If you’re buying an occupied property it’s important to know what to expect. Even if you have bought and sold dozens of properties your first occupied purchase will probably open your eyes a little more as the process can be very different from a traditional or even vacant REO purchase.
An occupied property is as it sounds, one with people living inside it at the point of purchase. The previous owners could be there, or a tenant, who may or may not have a valid lease. Since these properties are occupied, sometimes legally, it’s important to remember you as the potential buyer will not be able to enter the property or approach the occupants until after you have closed on the home. This adds the first layer of difficulty not encountered in a traditional or vacant REO transaction as you’ll only be able to see the exterior of the property.
The biggest thing to consider when buying an occupied property is the fact that the occupants may be resistant to leaving the property after you’ve purchased it. This would mean you may have to formally evict the tenants. Evictions can be a lengthy process and have changed quite a bit since the passage of the Protecting Tenants at Foreclosure Act of 2009.
This act requires you as the owner to give 90 days notice to someone before they can be formally evicted, so if you are buying a house with existing tenants for investment purposes, you will need to factor in this long period before you can so any work or attempt to monetize the asset. Also, eviction laws can vary greatly state to state, so we suggest becoming familiar with the laws surrounding these proceedings and occupant protections in the state where the property is located.
We get asked a lot of great questions when our clients call or email about buying their first occupied property. If you’re buying a house with existing tenants for the first time, we’ve listed some of the most common below with the accompanying answers to hopefully aid you in your journey.
Question: Will the property be vacant when you purchase it?
Answer: Typically the property will be still be occupied at the point of purchase, so plan accordingly!
Question: Whose responsibility is it to evict the tenant (if needed)?
Answer: The responsibility to evict will fall on the new owner after closing.
Question: What are the usual hiccups that come along with purchasing an occupied property?
Answer: This can vary from state to state. For example for a property to change hands in NJ, the state requires CO/smoke certification and this would require access to the property. In this instance, the listing agent/seller will coordinate with the occupant (CFC) to access the property and have the inspection completed. If an inspection cannot be completed in NJ the property cannot change hands. New Jersey is an exception in this case, not the rule, but laws such as this one exist in many states, so we suggest informing yourself before buying a house with existing tenants.
Question: Are you allowed to change the terms of the rental agreement once you become the owner?
Answer: You will need to consult with legal counsel on this as the rental laws can vary from city to city and state to state. If the property is occupied by a legal, lease-holding tenant in good standing this could actually work out well for the purchaser if the intent is to rent the property, so it is important to treat upstanding tenants with respect and courtesy.
Question: Who is responsible for repairing past damage?
Answer: On Xome, all properties are sold “as is,” meaning the new owner will be responsible for all repair work needed after closing on the property. While this may be unappealing for some buyers, need for repair and occupancy are two leading reasons properties transact at lower than market value. The savings can often outweigh the headache, elbow grease, and eviction costs.
Occupied properties are popular among investors due to the vast potential upside as they can be purchased at compelling price points, thereby aiding with monetization as a rental, flip, or full renovation should that be the goal. However, like any real estate investment property, there are certain risks associated with buying a house with existing tenants, and knowing these risks will help protect you from surprises and unexpected costs.
We hope you’ve found this informative and, if you are up to it, we hope to see you bidding on a few of our many occupied properties right here on Xome! As always, if you’d like more information, please reach out to us at: 844-400-9663.