If you’re thinking about trying to buy the house you’re renting from your landlord, you’re probably focusing on all the ADVANTAGES to you.
You should also look at all the DISADVANTAGES to you before deciding whether to move forward and pitch the idea to your landlord.
Along the same lines, you should also get very clear on the advantages and disadvantages to your LANDLORD of selling the house to you.
You want to get into your landlord’s head a little bit so you can better understand the negotiating leverage you have with your landlord.
In addition, those landlord advantages are your selling points if you’re trying to talk your landlord into selling the house to you.
Landlord-To-Tenant Home Sales
Tenant
- Advantages
- You MAY be able to negotiate a better price with your landlord.
- You don’t have to move.
- You already know the commute times.
- You already know the general condition of the house.
- You already know the neighborhood.
- You already know the neighbors.
- You know the landlord.
- Owning can be cheaper than renting.
- Disadvantages
- You haven’t looked at other homes.
- You may not be ready to buy any house yet.
- You haven’t considered the total costs of owning a home.
- You may not live there long enough.
Landlord
- Advantages
- Maybe more money.
- Probably no prep costs.
- Definitely no vacancy costs.
- Get money sooner.
- Landlord knows the tenant.
- Negotiation advantage.
- Disadvantages
- If sale falls through midway, tenant could become tenant from hell
Tenant Advantages
First, let’s look at the advantages to you, the tenant, the renter, the potential buyer.
1. You MAY be able to negotiate a better price with your landlord.
This is especially true if your landlord isn’t paying for any real estate agents. Not paying real estate agent commissions could save your landlord 5 or 6 or whatever percent of the home’s entire value! That could give your landlord a lot more leeway when negotiating price with you. (Although you would have to pay for your own real estate agent or attorney in that scenario, you could still net a good price.)
2. You don’t have to move.
Moving is an enormous pain in the neck. It’s expensive and it’s disruptive to the family, especially if you have kids and they would have to go to new schools. I’ve read that moving is the third most stressful thing in life, behind death in the family and divorce. Just the thought of moving makes some people put off buying homes.
3. You already know the commute times.
One of the biggest regrets new homebuyers have is buying homes that are too far from work. They buy homes on the outskirts of town because they can get a lot more house for their money but the commute to work is longer… and the commute NEVER gets any shorter. For this house, you already know the drive-times very well and whether they’re okay.
4. You already know the general condition of the house.
Another common complaint of new homebuyers is the house was in worse physical condition than they knew when the bought it. They had a lot of big, unexpected expenses after they bought the place.
You’re at a HUGE advantage here because you already live there. You know it’s general condition and how well or how poorly it’s been taken care of.
You still need to get a professional home inspection before you buy it, for sure, but living there means you know a ton about the condition the home.
5. You already know the neighborhood.
You know how convenient or inconvenient it is to go shopping. You know how much noise the neighborhood gets from nearby roads, shopping centers and schools.
If you bought a different house in a different neighborhood, you wouldn’t know all those things as well and you might get an unpleasant surprise after buying.
6. You already know the neighbors.
Another disaster story for new homeowners is finding out they have a BAD neighbor. Maybe it’s a constantly barking dog or loud music late at night or an unkept yard.
7. You know the landlord.
You probably know your landlord at least a bit and you know how much you can trust your landlord.
If they treated you fairly as a renter, they’ll probably treat you fairly as a buyer. And if your landlord is a jerk, you know that going in, you know to be extra careful to protect yourself from being taken advantage of.
8. Owning can be cheaper than renting.
It depends on a lot of things, including how you slice the numbers, but sometimes owning is actually cheaper than renting.
Overall, it’s kinda like you’re trying on the house before you buy it. That’s a big advantage.
Tenant Disadvantages
Now let’s look at the DISADVANTAGES to you, the renter, of buying from your landlord.
1. You haven’t looked at other homes.
You may hate the idea of moving but once you know how much house you can afford, you should really look around at other homes for sale and see what you could buy. You might find out you can afford to buy a house that suits you better than the one you’re currently renting.
2. You may not be ready to buy any house yet.
Particularly, if your landlord has approached you out of the blue about buying the place, make sure you’re ready to buy a home now, any home.
Use “Rent vs Buy” and “How Much Can I Afford” calculators online to dive into the pros and cons of buying a house now.
Even if an online calculator or a mortgage loan officer says you can afford a mortgage payment of $X a month, do you really want to spend that much money each month?
Some websites show you the maximum amount you can borrow but most people don’t go up to their maximum loan amount when they buy a house. You probably shouldn’t either.
3. You haven’t considered the total costs of owning a home.
Another common complaint from first-time home buyers is they’re “house poor.”
They didn’t expect repairs and maintenance to be so expensive. Or maybe they got unlucky and the furnace or air conditioner conked out right after they bought the place.
4. You may not live there long enough.
Can you see yourself living in this house for at least 5 years? 10 years would be a lot better.
Since you’ve probably never sold a home, you may not realize that it’s REALLY expensive to sell a house.
In normal times with normal appreciation, you have to own a house for 2 or 3 years before you can sell it and even breakeven.
And that’s in normal times and that doesn’t include the closing costs you paid when you bought the home.
When appreciation is slow, it takes more than 2 or 3 years before you can sell and “breakeven.”
Those are the pros and cons for you.
Knowing the house, not having to move and the possibility of getting a better price are awesome but be sure you’re really ready to buy any house now and that you’ve looked around to see if there’s anything better out there that you could buy.
If you’ve done all that, you’re ready move forward.
What About Your Landlord?
Before you move forward, let’s look at the advantages and disadvantages from your landlord’s point of view.
If you can get into your landlord’s head a little bit, that will really help you out when you’re negotiating with your landlord.
These will also be some of the selling points you’ll use when you’re pitching the idea to your landlord.
Here are the advantages to your landlord of selling to you, the renter.
Landlord Advantages
1. Maybe more money.
To your landlord, the biggest advantage of selling to a tenant is that they MAY not need to pay a real estate agent or if they do, they can probably pay the real estate agent less than normal because they already have found a buyer, you.
Not paying a real estate agent could save your landlord 5, 6 or whatever percent of the house’s entire value!
And for you, of course, that means your landlord MIGHT be more flexible on your price and terms.
Most landlords HATE the idea of having to pay 5, 6 or whatever percent of their home’s value to real estate agents. Apparently, it’s in the landlord genetic code.
And some landlords who are near breakeven would lose money if they had to pay a 5, 6 or whatever percent in commissions to real estate agents.
If they sell to YOU, they MAY not have to pay any real estate agent commissions.
If they sell to anyone else on the planet they’ll likely have to pay the full, traditional real estate agent commission in your area.
2. Probably no prep costs.
If your landlord sells the house the normal way, they may have the hassle and expense of cleaning and fixing the place up after the tenant leaves – painting, cleaning, carpet cleaning, etc.
If they sell to you, they don’t have those hassles or those expenses.
3. Definitely no vacancy costs.
You might not realize how killer vacancies are to landlords.
Every month the house is vacant, landlords have all their normal expenses and ZERO money coming in. A couple or three vacant months while selling a house can ruin a small landlord’s year.
If they sell to you, your landlord avoids any possibility of vacancy costs.
4. Get money sooner.
Selling to a renter can be quicker than selling to almost anyone else. Your landlord will may be able to sell the house and pocket the money months sooner than if they tried to sell the house the normal way.
And remember, landlords tend to be even more motivated by money than the average money-motivated home seller.
Don’t be shy about mentioning this to your landlord. Ideally, your landlord will start to visualize spending that money soon and become excited about the idea of selling the place to you.
5. Landlord knows you.
I mentioned earlier that you know your landlord which is an advantage to you but your landlord also knows you which is an advantage to your landlord.
Your landlord knows if you pay rent on time and whether you’re a reliable person. They know, going in, whether selling to you is likely to go smoothly or whether to expect it to be a pain in the neck.
Either way, they have an idea of who they’re dealing with. With any other buyer coming in off the street, they wouldn’t have that advantage.
Sometimes small landlords and long-time renters, actually become friendly. If that’s your case, it’s even more likely your landlord will sell to you and be reasonable about it.
6. Negotiation advantage.
Your landlord may think they’ll have the upper hand in negotiations because they’ve sold a lot of homes and you’ve never bought one before.
This is especially true if your landlord won’t pay for your real estate agent.
Your landlord, however, doesn’t realize you’re doing all this research online which helps you level the playing field a bit.
“You know me, I’m reliable, I always pay the rent on time.
If we can come to an agreement on price and terms,
- You won’t have to pay a real estate agent commission, maybe.
- You won’t have the hassle and expense of getting the place ready for sale.
- You won’t have any vacancy costs.
- You could have the money in a couple of months.
If you tried to sell this house the normal way it would be a lot bigger hassle for you, you’d probably make less money, and who knows how long it would take before it sold and you got your money.”
Landlord Disadvantages
The only potential disadvantage I can see for your landlord is the possibility that the negotiations fail and you end up hating your landlord.
If you spent money on a home inspection and a real estate agent or attorney but then the deal doesn’t go through because your landlord does some jerky thing, you might get upset and blame your landlord.
The worst-case scenario for a landlord is a tenant who becomes a tenant from hell.
That possibility might scare off some landlords from even discussing the possibility of selling with a tenant.
Want to Move Forward?
Okay, there are a lot of advantages to your landlord of selling to you, mainly more money and faster money.
Combine those landlord advantages with the advantages to you of buying the place from your landlord and you can see why landlord-to-tenant sales sometimes go unusually smoothly – you’re both better off working cooperatively together.
If you decide to move forward with your plan, feel free to remind your landlord of all the advantages of selling to you overselling to anyone else in the world.
This would be especially true if your landlord is a small, one-house landlord who may not know all the advantages of selling to a renter, of selling to you.
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