Acquiring a rental property with existing tenants is not only a convenient choice, but also a great opportunity. The ability to bypass renovations, advertising, and tenant screening is just one of many benefits. However, it’s important to realize that buying a property with current tenants also brings its own set of challenges. To navigate this opportunity well, it’s crucial to understand the process and avoid common challenges.
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, it’s crucial not to assume that just because a property is leased, it’s in good condition or the tenants are responsible and pay on time. Rather than assuming, conduct careful due diligence to ensure that the leased property is a good investment.
One of the first things to review when evaluating a leased property is the current lease agreement. When you acquire a property with tenants, you automatically take on the lease agreement they had with the former landlord.
Given that the lease is binding, you’ll need to follow its terms until it concludes or is due for renewal. Occasionally, the tenant may agree to terminate the lease after the sale of the property, though this is uncommon. Most of the time, it’s important to know which existing agreements will 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. Approach the situation as if the tenants were applying for the first time, by conducting full background and credit checks, and confirming 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 gain a clear understanding of the property’s condition, you’ll need to see the house and yard in person.
Given that tenants are living on the property, you should be cautious and determine how attentive they are to cleanliness and maintenance. It’s also important to ask the current owner about any recent or past insurance claims, especially if they were caused by the tenants. Too many prior insurance claims might cause difficulty in getting insurance coverage for the property after the purchase.
If all goes well, you could have found a great tenant-occupied rental property. 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 requires a lot of work, especially if you’re doing it on your own. Why not let the experts at Real Property Management Valor Team handle your daily property management tasks? For more information about our property management services in Hudson and nearby, contact us today or at 440-534-6700.
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