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. That said, it’s vital to understand that purchasing a property with tenants already living there comes with its own challenges. To make the most of this opportunity, you’ll need to learn about the process and what challenges to avoid.
Conducting Due Diligence
The immediate cash flow and turnkey nature of acquiring a leased property can make it seem like a great choice for your next investment. However, you shouldn’t assume that a leased property is well-maintained or that tenants are punctual with rent payments. 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 purchasing a property with tenants, you inherit the lease agreement they signed with the 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 some cases, the tenant agrees to end the lease upon the sale of the property, but this is rare. Most often, it’s crucial to understand the existing agreements that will 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. Approach the screening as if the tenants were new applicants by performing thorough background and credit checks, and verifying 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 screening tenants, it’s necessary to carry out a full inspection of the property. To fully understand the property’s condition, it’s important to inspect both the house and the yard in person.
With tenants already residing in the home, it’s crucial to be cautious and understand how responsible they are with upkeep and cleanliness. 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 tenants are in place when you buy the property, once the sale is done, you are responsible for managing and maintaining it.
Managing a property requires a lot of work, especially if you’re doing it on your own. Why not leave the day-to-day property management to the professionals at Real Property Management Concordia? For more information about our property management services in East Nashville and nearby, contact us today or at 623-217-0413.
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