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. That said, it’s vital to understand that purchasing a property with tenants already living there comes with its own challenges. To take full advantage of this opportunity, it’s important to educate yourself about the process and potential pitfalls.
Conducting Due Diligence
The instant income and convenience of buying a leased property might make it seem like the ideal option for your next investment. However, you shouldn’t assume that a leased property is well-maintained or that tenants are punctual with rent payments. Instead, make sure to do your due diligence to verify that the leased property is a sound investment.
When evaluating a leased property, the current lease agreement is among the first things you should inspect. When buying a tenant-occupied property, you inherit the lease the tenants signed with their former landlord.
Because the lease is a legal contract, you’ll need to accept its terms until the lease expires or can be renewed. In rare cases, the tenant may agree to terminate their lease after the sale, but this is not the norm. Most of the time, it’s important to know which existing agreements will govern your new investment.
Assess tenant payment history and lease terms
In addition to reviewing the existing lease, it’s crucial to carefully screen the current tenants before acquiring 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.
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 properly assess the current condition of the property, an in-person inspection of the house and yard is necessary.
Given that tenants are living on the property, you should be cautious and determine how attentive they are to cleanliness and maintenance. Be sure to ask the current owner about any insurance claims, past or present, particularly those caused by tenants. 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. Whether or not your new property comes with tenants, you must be ready to keep it in habitable condition, check that the electrical and plumbing systems are safe and functional, and ensure the building is structurally sound. Even though your new rental may already have tenants, once the sale is final, you are entirely responsible for the management and maintenance of the property.
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 Value? For more information about our property management services in Matthews and nearby, contact us today or at 704-285-2228.
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