The second item on the due diligence checklist is rental of property. This is a pretty important part of your inspections from two angles. You should ensure that the property is either not presently rented out or, if you intend to rent it, that your type of rental is legal. We will discuss them both separately.
The property you want to buy is being rented
If the seller does not occupy the residence but has rented it out, then you need to understand that the sale and purchase does not affect the rental agreement in place.
For instance, if the renter has a year lease with the seller and they are into month 7, then the lease still has 5 months to go before the lessee can be given notice that the rental agreement will not be extended.
As a potential buyer you will want an inspection period to review the rental agreement, the rental deposit amounts, and the rental payment dates to see if you are in approval of continuing the purchase with the rent agreements as they are written.
During the recent recession buyers and sellers also needed to be aware of the legality of “who has possession” of the residence. Some sellers had left the property vacant only to find months later that someone had “moved in” to their unawares. The buyer would follow through with a purchase only to find they then had to “legally” extract the person(s) in possession of the home. I admit this is infrequent, but it is an issue to pay attention to. If you go into a vacant home and see mattresses lying in the corner don’t just assume it is the sellers. Ask.
If you intend to rent the property you are about to purchase
There are many investors that purchase a property with the intent to rent it out to someone. I’ve seen buyers who want to purchase a home in a popular tourist area with the hope they can rent it out on a nightly or weekly basis to vacationers. They have no idea that many towns in southern Utah have special zoning regulations for rental properties and residences.
These zones are either commercial, resort or some other type of zone. The governing municipality then requires you to register the rental and pay a “bed tax” on your income. Since I focus most of my efforts in Zion Canyon area, I have talked with many hopeful buyers who want to rent their property to help pay for it as their vacation home. Springdale and Rockville do not allow nightly or weekly rentals in residential zones. Springdale allows it in two commercial zones. Rockville discourages any commercial use whatsoever. Springdale, Rockville and Virgin all allow rentals that are considered “month to month”.
Renting a residence in a subdivision
Wherever you purchase your home, you need to discuss your intentions to rent with the local zoning office, as well as review any C,C & R’s of any subdivision you may be buying into.
Many subdivisions in St. George began to disallow rentals or greatly discourage them due to the large increase of investors buying in the area with the only intent to rent back to people. The subdivisions found that as the area became largely a rental population the grounds around the homes became disheveled and unsightly. Renter’s are often not encouraged to take care of the grounds and out-of-state homeowners do not necessarily have the same pride of home ownership as an owner an occupied residence.