House Hack - Already have tenants?

Question

Hi everyone,

I want to "house hack" my way into investment properties by buying a duplex, living in one side and renting out the other.

I'm searching the MLS and most of the time there are already renters in place with lease agreements. Since this will be a owner occupied mortgage - I would obviously need to live in one. So, I have two questions:

1. Do I have to honor the lease agreement with previous owner and current tenant?

If not, does anyone have experience asking them to vacate early on lease? Seems tricky.

2. Are sellers LIKELY to sell and terminate lease - since it will likely bring more hardship for them in closing, getting rid of tenants before closing, etc.?

3. If seller is willing to work with me, what would be time frame required of tenant to leave?

I know other things come into play, like how many other buyers are making offers, how long its been on market, but looking for some thoughts!

Thanks!

Michelle

Troy Sheets · Answer

Mine was fully occupied and it was 4 units. I pushed back closing a bit to get within the 90 day window of the unit I wanted. On the MLS or Redfin they'll usually say in the details of the listing when the lease expires or if it's month-to-month. As long as you're close enough to the expiration or it's MTM, you're good to go. It's not that hard, just be flexible. Say you want the upstairs unit but it doesn't go vacant for 6 months. However, the downstairs is month-to-month. Purchase the house, move in to the downstairs temporarily till the upstairs goes vacant then move in upstairs and rent the downstairs out. Use the time to get the downstairs unit in great shape for your soon-to-be new tenant.

Lee L. · Answer

@Michelle Elsaid I'm house hacking a rental property in L.A. that was fully occupied when it was on the market. Since my intention was to live in one of the units and rent out the others, having a unit vacant by close of escrow was one of the "must-haves" on my list.

Although sellers hate it when you do this, I drove to properties that I was interested in, knocked on the door and spoke to the tenants, saying that I was interested in purchasing the property, and asked if they'd be interested in "cash for keys." Oftentimes the tenants weren't able to make a decision on the spot, so I got their number and followed up later.  If they appeared uninterested,  I moved on.

Once I found the property that fit all my criteria, I asked my friend to write up a contract  saying that I would pay the tenants $X dollars if they moved out by a certain date, and further stipulated that the contract is void if I do not close on the house. We did it this way because I did not want to close on the house if a vacant unit was not guaranteed. Furthermore, my understanding is that you cannot enter into contracts on properties that you don't actually own. Anyway, things may have gone wrong using this method ... I'm not sure ... but it worked out well for me. I'm not in any way a knowledgeable about legal matters, and this is just my personal experience, so please talk to an attorney.

Troy Sheets · Answer

You can't kick them out, you have to honor the existing lease. You won't get an OOC mortgage if the unit you intend to occupy is leased and doesn't expire within a certain amount of days of purchase. It was 90 for my FHA loan two years ago but I'll defer to Logan Allec I wouldn't advise nor advertise mortgage fraud on a public forum...

Michelle Elsaid · Answer

@Matthew Ryan,

Unfortunately I am still looking but I can still provide some updates because I have done some learning in the mean time :-)

It depends on a lot of factors, here are your options:

1. Hope there is a severability clause in the lease, meaning the current owner can terminate the lease at any time for any reason. That means they have to move if owner acts upon it and will be the easiest possibility for you.

2. Cash for Keys. You or current owner can talk to tenants and offer them free rent for some time period (until you move in) but then they need to move out. This could be on your dime or current owners dime. I would get this in writing and avoid a verbal agreement because they have no legal requirement to move out. I know people who have used this successfully, really depends on the tenants. If they have been there 10 years they might not want to move, even for cash.

3. Combination of these two to make sure tenants don't leave unhappy and leave a big mess (literally or financially) for you..

If you get a contract make sure it is contingent on one side of house vacating.

All my insight is from Florida area, so do some checks to make sure this is OK in your area.

David Jacques · Answer

1.  Typically yes.  Without any other arrangement in place, their lease should supersede your purchase.

2.  Sellers can't just terminate a  lease without cause.  That is what a lease is for.  You may be able to negotiate cash for keys or they may want to leave anyway.

Michelle Elsaid · Answer

Logan Allec Thank you for those specifics!

I would love to do a 3-4 unit but am leaving towards a duplex just because of the purchase prices. I will only have about $10K for a down payment but am starting to consider OPM for 6 months to a year to increase my purchase price. At this time, I'm not considering less than 7% down because I want to keep my payment very low.

But -  If my duplex is around $130K, my mortgage should be covered from only 1 unit, the $800-$1000 from the other unit (when I leave) should cover expenses, vacancies, and give me a good amount of cash flow.

I am still trying to figure it all out but will reach out to you soon,.. and will check out the document from my home computer tonight.

Thanks for sharing and commenting!

-Michelle

Michelle Elsaid · Answer

@Matthew Ryan Glad to help! Good luck!

Matthew Ryan · Answer

@Michelle Elsaid

Thank you so much for your input!  Those are all definitely things to watch for and consider.  I just want to make sure I am not signing myself up for a battle!  In order to make this whole thing work, I NEED to live in the property, much like what your situation seems to be, so hopefully everyone just goes on their way and don't leave me holding pieces of a broken lease/ unit.

Best of Luck!

Michelle Elsaid · Answer

@Matthew Ryan Another note, if tenants want to stay, figure out how much in rent they are paying and see if they will be easily able to find something similar in the area. If so, they will probably not mind moving somewhere a few $K to somewhere where they can pay the same amount. If they are long term tenants with low rent, you will (understandably) have a more difficult time if there is no severability clause. Tenant personality would be heavy influence at that point. Sometimes owners let them know its for sale and a change might result for them, so they might be expecting it.

House Hack - Already have tenants?

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