Potential Rental Property - Existing Lease

[Brett Blackmore]

Hey BP'ers,

I'm still working on securing my first deal, and definitely taking my time trying to make sure my first buy is actually a deal.  I found a 2 family that has the potential to have a good amount of cashflow.  Here's the details:

1st floor has existing lease that is up in April and pays 500 a month (Average for 1BR in this market is 650-750) which I intend not to renew in when it is up in order to do renovations and then rent for the higher 700-750 range.

2nd floor currently has no tenant, which i intend to do a minor facelift to kitchen and bathroom and ask in the 700 range (With the existing lease and even making 600 a month on this unit, I can cover the mortgage, but with no cash flow).

I'm going to submit an offer contingent on the condition of the 1st floor property, however I'm reluctant to go into this with an existing lease.  I know nothing about the history of the tenant and what to expect when the lease is up.  Am I better off asking for the lease to be broken and tenant vacated by the closing date, or should alter the offer to reflect an potential "bad tenant"?  This seems like it would be a no brainer for me if there wasn't a lease on the 1st floor.

Thanks in advance!

-B

[Nathan Gesner]

You can't terminate the lease without the Tenant consenting to it. What's it worth for you to have a vacant unit? Let's say the current tenant fails to pay rent and it takes you 60 days to evict. That's $1,000 plus you'll probably have cleaning and repairs on top of it.

So why not ask the Seller to offer the Tenant $1,000 to move out no later than one week prior to closing? If Tenant takes it, you have a week prior to closing for a final walk-through inspection and to plan for renovations. Close, renovate, rent at market rate, and you'll earn that $1,000 back in 4-5 months.