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Updated over 7 years ago,
DC Tenant Opportunity to Purchase
I am trying to help a friend with a situation and I am not sure the best advice to give him, so I was hoping BP could help.
He is a tenant in SFH in DC. He rents a bedroom in the home and the owner got sick and stopped paying the mortgage about 6 months ago and informed him that she had to move out of state. Since she was no longer paying the mortgage and was essentially abandoning the property, she wrote up a lease for him that he could live there in exchange for taking over the utilities and maintaining the yard.
The property has two notes: primary is 220 plus a HELOC of 50 so the total payoff is 270 right now (plus some back taxes, not sure about any other liens). The property would appraise around 300 today and has some good upward potential because of the location.
From what I can see is he has two options:
1. Purchase the property for the payoff amount of 270 and force some appreciation with the BRRRR Method. He wouldn't quite be getting the 20% off but because it's in a good path of progress and considering how hot the market is, I think he would still be fine doing a BRRRR
2. Do nothing and continue to live essentially rent free. Allow the property to go into foreclosure and then once the property gets purchased back by the lender and then sold to a 3rd party exercise the TOPA (Tenant Opportunity to Purchase Act) rights with his current lease to block anyone else from purchasing.
Because the tenant laws in DC are so friendly (I have been on the bad side of that deal, so unfortunately I know from experience), I am confident he can effectively exercise his TOPA rights. The downside to this strategy is of course that the original owner would go into foreclosure and he would risk someone else coming and putting a higher offer in which he could exercise TOPA but it wouldn't be as good of a deal.
My tendency is to go with option #1 and not risk all those variables even if he might be able to get it a little cheaper down the road.
I'd be interested to hear your thoughts!