Purchasing a rental property with current tenants isn’t just convenient—it’s a valuable opportunity. Skipping renovations, advertising, and tenant screening is just the start of the advantages. But it’s crucial to recognize that acquiring a rental property with existing tenants can also come with certain challenges. To navigate this opportunity well, it’s crucial to understand the process and avoid common challenges.
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 automatically assume that a leased property is in good shape or that the tenants are responsible and pay rent promptly. Empower yourself by doing proper due diligence to make sure the leased property is a smart investment.
The existing lease agreement should be one of the first things you review when considering a leased property. When buying a tenant-occupied property, you inherit the lease the tenants signed with their former landlord.
Since the lease is a binding agreement, you’ll need to be willing to honor its terms until it ends or comes up for renewal. Occasionally, the tenant may agree to terminate the lease after the sale of the property, though this is uncommon. Typically, you’ll need to be aware of any prior agreements that govern your new 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. Handle the process as if the tenants were applying anew—run detailed background and credit checks, and verify their payment history and references.
Additionally, confirm with the current landlord that the tenant has paid the security deposit and that it’s kept in a separate account.
Inspecting the property with tenants in place
Along with checking your tenants, it’s essential to thoroughly assess 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. 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 everything looks good, you might have discovered a great rental property with tenants in place. 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 the property has tenants when you buy it, you are fully responsible for managing and maintaining it as soon as the sale is completed.
Property management can be a time-consuming task, especially when managing it on your own. Why not leave the day-to-day property management to the professionals at Real Property Management Assurance? For more information about our property management services in Hillsboro and nearby, contact us today or at 971-270-2600.
Originally Published on March 12, 2021
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