Seller wants to become my tenant

[The Chancer]

I have my next IP under contract and it's due for settlement in 6 weeks, and there is a possibility the current owner may want to stay on as my tenant from settlement I'm just curious if anyone has had this situation before and what the possible risks could be.

I have spoken to local PMs and got their views the main concern they had is that the property condition report would be done but would be hard to claim bond money for damage that would have been covered up by their furniture during their initial inspection. However I'm not too fussed with this as I was planning on doing a Reno at settlement so can just delay this.

Note the reason the seller is selling is due to family reasons but they have lived there for best part of 20yr and kept the place in good shape.

 

[D.T.]

Find out from local PM's or your own research what the market rent should be and charge that. I'd probably also have a PM handle the rental, just so that its all kept legit and no funny business is tried. They can do an ingoing condition report at settlement.

You also mention you want to renovate? Depending on the extent, he might have to move out during this?

 

[The Chancer]

Thanks D.T

I have a good feel for rental income during my initial research and I have also got quotes from about 8 PMs in the past week for their fees and also CMAs of the rent which ties up with my figures so should be able to get the going rent. I will get a PM to deal with everything ie back ground checks, bond, inspections etc as I don't want the hassle so that should be ok I think.

Reno wise I was going to tidy up the paint inside replace carpets and tidy up kitchen doors new cooker etc plus some external painting and landscaping to hopefully get a reval done but doing some sums it may be beneficial to have tenant in there now then Reno next year then I can get some scrapping benefits which I wouldn't get if I Reno now.

I should be able to do external renos with minimal disruption and maybe kitchen tidy up if I give say a week free rent and pick a week they are away.

 

[neK]

I don't like sellers becoming tenants. I'd rather have a delayed settlement instead.

Its amazing how good and in perfect condition everything is... then all of sudden the owners (who become tenants) then present you a list of defects they want fixed.

 

[The Chancer]

Good point NeK defiantly something to consider thanks.

I guess it could also become an issue if say something came up in the building or pest report and if say they gave a reduction for the issue they would automatically expect that to be rectified after settlement and to a high standard, but if for whatever reason I didn't do it there could also become a conflict.

Defiantly some things to consider.

 

[Salvatore1]

The Chancer, when you purchased the home did it look like the vendor looked after his home, kept it tidy and clean? It sounds like he didn't do any renos in 20 yrs but has he looked after the property inside and out? If yes, do a reference check on employment so you know he can afford the rent, we also know he is cashed up. If all good then you have a tenant from day one. I have had a few tenants from vendors selling, one for 3 yrs and the place is great! Yes issues do arise at vacating but if he leaves it tidy and clean no different from when he vacates after selling. Yes you may get a repair list from when you own it but no different from a new tenant.

 

[jameso]

They know every little defect. And will make you pay to fix it. Seen it happen before.

 

[chindonly]

I've done this twice. First time was no problem at all. Tenant stayed on for several years and looked after the place well - just like it was her own. Only sold due to a relationship breakdown,

Second time, bought off an old couple going into a retirement home. They were going to stay on and rent until a spot came up.

During settlement, they were given a spot, and so wanted to pull out of the special contract condition of them renting.

We negotiated the purchase price down accordingly.

I don't see a problem in renting to sellers if you use a PM and follow all of the normal requirements.

 

[vaughan]

Get a good PM and let the vendors apply for the rental along with all other interested tenants. That way you know they are paying market rent, and they know they aren't in a privileged arrangement.

 

[miss green eyes]

I'm not a big fan. Too much 'mixing'.
If it's no loss to you, just rent out through an agent.

 

[crest133]

Agree with those who said they know every defect, but they won't tell you until they're tenants. You might get tortured with it later. Most people would find it hard to make the attitude adjustment in the same house so you might get minor alterations without permission. Been in the same boat as a PM. Prefer new tenants.
Cheers
crest133

 

[vaughan]

I guess another approach would be to avoid the RTA agreement completely and get them in under license (somehow, might need to be extended settlement) and make them responsible for all repairs and maintenance.

 

[citystar]

I will vote to purchase with vacant possession and get new tenants into the property after you have freshened the place up with a quick reno.

 

[pipsal]

I did this with one property, older owners were downsizing and they had to wait for the unit they purchased to become vacant. It was put in as part of the sale contract that they would rent it back for about 3 months. No PM, and no problems...they were very 'house proud' and continued to look after the place as if it were there own. Rent always paid early and in the end they requested an extension of a month from original vacate date which was agreed to in writing. I was a bit younger and naiive back then though, I may think twice or use a PM now...

 

[Sez]

I've managed several properties over the years with things like this in place. First you want a condition report and a bond. It will not be the best quality (as the tenant already lives there when the condition report is done) but if the tenant pays a bond you have some chance of recovering costs of damage. lots and lots of photos by the PM required.

I wouldn't be doing any renovations while they live there. My advice is keep them in the property as long as they want to be there, BUT, don't do the renovations until they move out. If the home owner is a less than ideal tenant (My most recent one had a family living in the property for about 60 years, lots and lots of smoking done inside) then you will lose less by waiting until they are gone to spend your money on the renovations. If you do this while he is living there and then he causes damages...... considering the standard of the kitchen and flooring etc. won't line up with the condition report which is flimsy to start off with. You're asking for trouble.

If it was me, I would take a bond, do a condition report, put them on a short term lease to go periodic and they can vacate at any time after the fixed term with the appropriate notice. Take the market rental amount for as long as they want to stay and keep renovation money aside. Depending on how long the vendor stays as a tenant you might have enough money to do the bathroom and window furnishings etc. by the time he moves out. Put a clause in the lease that when they vacate they are to remove all belongings and rubbish and leave the house and garden in a clean and tidy condition

 

[Nem]

I sold my property with condition to live in there as a tenant for up to 6 months, until we find new house and buyer was happy with it (had few offers actually). He didnt ask for bond and we paid him rent at market price! We looked after our property better then I would in any other property as it still felt like my own home which I had for few years... so it really depends of reasons I guess. And I was greatfull that he accepted our conditions and we didnt have to move twice so yes, if something broke I would fix it to look better then on settlement....

 

[jkat]

We did this once and there were no issues up until it was time for the person to move out. Then they stopped paying rent as they said there was enough in the bond to cover it. The PM wasn't very good or proactive in trying to manage this as the tenant was moving out. When they moved out they left a bunch of rubbish and the place needed a good sugar soap clean because it was grimy and not cleaned properly. Unfortunately the bond was used up for rent... We took it as a lesson learnt and spent one day doing a full clean.

 

[bcole2012]

I'd steer away from letting the become tenants. As has been said, they will know every little issue throughout the place and if it's not brought up on the pre-tenancy report then you'll get stung for the repairs. Too much possibility for it to become a headache for you. Go for vacant possession.