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Updated over 6 years ago,
Should I add a contingency if units go vacant during contract?
2 years ago I purchased my first buy-n-hold investment, 4-plex that was 100% occupied at contract signing. While under contract, 2 of the 4 units went vacant without notice from seller. I discovered 1 vacancy from appraisal report pictures (earlier inspection report showed clear signs of occupancy) and the other on final walk-thru the week of closing. Both units had leases that were broken by these vacancies.
Not only did this cut my scheduled rental revenue in half upon closing for a few months, but each unit required several thousands in turnover cost due poor condition. This was quite the baptism by fire for my first purchase.
Currently, I am getting ready to purchase another multifamily and I wanted to know if others feel that it would be good to place some sort of contingency in my offers that states if any unit's lease is broken while under contract, I have the right to back out or renegotiate.
Good idea? Bad idea that will scare off sellers? Sure, I get that if the deal is good, who cares... and no one likes inherited tenants anyways, but I wouldn't mind a little more protection during the purchase.