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, 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
With its instant cash flow and ready-made setup, buying a leased property can look like a promising option for your next investment. It’s important not to assume that a leased property is well-maintained or that the tenants are responsible and pay rent on time. Empower yourself by doing proper due diligence to make sure the leased property is a smart investment.
When evaluating a leased property, the current lease agreement is among the first things you should inspect. When you acquire a property with tenants, you automatically take on the lease agreement they had with the former 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. Typically, you’ll need to be aware of any prior agreements that 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. Treat this screening as if the tenants were first-time applicants, performing background checks, 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. To get an accurate sense of the property’s condition, you’ll need to personally inspect both the house and the 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. Additionally, be sure to ask the current owner about any past or present insurance claims, especially if they resulted from tenant-related issues. A high number of insurance claims could make it difficult to insure the property after the sale.
If everything turns out fine, you might have secured an excellent rental property with existing tenants. Whether or not your new rental property has tenants, you’ll need to keep it in habitable condition, verify that the electrical and plumbing systems are safe, and ensure the structures are sound. 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.
Managing a property can become overwhelming, particularly if you’re handling it all by yourself. Why not leave the day-to-day property management to the professionals at Real Property Management DePenn? For more information about our property management services in Yonkers and nearby, contact us today or at 866-820-9913.
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