Acquiring a rental property with existing tenants is not only a convenient choice, but also a great opportunity. Skipping the renovation, advertising, and tenant screening process is just one of the perks. However, buying a property with existing tenants also comes with a few challenges that should be considered. To successfully seize this opportunity, it’s important to learn the process thoroughly and be aware of what to avoid.
Conducting Due Diligence
The immediate cash flow and turnkey nature of acquiring a leased property can make it seem like a great choice for your next investment. However, you shouldn’t assume that a leased property is well-maintained or that tenants are punctual with rent payments. Rather, take the time to perform due diligence and ensure the leased property is a worthwhile investment.
One of the primary documents to review when considering a leased property is the existing lease agreement. If you buy a property that has tenants, you automatically assume the lease agreement they signed with the prior landlord.
Given that the lease is binding, you’ll need to follow its terms until it concludes or is due for renewal. In some cases, the tenant agrees to end the lease upon the sale of the property, but this is rare. Most often, it’s crucial to understand the existing agreements that will govern your new investment.
Assess tenant payment history and lease terms
Along with reviewing the lease documents, it’s essential to carefully screen the current tenants before purchasing 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.
Verify with the current landlord or owner that the security deposit has been paid by the tenant and is stored in a separate bank account.
Inspecting the property with tenants in place
In addition to screening the tenants, it’s vital to conduct a detailed inspection of the property itself. For a complete view of the property’s current condition, you should personally inspect the house and yard.
Since tenants are currently living in the property, it’s important to be mindful and assess how well they maintain the house and yard. Be sure to ask the current owner about any insurance claims, past or present, particularly those caused by tenants. A high number of insurance claims could make it difficult to insure the property after the sale.
If all goes well, you could have found a great tenant-occupied rental property. Regardless of whether your new property has tenants, you’ll need to maintain it in livable condition, make sure the electrical and plumbing systems are in working order, and confirm the structural integrity of the building. 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. Consider outsourcing the daily management tasks to the professionals at Real Property Management Boise. For more information about our property management services in Hidden Springs and nearby, contact us today or at 208-494-1800.
Originally Published on March 12, 2021
This content is provided for general informational and educational purposes only and does not constitute financial, legal, tax, or investment advice. Readers should consult with licensed professionals regarding their specific circumstances.
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.
