Un-cooperative Tenants

[Account Closed]

So I have this house that I am trying to wholesale. ARV is $150,000 and I am selling for $105,000. It is being rented for $1300 a month and needs little repairs (paint, flooring) about $7,000 -$10,000 in repairs, if that. The tenants are adament about staying there and paying rent. The Seller says the tenants have a perfect tract record of paying rent. I let them know that this type of house will attract alot of first time homebuyers and can make no guarantee they would be able to stay in the house. The past month I have lost alot of buyers and offers because they refuse to let the buyers see the inside of the house. They slam the doors in our face or will not show up to the house to let us in? Can someone please explain how I should go about this situation.

[Kyle J.]

@Account Closed  There's some bad advice given to you in this thread so I'd be careful how you proceed.  You mention you're trying to wholesale this house, so I'm going to assume that means you're trying to find a buyer to assign the contract to (as opposed to actually taking ownership and then reselling to the end buyer).

If that's the case, you cannot "give the tenants notice to leave/vacate" as it has been suggested.  You don't own the property and you're not a party to the lease agreement, and (if you're just assigning the contract) you never will be the owner or party to the lease agreement.  So you can't legally give notice of anything. 

It was also suggested that you "pay them to move and help them relocate".  Really?  A wholesaler is going to pay someone else's tenant to move?  If I was the homeowner, we would have a big problem if you paid my tenants to move out.  What if you can't find a buyer and the deal falls through?  You just paid this elderly lady's tenants - who had "a perfect track record of paying rent" - to leave, and she could end up stuck with no buyer and no tenants. 

I'm not saying you would actually do any of these things, but I thought I'd point out the inherent dangers in the suggestions.

As for what you could do in this situation, I would suggest marketing the house to investors as opposed to "first time home buyers", for several reasons.  First, there's already tenants in place who, as you stated, have a perfect track record of paying rent and want to stay.  This could be very desirable to an investor who plans to rent the house out anyway.  On the other hand, most first time home buyers will not want to deal with a tenant-occupied property if their plan is to live in the house themselves. 

Speaking of first time home buyers who intend to live in the house, most will be using bank financing.  A bank may not be okay with your assignment fee.  On top of that, the bank likely won't use you're $105k price as the sales price for qualifying the buyer's for a loan.  They'll use whatever sales price is listed in your contract with the seller (i.e. $105k minus your fee).  If that price is only $90k, for example, then your first time home buyers may have trouble coming up with the different because they won't be able to get financing on your assignment fee.   (One of the reasons most wholesalers look for cash buyers.)     

Ultimately, if the tenants aren't going to cooperate, then there's not a lot you (as the wholesaler) can do to force them to (even if it's in the lease), and it doesn't sound like the current elderly owner is in a position to get involved. 

So start by marketing this to your investors/cash buyers and see if one of them is looking for a tenant-occupied property.  Short of that, you may have to renegotiate with the owner on the sales price to something lower (or lower your assignment fee if that's possible) to account for the extra time/expense it will take for the end buyer to remove the tenants (i.e. do an eviction). 

Best of luck to you with whatever route you choose.