Yes, you can buy a property with existing tenants in Brooklyn or elsewhere in New York City. While it may provide rental income from the start, existing leases and state laws can limit rent increases, renovations or plans to move tenants out. Knowing these limits before closing can help you judge the property’s value as an investment.
What happens to existing leases after the purchase?
When you purchase an occupied property, you generally assume the landlord’s obligations under existing leases. However, your responsibilities may extend beyond their expiration dates.
State law also limits what landlords can do. Under the Housing Stability and Tenant Protection Act of 2019, most rent-stabilized units cannot lose that status just because a tenant moves out or the rent rises. Rent stabilization limits rent increases and generally gives tenants the right to renew their leases.
New York’s Good Cause Eviction Law also protects some tenants who pay market rent. For covered homes, landlords generally need a valid reason to refuse lease renewals. Tenants can also challenge certain large rent increases. The law exempts some properties, including those owned by small landlords and many condos and co-ops.
What should you verify before closing?
Reviewing tenant records can help you identify financial obligations and restrictions that may affect your investment. Important items include:
- Existing leases: Review rent amounts, expiration dates and renewal terms.
- Rent history: Check available records for rent stabilization issues or past overcharges.
- Security deposits: Confirm how much the seller holds and whether the funds will transfer. You may have to return deposits even if the seller fails to transfer them, depending on the records and notice requirements.
- Outstanding rent: Identify unpaid rent and pending tenant disputes.
Any problems found during this review may affect the purchase price or the terms you negotiate with the seller.
How can tenant protections affect your investment?
New York landlords generally must give 30, 60 or 90 days’ written notice if they plan to end certain residential tenancies or raise rent by 5% or more. The deadline depends on how long the tenant has lived there or the lease term. These rules may limit how soon you can raise rents or change your plans for the property.
Know what you are purchasing before closing
Tenant obligations can affect more than your rental income. They may also influence the property’s value and your future plans for it. Before finalizing the purchase, a real estate attorney can help identify lease restrictions, review potential liabilities and negotiate terms in the purchase agreement to address these risks.