Buying a house with a tenant that has lost his job

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Buying a house with a tenant that has lost his job

Lisa H.
Investor · Member since 2023 · 38 posts · 18 votes

I have just been notified that the house I am in contract with--that currently has tenants renting out--has been late with their rent for the last 3 months due to a job loss. I just got confirmation he got a job but obviously the only thing I can verify is his rental tenant history.  Which isn't much since he started renting in April 2024.  There are 4 months of on-time payments consistently. Then 3 months of late payments consistently (the last 3 months). With no rent for this current month. I also did some investigating online and see the renter has a tendency not to hold down a job.

I offered asking price (fair market) because it was the sellers bottom line and the fact there were already tenants renting. I'd cash flow immediately without having to pay for a PM to place tenants ( I am out of state).  I am unsure if I should proceed.  The house has some great pros:

• Newer 2000's home with renovations in the last 4 years

• Renovations include: paint, lvp, toilets, vanity, ceiling lights/fans, roof and HVAC

• Tenants look like they are up keeping the house decently. Very clean and mostly organized.

The rent is at fair to maybe even above average. The property hit's the 1%.  Actually 1.45% but when factoring in PM, vacancy and renovation percentages, my cash flow is only $160.  Which I know is low but am looking for long/mid term equity too. Not just cash flow.  

Thoughts?

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Adam BartomeoBusiness Member
Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
1y

You can use this as an opportunity to get a lower sales price, that what I do. The risk has gone up so the price should go down. They will argue the fact that they have are only behind by one month and that they have always paid (25% of our tenant base is late). I would bake into the price that you may have to evict them, have vacancy, have months of nonpayment. Ultimately, if the numbers make sense for your than move forward.

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  • Ryan Konen
    Real Estate Agent · Tooele, Salt Lake City UT · Member since 2020 · 136 posts · 54 votes
    1y

    If you’re comfortable with the tenant risk and low cash flow in exchange for a solid property in good condition with long-term appreciation potential, then proceeding could make sense, maybe you you can negotiate some concessions?  But if tenant stability and needing cash flow are higher priorities for you, then it may be worth re-evaluating or looking at alternative properties that offer more reliable cash flow from day one. Have you considered adding a short contingency that allows you to evaluate the tenant’s new job status within a specified period? That might offer additional peace of mind.

    0Reply
  • Adam BartomeoBusiness Member
    Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
    1y

    You can use this as an opportunity to get a lower sales price, that what I do. The risk has gone up so the price should go down. They will argue the fact that they have are only behind by one month and that they have always paid (25% of our tenant base is late). I would bake into the price that you may have to evict them, have vacancy, have months of nonpayment. Ultimately, if the numbers make sense for your than move forward.

    [email protected]239-339-3969
    Bartomeo Property Management4.7150 Reviews
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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    1y

    I wouldn't do it, at least not yet.  I look at the tenant's financial situation (income security) as a very important part of the property analysis.  If the income side (rent) isn't secured, why buy it?

    Now, if the tenant in fact did get a job, and starts working, and paying rent on time, you can go back and make the deal.  Negotiating a better deal at this time doesn't solve the problem, it just masks it.

    0Reply
  • Lisa H.
    OP
    Investor · Member since 2023 · 38 posts · 18 votes
    1y
    Quote from @Adam Bartomeo:

    You can use this as an opportunity to get a lower sales price, that what I do. The risk has gone up so the price should go down. They will argue the fact that they have are only behind by one month and that they have always paid (25% of our tenant base is late). I would bake into the price that you may have to evict them, have vacancy, have months of nonpayment. Ultimately, if the numbers make sense for your than move forward.

    I agree full heartedly…..but they are non-negotiable on their price. I ended backing out. I’ll still keep my eye on it. 
    1Reply
  • Lisa H.
    OP
    Investor · Member since 2023 · 38 posts · 18 votes
    1y

    @Joe Villeneuve good advice. Thank you. 

    0Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    1y

    @Lisa H. If your bottom line is such that having an immediate negative cash flow situation will significantly hurt you then I wouldn’t do it.

    I saw you said you had backed out. Perhaps you should take a small step back and spend a few months saving a little more for your reserves before attempting to buy the next one.

    1Reply
  • Leo Gregoire
    Real Estate Agent · Worcester county · Member since 2024 · 33 posts · 24 votes
    1y

    Honestly, if you are out of state you should probably be hiring property management regardless of troublesome tenants in the present.

    i don't know how experienced you are as an investor or if this market you're buying in is one due for exceptional appreciation but realistically $160/mon cashflow is not a move i would suggest in the short term considering you're a world away and any number of things could go wrong that would wipe out a years worth of cashflow overnight. 

    Even a typical water heat replacement would set you back signficantly.

    There's plenty to the puzzle that i am unaware of but with what you've outlined here i would consider passing on the property.

    you know you need management

    you know you need to remove at least one tenant

    you know cashflow is meager after considering management.

    i personally wouldn't recommend a client take on the risk for such a paltry pay out out of state.

    Even when considering long term appreciation the average amount of headache one assumes with a property will bog you down before the long term play pays off.

    1Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    1y

    @Lisa H. why does paying "fair market value" matter?

    An INVESTOR should only pay the price that meets their ROI criteria, which should include risk factor!

    In this specific case, as several pointed out, the risk has gone up and so the price should go down.

    BUT, there is so much more to consider.

    1) How long has the seller owner the property?
    - All the recent renovations point to a flipper.

    2) If a flipper, how well do you think they actually screened the tenant?
    - Most flippers just want a tenant to make their turnkey sale happen. Why should they care about the long-term tenant performance?

    3) If a flipper, what was the quality of their renovations?
    - Many flippers cut corners to boost their profits.

    4) Why are you worried about renovation percentages, when most already done? You should only have to worry about ongoing maintenance.

    5) What Class of tenant can't keep a job? Class A? Doubtful. Class B? Maybe. Class C? Probable.
    - Important because even if tenant gets a new job and catches up, how long until they lose the new job and repeat the cycle?
    - What's the tenant's FICO score? Not Vantage or AI risk score!

    Keep watching the property and wait for a price cut. Then offer a bit below the new price. Just be sure to have a great inspection done and have reserves in case you have to evict the tenant.

    [email protected]248-209-6824
    Logical Property Management4.9460 Reviews
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    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    1y
    Quote from @Lisa H.:

    I have just been notified that the house I am in contract with--that currently has tenants renting out--has been late with their rent for the last 3 months due to a job loss. I just got confirmation he got a job but obviously the only thing I can verify is his rental tenant history.  Which isn't much since he started renting in April 2024.  There are 4 months of on-time payments consistently. Then 3 months of late payments consistently (the last 3 months). With no rent for this current month. I also did some investigating online and see the renter has a tendency not to hold down a job.

    I offered asking price (fair market) because it was the sellers bottom line and the fact there were already tenants renting. I'd cash flow immediately without having to pay for a PM to place tenants ( I am out of state).  I am unsure if I should proceed.  The house has some great pros:

    • Newer 2000's home with renovations in the last 4 years

    • Renovations include: paint, lvp, toilets, vanity, ceiling lights/fans, roof and HVAC

    • Tenants look like they are up keeping the house decently. Very clean and mostly organized.

    The rent is at fair to maybe even above average. The property hit's the 1%.  Actually 1.45% but when factoring in PM, vacancy and renovation percentages, my cash flow is only $160.  Which I know is low but am looking for long/mid term equity too. Not just cash flow.  

    Thoughts?


     When you close, evict the tenant if he doesn't pay the rent.

    0Reply
  • Gregory SchwartzBusiness Member
    Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
    1y

    Give the seller 2 options.

    1. Accept a lower price due to the increased risk of the tenant 

    2. Extend closing and have the condition of the sale that the seller provides the unit vacant. This gets you an unoccupied home and hedges against the downside of an expensive eviction. Also forces the seller to deal with the deposit reconciliation. 

    [email protected]443-812-0357
    Schwartz Realty Group5118 Reviews
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