Buying an Occupied Multifamily?

Question

I am looking to buy a triplex in Connecticut (CT) however all three units are currently occupied. The house needs some rehab on the inside and the tenants are currently paying under market (literally $800 for a 4bed 1bath unit market is at least $1000 if not more as is and with a facelift as much as $1500). For this reason I would be looking to terminate the lease of at least one of the tenants up front since I would like to house hack the property, live in one unit while fixing it up and move on to the next two as time goes on. Does anyone have advice for terminating the lease of an already occupied multifamily?

Brandon Rush · Answer

Hey Victoria,

One big piece of advice is to make sure you plan to have a place to live while getting the tenant out. Best case scenario, the tenant complies with your notice of non-renewal and leaves by the time specified. But, you have to be ready for a tenant who either refuses or takes longer than anticipated to leave the apartment. In terms of terminating the lease (assuming they are month to month or its about to expire), its as simple as sending them a notice of non-renewal with a move out deadline. Have them acknowledge that they have received the notice by sending a signed copy back in a self addressed envelope or sending you an email acknowledging.

Go for it and make it happen. It sounds like you have a good plan, setting yourself up for great success. Good luck on your journey and reach out if you have any house hacking questions, I am on my 2nd in Connecticut now.

Mat O'Grady · Answer

@Victoria Imlach

You could talk to your agent about putting in a contingency for a vacant unit. That would mean there would need to be a vacant unit before you can close. This could make you lose the deal though if other buyers are willing to purchase without a vacant unit.

You will need to find out if the tenants are on a month to month lease. If they are, then you can serve a notice of non-renewal. If they are NOT on a month to month lease, things are more complicated. The lease goes with the property, so if the lease says "$500 in rent until 2023" you are stuck with it, unless the tenant violates the lease or you can work out an arrangement with the tenant.

If the lease is month to month, you could ask for the seller to serve a notice of nonrenewal before you close, but not require the tenant to be out before closing. One of my friends is in the middle of a deal like this. He is hoping the tenant is out before they close, but if he is not, at least the process has been started.

If the lease is month to month and after the given date for them to move out has passed and the tenant does not move out, I suggest hiring a lawyer to handle the eviction process for you. Normally, I would suggest you read up on it and try it yourself, but right now, the eviction process is very complicated. In the past, it has taken me at least 3 months to evict a tenant. In this environment, it could take much longer.

Hopefully, one of the tenants is on a month to month lease and is cooperative with moving out. Although, it sounds like they are getting a great deal on rent, so they may be reluctant to move out.

Good luck!

Victoria Imlach · Answer

@Nathan G. this definitely sounds like the strategy I would be most comfortable with. It seems like it would be a challenge getting the units renovated or trying to raise the rent and balancing tenants who have been there for some time paying under market. Thanks for the help!

Nathan Gesner · Answer

I recommend your purchase offer include the requirement that at least one unit be vacant before closing, early enough that you can inspect prior to closing. Renovate, place your own tenants at market rate, and move on to the next. I would empty all of them and bring them up to market as quickly as possible. I would not try increasing rent on existing tenants because they often can't afford it or will resent you for increasing their costs.

Scott M. · Answer

Kind of depends on how things are in CT with your ability to get rid of a tenant assuming you need the courts as leverage to get someone out.  Dream scenario is the one you wants to leave leaves or agrees to leave but BP is littered with people stuck after purchase trying to get someone out.

Don't wait.  I would have the seller get 1 unit vacant (be sure it is the right one) and make it a condition of your purchase.  This means you buy when the unit is in the condition that you need.  Eviction is not the simplest thing right now and that means strategies need to change.

Victoria Imlach · Answer

@Mat O'Grady Good advice. Seems like there are a few routes I could take and definitely some due diligence that would need to happen to verify the terms of the existing leases. I definitely would like to avoid the eviction process at all costs especially starting out, seems like it would be a tall order for my first property. I appreciate the help!

Victoria Imlach · Answer

@Brandon Rush that's a great point. I am currently renting so it would definitely be more ideal to find an option with vacancy and avoid this altogether. I appreciate the advice!

Buying an Occupied Multifamily?

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