Purchasing a fully occupied rental

[Mike Goikhberg]

For the seasoned rental investors out there, especially in the baltimore area - I'm thinking of picking up a fourplex that's fully occupied. However, I really want to get is under an owner occupied FHA loan with 3.5% down. The house has an extra room that's separate from the other units and is unused. Do you think it's doable for me to get an FHA loan stating that i'll be staying in that room, while I try to get one of the tenants out (they're on month to month leases)? My other question is has anyone ever even tried to "get a tenant out" for the sake of you occupying the property? It seems like a total a-hole thing to do. Also, the current landlord is paying all the utilities in that property, which comes close to a grand a month. How would you guys go about telling the tenants that they're now responsible for utilities once you take ownership of the property?

[Sam LLoyd]

I think I might have some answers for you.  First, you'll have to be able to tell the bank that you have a reason to live there.... they will believe that you are moving into one of the units, so you might have to show them an eviction notice for one of the units before they will believe that you will be moving into it.  I'm pretty sure that if you give the bank 4 leases, and tell them you are going to owner occupy, they are going to have a fit.  kicking out a tenant shouldn't be a big deal.  If they are on month-to-month, they shouldn't be upset... they will, of course, but they shouldn't.  Tenants leave all the time with 30 day notice... it works the same other way.  Your offer should include the fact that you intend to owner occupy, and you should make it part of the offer that the seller needs to give notice and provide you with a vacant unit upon closing.  It's going to take at least a couple months to close the deal any way.  The trick is figuring out which tenant you don't want and getting them out.  So, when you go through the units, make sure you get a feel for which tenants are treating the place well... find out if any one of them is paying under market and/or missing payments.  

Utilities?  It all comes down to numbers weather or not it's a good deal.  I bought a 4plex with owner paid utilities... and it makes the money that I need.  One thing you need to be careful about is splitting up the cost if you have only one meter.  Frankly, I would never do this for heat or electricity because you will end up with your tenants being bitter towards each other for leaving lights on... keeping their heat turned up, or something like that.  Also, you might run into legal issues, billing tenants for something that isn't metered.

I hope these thoughts help.