Acquiring a rental property with tenants in place is not only convenient but also a promising opportunity. The advantage of skipping renovations, advertising, and tenant screening is only the start. However, it’s essential to be aware that purchasing a property with tenants in place can present some challenges. To take full advantage of this opportunity, it’s important to educate yourself about the process and potential pitfalls.
Conducting Due Diligence
With its instant cash flow and ready-made setup, buying a leased property can look like a promising option for your next investment. However, don’t assume that a leased property is in good condition or that the tenants are reliable and pay rent on time. Rather than assuming, conduct careful due diligence to ensure that the leased property is a good investment.
The first thing to examine when considering a leased property is the current lease agreement. When buying a tenant-occupied property, you inherit the lease the tenants signed with their former landlord.
As the lease is legally binding, you’ll need to be comfortable adhering to its terms until it ends or is up for renewal. Sometimes, the tenant agrees to end the lease when the property is sold, though this isn’t common. In most cases, it’s essential to understand what prior agreements will govern your investment.
Assess tenant payment history and lease terms
Aside from going over the existing lease documents, you should thoroughly screen the current tenants before purchasing the property. Treat the screening as if the tenants were new applicants by running background and credit checks, and verifying their payment history and references.
Also, check with the current landlord or owner to ensure that the tenant’s security deposit has been paid and is held in a separate account.
Inspecting the property with tenants in place
Along with screening tenants, it’s necessary to carry out a full inspection of the property. For a complete view of the property’s current condition, you should personally inspect the house and yard.
Since tenants are already occupying the property, it’s important to be cautious and find out how diligent they are in keeping it clean and well-maintained. It’s also important to ask the current owner about any recent or past insurance claims, especially if they were caused by the tenants. If there are too many insurance claims, it might be challenging to insure the property after the purchase.
If all goes well, you could have found a great tenant-occupied rental property. Whether your new investment includes tenants or not, you’ll need to ensure the property is habitable, with properly working electrical and plumbing systems, and structurally safe buildings. While your new rental may come with tenants, once the sale is finalized, the responsibility for managing and maintaining the property is fully yours.
Managing a property requires a lot of work, especially if you’re doing it on your own. Why not delegate the day-to-day property management duties to the experts at Real Property Management Brevard? For more information about our property management services in Port St. John and nearby, contact us today or at 321-610-8022.
Originally Published on Feb 26, 2021
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