Acquiring a rental property with tenants in place is not only convenient but also a promising opportunity. The advantage of skipping renovations, advertising, and tenant screening is only the start. But it’s crucial to recognize that acquiring a rental property with existing tenants can also come with certain challenges. To navigate this opportunity well, it’s crucial to understand the process and avoid common challenges.
Conducting Due Diligence
The immediate cash flow and ready-to-go nature of purchasing a leased property can make it seem like an appealing option for your next investment. However, don’t automatically assume that a leased property is in good shape or that the tenants are responsible and pay rent promptly. Empower yourself by doing proper due diligence to make sure the leased property is a smart investment.
The first thing to examine when considering 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.
Since the lease is a binding contract, you must be prepared to follow its terms until it expires or is up for renewal. Sometimes, the tenant agrees to end the lease when the property is sold, though this isn’t common. In most cases, it’s essential to understand what prior agreements will govern your 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 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.
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
Along with screening tenants, it’s necessary to carry out a full inspection of the property. To get an accurate sense of the property’s condition, you’ll need to personally inspect both the house and the yard.
Since tenants are currently living in the property, it’s important to be mindful and assess how well they maintain the house and yard. Don’t forget to ask the current owner about any past or present insurance claims, particularly if they were caused by the tenants. If there are too many insurance claims, it might be challenging to insure 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. 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 be quite demanding, particularly if you handle everything yourself. Why not leave the day-to-day property management to the professionals at Real Property Management Crossroads? For more information about our property management services in Plainfield and nearby, contact us today or at 317-218-7800.
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