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, buying a property with existing tenants also comes with a few challenges that should be considered. 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, 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 primary documents to review when considering a leased property is the existing lease agreement. If you buy a property that has tenants, you automatically assume the lease agreement they signed with the prior 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. There are instances when the tenant has agreed to end the lease once the property is sold, but this is not typical. 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 this screening as if the tenants were first-time applicants, performing background checks, 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 fully understand the property’s condition, it’s important to inspect both the house and the yard in person.
Since tenants are already occupying the property, it’s important to be cautious and find out how diligent they are in keeping it clean and well-maintained. It’s also important to ask the current owner about any recent or past insurance claims, especially if they were caused by the tenants. Excessive insurance claims may complicate getting insurance for the property once it’s sold.
If everything checks out, you may have found a great rental property that already has tenants. Whether your new investment includes tenants or not, you’ll need to ensure the property is habitable, with properly working electrical and plumbing systems, and structurally safe buildings. Though your new rental property may come with tenants, once the sale is finalized, you take full responsibility for managing and maintaining it.
Managing a property requires a lot of work, especially if you’re doing it on your own. Let the team at Real Property Management Alliances take over the day-to-day tasks for you. For more information about our property management services in Wildwood and nearby, contact us today or at 407-378-7611.
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