Buying a rental property with tenants already in place is not only convenient, but it’s also a fantastic opportunity. Being able to avoid renovations, advertising, and tenant screening is just the first benefit. However, buying a property with existing tenants also comes with a few challenges that should be considered. To navigate this opportunity well, it’s crucial to understand the process and avoid common challenges.
Conducting Due Diligence
The immediate cash flow and ready-to-go nature of purchasing a leased property can make it seem like an appealing option for your next investment. However, don’t automatically assume that a leased property is in good shape or that the tenants are responsible and pay rent promptly. Instead, conduct thorough due diligence to confirm that the leased property is a solid investment.
One of the primary documents to review when considering a leased property is the existing lease agreement. When you acquire a property with tenants, you automatically take on the lease agreement they had with the former landlord.
Because the lease is a legal contract, you’ll need to accept its terms until the lease expires or can be renewed. Occasionally, the tenant may agree to terminate the lease after the sale of the property, though this is uncommon. In most cases, it’s essential to understand what prior agreements will govern your investment.
Assess tenant payment history and lease terms
Besides reviewing the lease agreements, it’s important to conduct a thorough screening of the current tenants before buying the property. Approach the situation as if the tenants were applying for the first time, by conducting full background and credit checks, and confirming 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. To get an accurate sense of the property’s condition, you’ll need to personally inspect both the house and the yard.
With tenants already residing in the home, it’s crucial to be cautious and understand how responsible they are with upkeep and cleanliness. Make sure to inquire with the current owner about any past or current insurance claims, especially those related to tenant damage. 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. Even if tenants are in place when you buy the property, once the sale is done, you are responsible for managing and maintaining it.
Managing a property can be quite demanding, particularly if you handle everything yourself. Let the team at Real Property Management Charlotte Metro take over the day-to-day tasks for you. For more information about our property management services in Ballantyne and nearby, contact us today or at 704-919-1344.
Originally Published on March 12, 2021
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
