Fundamentals of buying a multifamily property, with tenants

Are you thinking about buying a multifamily property that comes complete with tenants? Well there's a number of factors to consider first.

Let's consider the scenario in which the market for rent in the area of the property you are considering purchasing has increased and the tenants are underpaying in their current leases. If those leases have a long term remaining then the property may not represent a good income generating opportunity for so long as those leases remain in effect. However, if those leases expire soon or those tenants are in default then you may be able to either (depending on your goals):

Evict the non nonperforming tenants and re-let the space to new tenants at the higher current market rate
Negotiate a new lease with the existing tenants upon the expiration of the old lease but with increased rent to match market rate.
Negotiate with the seller to sign a new lease with current tenant’s whose lease expire before you close on the purchase with such leases to include a rent rise commensurate to the market rent.

If you can increase rent, you can increase the income capacity of the property and ultimately cover your own closing costs and generate additional income for yourself.

Due dilligence

It is wise to consider among other things, the actual nature and terms of the of the existing leases in place carefully so you can understand your flexibility with future rents after you close. The best way to do this is via your own due diligence.

How can attorneys help you?

Attorneys can help you negotiate a due diligence period where you have the right to conduct you research into the property, its tenants and the leases and if the data does not match your investment criteria, then walk away without losing a deposit under the contract.

An attorney can help you better understand the conditions surrounding existing tenants pursuant to the leases that are in place. After reviewing the leases, an attorney can negotiate a better deal with the seller’s attorney. At the very least, an attorney will insist on getting answers to certain questions that a seller may not wish to respond to or openly admit if a qualified lawyer were not present and digging up such questions.

If you have any questions, comments, or concerns about your current plans to purchase property, you can contact me today to arrange an initial consultation.

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