victoria Araj - May 27, 2021
Wondering about the difference between single-family and multifamily homes? Read on to learn more about multifamily units and their investment potential.