The Pros and Cons of Buying a Tenant-Occupied Apartment

Q: We are considering buying a tenant-occupied apartment in a condo. The tenant has lived there since August 2019, and the market-rate lease will expire in four months. The seller’s agent said they could deliver the apartment vacant, but that we’d have more leverage on the sale price if we kept the tenant. We visited the apartment and the tenant has kept everything clean and in good shape. We’re not in a rush to occupy the apartment and it would be nice to have some income in the interim. What are the pitfalls we should be aware of before we make this decision?

A: If you want to use the apartment as an investment property, having a reliable tenant saves you the time, stress and cost of searching for a new one. It also provides the existing tenant with continuity — they don’t have to move if you’re planning to rent the apartment anyway. But if you want to live in the apartment, and see the tenant as a short-term way to save on some upfront costs, you should weigh the risks against the benefits.

“It’s all a matter of risk tolerance and how badly you want the space four months from now,” Lucas A. Ferrara, a Manhattan attorney who specializes in landlord-tenant law.

Under New York State law, a tenant who has lived in an apartment for two years or longer must be given 90 days’ notice if the lease will not be renewed. So, there is a clock ticking — the current owner must set that process in motion fairly soon, if you want the apartment delivered vacant when the lease expires.

The tenant may quietly go at the end of the term. But the rental market is competitive right now, with rising rents and low inventory. The tenant could, theoretically, contest the lease termination and refuse to leave. Worst case scenario: You end up in a protracted eviction case that drags out for months and costs you a considerable amount of money and stress.

“A bad landlord-tenant case can run in the tens of thousands of dollars,” Mr. Ferrara said, and last a year. “It can be quite costly.”

Do the math. How much of a discount on the sale price do you get for a tenant-occupied apartment? How much will the rental income for those first few months offset your other costs? Is the margin wide enough to justify the risk should your relationship with the tenant sour? You should also consider whether you want to be a landlord, even for a few months, and be the person to end someone’s lease.

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