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Buying a Tenant-Occupied Property: Essential Tips and Considerations

A charming house surrounded by a well-kept yard, featuring lush green grass and colorful flowers.Purchasing a rental property with current tenants isn’t just convenient—it’s a valuable opportunity. The advantage of skipping renovations, advertising, and tenant screening is only the start. 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 quick cash flow and turnkey setup of buying a leased property may appear to be an attractive 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. Empower yourself by doing proper due diligence to make sure the leased property is a smart investment.

When evaluating a leased property, the current lease agreement is among the first things you should inspect. 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 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. 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 currently living in the property, it’s important to be mindful and assess how well they maintain the house and yard. It’s also important to ask the current owner about any recent or past insurance claims, especially if they were caused by the tenants. 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. Tenant-occupied or not, your new property must be kept in livable condition, with safe, functional electrical and plumbing systems, and structurally sound buildings. 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.

Property management can be complex and time-consuming, especially if you’re doing it yourself. Consider outsourcing the daily management tasks to the professionals at Real Property Management Connection. For more information about our property management services in Spring Hill and nearby, contact us today or at 727-279-7779.

Originally Published on March 12, 2021

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