{"id":44090,"date":"2013-06-03T12:33:31","date_gmt":"2013-06-03T18:33:31","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=44090"},"modified":"2021-03-16T10:07:25","modified_gmt":"2021-03-16T16:07:25","slug":"2013-06-03-existing-tenants","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2013-06-03-existing-tenants","title":{"rendered":"Buying Investment Properties with Existing Tenants"},"content":{"rendered":"

As a buy and hold investor, tenants are the lifeblood of my business.\u00a0 They pay our bills plus give us a little extra to put food on our table and gas in the car.\u00a0 There are many tenant horror stories out there, but most of these can be avoided with proper tenant screening<\/a> techniques and a strong lease.<\/p>\n

We generally like to buy vacant distressed properties<\/a>.\u00a0 But sometimes we also buy properties that are not distressed and have existing tenants in them.\u00a0 These are tenants that have not been though our screening process and are not under our lease and thus can pose a risk.\u00a0 What should you know about buying a property with existing tenants?<\/p>\n

The first thing you should know is that the existing tenants have rights.\u00a0 You as the new owner cannot modify their lease without the tenant\u2019s consent.\u00a0 That means you cannot kick them out six months into a year lease.\u00a0 Nor, can you raise their rent.\u00a0 Plus you have to honor what ever other clauses or agreements are in the lease.\u00a0 Basically, the lease stays in place and a change in ownership (except foreclosure) does not void it.<\/p>\n

Inheriting Tenants: Both Good and Bad<\/h2>\n

Existing tenant\u2019s can be both good and bad.\u00a0 On the good side, you can purchase a property with paying tenants.\u00a0 This should mean instant cash flow to you, without the hassle of finding and screening new tenants.<\/p>\n

On the negative side you could be stuck with some rotten eggs.\u00a0 The seller could have loaded up the property with anyone who could fog a mirror to claim \u201c100%\u201d occupancy.\u00a0 Or, several of the tenants may not have paid the rent in a while and the seller just wants out.<\/p>\n

You as the buyer can protect yourself several ways.\u00a0 Get copies of all leases and agreements as part of your purchase contract<\/a>.\u00a0 Review and approve them before you close.\u00a0 Search for the tenant\u2019s names on various databases to see what appears.\u00a0 Do not pull their credit reports, you do not have that permission unless it is specifically granted by the tenant to you in writing!<\/p>\n

Next, review the property\u2019s income and expense statement for the past two years.\u00a0 This review should give you a pretty good idea of what is going on and if you have any deadbeats.<\/p>\n

What If There Are No Leases?<\/h2>\n

Finally, if there are no written leases (or even if there are), use a one page estoppel agreement.\u00a0 An estoppel agreement is a short legal form that outlines contractual terms.\u00a0 Get every tenant to fill one out, detailing the amount of rent paid, the amount of the security deposit, term of tenancy, which appliances are theirs and if there are any other special agreements.\u00a0 Get each tenant and the seller to sign and date each one.\u00a0 This agreement will protect you and clarify the property\u2019s financial condition.\u00a0 But it can also serve another role as we shall see.<\/p>\n

From the tenant\u2019s perspective you need to understand that the sale of a property equals change.\u00a0 People generally do not like change, especially existing tenants.\u00a0 All kinds of things will be going through their heads.\u00a0 \u201cAm I going to get kicked out?\u201d\u00a0 \u201cIs my rent going to go up?\u201d\u00a0 \u201cWill the new landlord be a jerk?\u201d<\/p>\n

You can make the sales and ownership transition process a lot easier on yourself if you do some legwork upfront and immediately upon the sale.\u00a0 Talk with the tenants if you can (get permission from the owner first).\u00a0 Use the estoppel agreement as an excuse.\u00a0 Sit down with the tenant and help them fill it out.\u00a0 Explain who you are, what you do and what your plans are.\u00a0 Explain that all existing leases will be upheld.<\/p>\n

Upon closing, have an info packet ready for the tenants.\u00a0 In this packet provide your contact information, what to do if there is an emergency or a repair and explain when, where and how they should pay the rent.\u00a0 See that each tenant gets a packet as soon as possible after the sale closes.<\/p>\n

So there you have it, what you should know about buying a property with existing tenants.\u00a0 It is not as easy as buying distressed properties without tenants, but with a little effort the sailing can be made as smooth as possible.<\/p>\n

Photo: \u00c9ole Wind<\/a><\/font><\/p>\n","protected":false},"excerpt":{"rendered":"

As a buy and hold investor, tenants are the lifeblood of my business.\u00a0 They pay our bills plus give us a little extra to put food on our table and […]<\/p>\n","protected":false},"author":726,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5183],"tags":[1129,4784,190,58,59,569],"class_list":["post-44090","post","type-post","status-publish","format-standard","hentry","category-landlording","tag-buying-real-estate","tag-existing-tenants","tag-landlord","tag-real-estate","tag-real-estate-investing","tag-tenant"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/44090","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/726"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=44090"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/44090\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=44090"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=44090"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=44090"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}