MULTIFAMILY DEAL, CURRENT OWNER WANTS "RENT BACK AGREEMENT"?

Question

Hello All!Thanks for reading my post. I currently own a handful of rentals and am pursuing a 9 unit multi-family deal in Thurston County, Washington State. The current owner of this property is living on site, and has done so for almost 20 years. He has a really big 40 x 60 shop that is packed full of stuff. He is asking for a "Rent-back Agreement" so that he can live on the property for an additional 2 to 3 months while he moves out, has a garage sale, etc. I am concerned about this, as there is obviously additional liability I would be taking on. Is this something that I should rely on my agent to write up in the contract, or should I potentially seek legal advise? Any unknown risks associated that I am not thinking about? We will certainly have them sign a month to month lease and will require a deposit. Your input and suggestions are appreciated!

Key words: Olympia, Tumwater, Pierce County, Lewis County, Mason County, WA, multi-family, landlord, self manage, property management, contract, lawyer,

Andrew B. · Answer

Good advise all around. Only thing I may add, is if you follow through with rent back, its usually a premium to rent. In addition, it can be helpful to stipulate in the agreement that a portion of the proceeds from the sale will remain in escrow until he has vacated AND if you are forced to proceed with eviction the money can be used towards that. depending on the selling price, $5-$10k outta be enough to convince him to move his stuff out.

Kevin Romines · Answer

Hey Jake, Fancy meeting you here? LOL. Hey the old insurance agent in me would advise you to have him get a renters policy with say about 1 million in liability protection, have him list you or your company as an additional insured on the policy. This will protect you regarding liability just as it protects him. I would also require to be a certificate holder, this will notify you if the policy ever terminates for any reason. I would also require him to get a million dollar or more, Umbrella policy. Also be listed as an additional insured on that and also be a certificate holder as well.

Further, I would discuss this specific issue with your agent and see what they recommend? If he has a policy that is adequate for the risk, then his policy will be hit first in the event of a claim and yours would be secondary to his policy.

Because you are building your rental portfolio, I would seriously consider requiring all your tenants to have a base minimum renters policy. Most apartments in the MSA's require this of their tenants. It's only good business to do this as a way to mitigate your risks and put your policy in secondary positions to the renters policy for liability caused by them?

I hope this helps?

Naomi Pinger · Answer

Hello Jake,

If I was in your position I would consult with a real estate attorney not so much for the rent back agreement since there are legal forms for that already.  However I would want to know what my liability would be if some one  came to the Yard Sale and fell or got hurt.  Yes I know you will have liability insurance on the property however will it cover if you are allowing him to do this on your property or should he have insurance to cover the yard sales, or should there be some agreement in place before hand and if so what kind of agreement would it be.

Maybe this is being over cautious however I like to have things in place so if and when something happens my property is protected.  If nothing happens and I hope it doesn't, you will most likely run into this situtation again down the road and you will  then know what you should do with out wondering what to do.

Congratulations on all your rentals and I wish you all the luck in purchasing the 9 unit.

That is my 2 cents worth.  Good Luck.

Jim L. · Answer

Each situation is unique, of course, but seller occupancy after closing is common.  Often an MLS or attorney-vetted brokerage form for Seller Occupancy after Closing may be sufficient, and your real estate agent should be able to help you fill in the blanks.  If the situation calls for something more exotic or specialized (e.g., you want to include specific provisions not covered by the standard form), you'd be best off with an attorney.  (A non-attorney real estate agent would be risking liability for unlicensed practice of law if they do more than fill the form.)

Johnny Rhee · Answer

@Andrew Boettcher is right. If the deal is good, I try to make a win win for everybody. Charge more for the rent back and have escrow withhold some money as @Andrew Boettcher suggested. I've done rent backs before and charged a premium rent for it and it worked out fine.

Jake DeAtley · Answer

@Andrew Boettcher, Great input. I certainly appreciate that suggestion. I think I will get this added to our counter offer.

Jake DeAtley · Answer

Hi @Naomi Pinger Hi @Kevin Romines Thanks for the replies! I will be sure to adjust my calendar for the REI meeting. And thank you Kevin, that insight is much appreciated. This is going to be an interesting one to negotiate!

Naomi Pinger · Answer

Hello Jake,

There has been a mess up on the scheduling of the Olympia REI Group meeting.  Rambling Jacks had us scheduled for the 14th and not to 21st so they have booked something else for the 21st.  Our meeting has been moved to the 28th.  I have posted it on Meetups and on BP.  Please let everyone you know there has been a change.

I will see you on the 28th.  We will also discuss your situation if you want us to.

Thomas S. · Answer

I never allow sellers to stay and would offer to close 3 months in the future. He can not have his cake and eat it too. I would suggest to him he get his s**t together on his own dime.

Keep in mind if you don't care or the deal is absolutely killer you may feel differently. Personally I always preferred buying by my own very strict standards and had no qualms in regards to manipulating and/or bullying sellers if possible. I never offer any special compensation unless it benefited me personally beyond the deal itself. I would definatly not be agreeing to any rent back deal.

The big question for you is, beyond the actual purchase deal, what additionally is in it for you to let him stay.

Anthony Wick · Answer

This has come up a few times in the past month in the posts. My biggest question is; how is this different than renting out your property to anybody else? No, you aren't "vetting" them. But, do they not just become one of your tenants, with no greater or less rights than any other tenant?

MULTIFAMILY DEAL, CURRENT OWNER WANTS "RENT BACK AGREEMENT"?

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