Acquiring a rental property with tenants in place is not only convenient but also a promising opportunity. Skipping the renovation, advertising, and tenant screening process is just one of the perks. However, it’s essential to be aware that purchasing a property with tenants in place can present some challenges. Navigating this unique opportunity successfully requires learning about the process and understanding potential pitfalls.
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. Rather, take the time to perform due diligence and ensure the leased property is a worthwhile investment.
The existing lease agreement should be one of the first things you review when considering a leased property. 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 agreement, you’ll need to be willing to honor its terms until it ends or comes up for renewal. In rare cases, the tenant may agree to terminate their lease after the sale, but this is not the norm. 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 properly assess the current condition of the property, an in-person inspection of the house and yard is necessary.
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 the details are in order, you could have found an ideal tenant-occupied rental property. Tenant-occupied or not, your new property must be kept in livable condition, with safe, functional electrical and plumbing systems, and structurally sound buildings. 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 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 Advantage? For more information about our property management services in Warren and nearby, contact us today or at 248-554-1010.
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