Experiences with buying a duplex through FHA to owner occupy with existing tenets?

Question

Hi all,

I wanted to make a post to ask about doing an FHA owner-occupancy strategy on a duplex that already has tenets - How does this work?  In terms of lease agreements you can tell the tenet to leave and at what point?  Cash for them to leave?

Any experience with this is appreciated!

Anthony Swain · Answer

Hey Account Closed,

My wife and I purchased a duplex with a conventional owner occupied loan. I think we had 60 days from closing to move into our unit. We made sure to close with at least one unit vacant to allow us to renovate and move in seamlessly.

You do inherit the new tenants. You must honor their lease agreements as others mentioned. You can offer them cash or different terms to vacate if you wish, but they don't need to oblige. In our situation, we asked the other tenants if they would like to end their lease early. They actually wanted to leave early, because they needed a larger house with another newborn on the way. Sometimes it can be mutually beneficial, but I'd tread carefully with expecting tenants to leave.

Regardless of situation you should be aware of all lease terms of current tenants, security deposits, tenant contact info, pets, rental rates, etc.

I hope things work out for you Zach. Let us know how it turns out.

Brandon Tusing · Answer

Hey Zach,

My wife and I did the exact same thing. Purchased a duplex using FHA financing and we inherited the tenants. We closed in April and the tenants' leases did not end until June & August.  Thankfully, they all wanted to move out in June.  My wife and I continued to live in our rental property from April-June, one the tenants moved out we moved in. I posted about this on my dashboard.  Feel free to reach out if you have any other specific questions!

Rick Albert · Answer

It is always going to be case by case.

You have to honor the lease that is in place when you buy. Anything outside of that is a renegotiation and the tenant doesn't have to do anything about it.

Once the lease is up, it will be dependent on your local laws. It is important you brush up on it.

To be honest, unless your area has super relaxed laws, I would either negotiate the unit to be vacant prior to acceptance or just skip it altogether. Generally, lender guidelines say that you have to move in within 60 days.

Sarita Scherpereel · Answer

Interesting. It was 60 days on my loan. And I moved in on day 59 :)

While looking for my own house hack and with other clients, we have to make sure their is a unit that will be available for the buyer to live in. Most seller's will not give out cash for keys under contract (in my market of Chicago). They don't want to risk loosing good tenants in the event you can't get a loan or back out. But it still happens from time to time. Or there are kick out clauses in the current tenant leases. Sometimes that is listed in the Private Broker remarks online. So if you're interested in a place definitely tell your realtor so they can look into the details for you.

Brie Schmidt · Answer

The lender will not let you buy the property if there is no ability to occupy it within 60 days.  So if it is leased through spring 2025 you need to provide an executed lease termination agreement.  Or one of the leases must me MTM

Jackson Kaufman · Answer

I pulled this off but with an FHA 203k loan which allows you to wrap the cost of renovations into the loan.  In my case, I had 6 months to complete the renovation and move into the home.  I also had both units in the duplex occupied by tenants when I purchased it, but I was able to let their leases expire, complete the renovations, and move into one of the units after renovations were completed within the 6 month timeframe.

The strategy worked great, but without having any experience with the loan product, combined with signing a sales contract that had removed the protections for me regarding contract termination and return of my $10k earnest related to the approval of funding, it made for a very stressful process.  Despite going through this stressful process, I'm planning on refinancing out of my current FHA loan into a conventional loan so that I can repeat the process with another FHA 203k loan because it is a great house hacking tool.  I'm happy to share more about my experience if you'd like, just shoot me a message!

Noah Loveless · Answer

Hope this helps,

Noah

Jason Wray · Answer

Zach,

New owner comes with a new lease agreement and usually the previous owner has some insight as to what was promised and what will change.  Rents typically follow the "Common rents" of the neighborhood which your agent should know or have access to in most cases.  The appraiser will also list comps and rents being paid based on similar homes.

I will not speak for all Banks and lenders but when we approve for FHA we allow a 90 day grace period for the new owner to occupy a unit.  I have seen it extended with an LOE - letter of explanation as well.

Make sure that you have all of the information on the renters like contact info, length of time renting units, pets, and on the walk through make sure the units are well kept if you plan on keeping renters.  Being able to see how renters take care of their home is a small foreshadow into the future of your unit, and what may or may not need to be replaced.

Experiences with buying a duplex through FHA to owner occupy with existing tenets?

Most Popular Reply