Duplex Property Offer STALEMATE

[Cliff Wallace]

We are are first time multi-family property investors. We have run into a problematic situation. The property we are looking at has 2 units and both are currently occupied. They are both paying way under market value for rent. About 30-40% under. We have agreed on the sellers price for 325k without any haggle or nitpicking. It does not require any major repairs and our goal is  to give it a good face lift and ask 100-200 over market value and to live in one side and rent the other.

The issue at hand is that we are asking in our contract for the property to be vacated. We want to do our own screening, do the renos, bomb the property, and we would also want to avoid bad air increasing the rent so much for the current tenants. etc etc. 

First, the owner said that he wont vacate because he was worried about loosing out on his rental income if we didn't close. So we offered to put a two month deposit (non refundable) in escrow if we do NOT close. He declined and didn't really give us an alternative option. 

Secondly, he said he would introduce us to the tenants however were really just not interested. Basically were getting the impression that he doesn't want to evict the tenants. Maybe he feels bad?! Your guess is as good as mine.  We have pretty much hit a stalemate here and I am trying to figure out a way to make the deal go down. But keeping in mind we want a vacate place and he doesn't want to evict anyone.... So I thought we could possibly bring them on but then I feel like we are inheriting a bad deal with possibly problematic tenants who are also paying way under value. 

 Keep in mind this was a really great value for this specific duplex. Otherwise we would have just moved on. Any advice or counsel is much appreciated. Thanks

[Patricia Steiner]

If the tenants are on a month-to-month lease, most state laws (if not all) require that either party gives 30 day notice to vacate. So, the pain - if all goes well - would be short lived. While I certainly appreciate that you want to acquire the property vacant, there is another approach here:

Ask the seller to provide you with the rent rolls.  Have the tenants paid on time?  Do an online search - who are these tenants?  Search clerk of the court records (its a free public online search) to see if there are any criminal convictions/issues.

Did you inspect the units?  If no, that's a deal breaker.  If you did, how would you assess the respect/care the tenants demonstrated for the units?

If the tenants check out, I would move forward with the sale and have my 30-day letter ready to serve right after closing. I would state in the letter that the property will undergo extensive renovation that will make it uninhabitable when construction starts on the 31st day. That let's the tenants know that it's not personal and they shouldn't plan on staying past the 30th day because the walls are falling on the 31st day.

If the tenants don't check out (been consistently late on rent, their place was a mess when you visited), then it's a deal breaker.  The risk of not having them move when notice is served and having to go through the eviction process is highly more likely with a problematic tenant.

Do the due diligence on the tenants and then trust your instincts.  There will always be another property so you don't have to accept a situation that could prove intolerable during your ownership.  Hope this helps...