All apartment units that are not owner-occupied are classified as renter-occupied apartments. The landlord is the owner of the renter-occupied apartment.
In 2019, there were 43 million renter-occupied homes in the US. You can check for the owner of a renter-occupied unit by looking at the tax assessor’s file or the local land records.
An apartment with a tenant in place is usually more affordable than an owner-occupied unit, but there is a catch.
The housing unit is generally sold with rent-regulated tenants. You have to honor the rental agreement with the tenant when you buy a renter-occupied unit.
Buying a Renter Occupied Apartment
Buying a renter-occupied unit is suitable for people who want to earn rental income.
Apartments that are sold with a tenant cost less, which is why buyers are advised to read the rental lease agreement before buying the unit. This is because the apartment buyers will also become the landlord of the tenant.
You should look into the rental payment history, and credit score of the tenant before purchasing a renter-occupied housing unit.
Can a Buyer Ask the Tenant to Vacate a Renter Owned Apartment?
You can purchase an apartment with a ‘tenant in place’ if you want to move into the apartment. However, you have to follow the tenancy agreement when requesting the tenant to vacate the property.
It is important to time the sale of your existing home with the period when the rental agreement will expire.
Experts recommend holding off the full payment on a renter-occupied apartment until the tenant has vacated the property. This is important to ensure that the apartment is in good move-in condition when the renter leaves the unit.
If you want the tenants to vacate before buying an apartment, you must put a condition in the contract that you will pay only when the property has been vacated. In this situation, the seller has the responsibility of getting the existing tenant to vacate the property.
Can a Landlord Change the Renter Occupied Apartment Lease Agreement?
These units have a non-eviction plan, due to which you cannot ask the tenant to be vacant after buying the property. You open yourself up to a lawsuit if you force the tenant to vacate the property.
New owners of a rental property also cannot legally raise the rent or change the clause of the agreement. They also cannot order the tenant to vacate the unit before the end of the agreement.
However, there are a few exceptions where an owner of a renter-occupied apartment can break the lease agreement.
- A lease agreement can be terminated after buying a unit with a tenant in place if it is mentioned in the lease that the buyer can terminate the agreement anytime. If such a provision is mentioned in the contract, you can legally terminate the agreement.
- Another exception is if you have bought a renter-occupied apartment due to a foreclosure. In this situation, you have to follow the state rules when it comes to the notice for vacating the apartment. Most states require a 60 days’ notice to the tenant to vacate the unit.
In other cases, the tenant will move out after receiving a ‘case for keys’ incentive from the new owner.
Things to Consider When Buying a Renter Occupied Apartment
Buying a property that is renter occupied presents some challenges.
You have to consider different factors before signing the sales deed.
Condition of the Property
You must ask the tenant to provide documents that show the property’s condition before the tenant moved into the unit. You will have an easier time proving that the tenant is responsible for the damage if you have a check-in report.
Before closing the deal, it is important to meet with the tenant to confirm the lease agreement’s terms and the condition of the house.
Be sure to ask the tenant about the security deposit, and the rent agreed with the seller. Moreover, you should ask the tenant about the lease period.
Listing a Renter Occupied Unit
Most state laws require between 30 to 60 days’ notice for ending the tenancy agreement. Follow the state laws about giving notice to the tenants to vacate a property if you want to list the property for sale or rent.
However, a fixed-term lease can’t simply end just because you want to sell the property.
You should ideally hold off listing an apartment with a tenant in place until the end of the fixed-term lease agreement. This will give you greater flexibility in staging a sale. But you may also lose out on the rental income when the apartment unit is vacant.
You can offer an incentive to existing tenants to move out early. The incentive could include a move-out settlement for vacating the premises before the end of the agreement.
To determine the move-out settlement, you should consider the excess rental income when the property is listed for rent or sold.
Showing a Renter Occupied Unit
You must follow the local laws when showcasing a renter-occupied property. Give advance notice to renters before showing a property. A notice is also required if you want the individuals to take pictures of the property.
Here are some other tips for showing a renter-occupied unit to prospective tenants. These steps will help ensure that the process of showcasing a renter-occupied property remains a smooth one.
1. Coordinate with the tenant
Discuss with the tenant about the days and times you can show the apartment unit. You should ask them about any expectations or reservations they have in showing the unit.
Agree to a time frame with the current tenant that is best for showing the property.
2. Give an Advance Notice
You should also agree on advance notice before showing the property. Consider giving them one-day advance notice so that they can tidy up the place for presenting to the prospective tenants.
Look at the state laws if you are not sure about the advance notice to the tenant.
3. Prepare the Place
Tell your current tenant to secure the pets and clean the place a bit before showing the property. The tenant is not obligated to comply with your request. But you should still ask and convince the tenant that it is important for creating a positive impression on the prospective tenant.
4. Reward the Tenant
Tenants might understandably feel frustrated due to the intrusion on privacy when showcasing a property. You should empathize with the tenants about the inconvenience of showcasing the renter-occupied apartment.
Avoid forcing the tenants to comply with your wishes when showcasing the property. You can get into legal trouble if you force the tenants to meet your terms.
Offering an incentive is a great way to encourage the tenants to bear with showing the apartment unit. You can offer different incentives to make the process easier for you.
- A weekly cleaning service will keep the apartment unit in good condition when showcasing prospective buyers or tenants.
- If you plan on having open houses, you should consider offering rent abatement for the intrusion on privacy.
- Reward a cooperating tenant for complying with your request. You can give an incentive such as giving a gift certificate to a local retailer or restaurant.
5. Avoid ‘For Rent’ Signs
Physical signs with ‘For Rent’ or other similar wordings are not recommended when showcasing a renter-occupied apartment. The signs can attract unannounced visitors at the door. Visitors would think that they can visit the property anytime thereby causing an inconvenience for the tenant.
Make sure that the physical sign should have words such as ‘Visit by an Appointment Only’ or ‘Showing on Saturday at 1 pm’ so that individuals interested in the property don’t disturb the tenant.
6. Minimize Intrusions
You should try to minimize the intrusion by limiting the number of showings in a week. Avoid more showing the property more than once a week.
You have to communicate clearly with the tenant to iron out any problems in showcasing a tenant-occupied property. Clear and regular communication is essential to avoid any issues when showcasing the apartment unit with a tenant in place.
The Bottom Line
The landlord owns a renter-occupied apartment unit. The rental agreement is tied with the property rather than the owner of the renter-occupied unit.
Lease agreements ‘run with the land’ and remains attached even when the unit is sold. So, the sale of a renter-occupied property does not change the terms of the rental agreement.
You should review the rental lease documents before closing the deal.
Make sure that you know the terms of the lease agreement before buying the property. It is also essential to review the records of security deposits and advanced rent.
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