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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.Buying a rental property with tenants already in place is not only convenient, but it’s also a fantastic opportunity. Skipping renovations, advertising, and tenant screening is just the start of the advantages. 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. It’s important not to assume that a leased property is well-maintained or that the tenants are responsible and pay rent on time. Instead, make sure to do your due diligence to verify that the leased property is a sound 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.

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. Occasionally, the tenant may agree to terminate the lease after the sale of the property, though this is uncommon. Most often, it’s crucial to understand the existing agreements that 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.

Make sure to verify with the current owner or landlord that the tenant’s security deposit has been paid and is held in a separate bank account.

Inspecting the property with tenants in place

In addition to screening the tenants, it’s vital to conduct a detailed inspection of the property itself. 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. Don’t forget to ask the current owner about any past or present insurance claims, particularly if they were caused by the tenants. Excessive insurance claims may complicate getting insurance for the property once it’s sold.

If all the details are in order, you could have found an ideal tenant-occupied rental property. Whether or not your new property comes with tenants, you must be ready to keep it in habitable condition, check that the electrical and plumbing systems are safe and functional, and ensure the building is structurally 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 can become overwhelming, particularly if you’re handling it all by yourself. Let the team at Real Property Management Lakeside take over the day-to-day tasks for you. For more information about our property management services in Winter Haven and nearby, contact us today or at 863-877-1078.

Originally Published on March 12, 2021

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