Buying a rental property with tenants already in place is not only convenient, but it’s also a fantastic 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 make the most of this opportunity, you’ll need to learn about the process and what challenges to avoid.
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 assume that a leased property is in good condition or that the tenants are reliable and pay rent on time. Instead, conduct thorough due diligence to confirm that the leased property is a solid investment.
The first thing to examine when considering a leased property is the current lease agreement. When you purchase a property with tenants, you take over the lease agreement they signed with their previous landlord.
Since the lease is a binding contract, you must be prepared to follow its terms until it expires or is up for renewal. Sometimes, the tenant agrees to end the lease when the property is sold, though this isn’t common. Usually, you’ll need to be familiar with the previous agreements that will govern your new investment.
Assess tenant payment history and lease terms
Along with examining the lease documents, it’s vital to screen the current tenants carefully before buying 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
In addition to tenant screening, you must also conduct a complete evaluation of the property. To fully understand the property’s condition, it’s important to inspect both the house and the yard in person.
With tenants already occupying the property, it’s essential to be careful and evaluate how well they maintain the home and yard. Make sure to inquire with the current owner about any past or current insurance claims, especially those related to tenant damage. Multiple insurance claims could make it harder to secure insurance on the property after the sale.
If everything turns out fine, you might have secured an excellent rental property with existing tenants. Tenant-occupied or not, your new property must be kept in livable condition, with safe, functional electrical and plumbing systems, and structurally sound buildings. Though your new rental property may come with tenants, once the sale is finalized, you take full responsibility for managing and maintaining it.
Managing a property can become overwhelming, particularly if you’re handling it all by yourself. Why not delegate the day-to-day property management duties to the experts at Real Property Management Vanguard? For more information about our property management services in Maitland and nearby, contact us today or at 407-681-7802.
Originally Published on March 12, 2021
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