The title may not be the best considering my thoughts, but here it goes.
There are quite a few questions that come to mind especially when I saw a news report about more people renting than owning property (has me intrigued but not completely sold on the idea). Some of the things that I have wondered about are how those who are already landlords got the properties that they are renting? Is it ever a good idea to go with a pre-rented deal (property owner selling and they already have tenants living in the unit)? How you handle the process of tenant screening?
I would put more but as of right now I'm still looking, researching the different avenues of RE investing so this may seem like a scatterbrained post.
Hello @Seneca Stephens ,
A good question. Before I continue, know that I am a Realtor in Las Vegas and my practice is almost exclusively remote investors. In my practice I frequently deal with whether to recommend a tenant occupied property or a vacant one. Below are my thoughts on the pros and cons.
• Immediate income - Since the tenant is already in the property you start receiving income from day one.
• The tenant already signed a lease so you can get a copy and know the terms.
• Possible existing relationship with a property manager that already knows the property and its maintenance issues.
• You know the rent amount so it is easy to determine whether the property will generate a profit.
• Tenant qualifications - How was the tenant screened? This is critical. Checking credit score alone is not enough. For example, recently a prospective tenant had a credit score in the mid 500's. However, all the negative items were medical collections. Apparently the daughter became very sick and there was no way they could pay the huge amount owed. If you took away the medical collections, their score was in the high 700's. Another applicant had a low 700's credit score but in the past had collections for unpaid rent. What the property manager must screen for in addition to a detailed credit inspection is:
• Criminal history (national, state, county, city and sex offender). If they are on any of these lists, you do not want them.
• Employment history - Are they job hoppers? You do not want them. Also, their income must be sufficient to handle the rent and their other obligations.
• Back child support and alimony. If it comes down to them paying money to the court or you, guess who is going to lose?
If the seller just wanted to get "anyone" in the property so they could sell it "with tenant" you could be facing a real nightmare. Also:
• Is the tenant paying market rent? I have heard of situations where the property is sold and the tenant is (for example) paying $1,000/Mo. rent. A few months after close the tenant skips and the buyer discovered that the market rent of the property was $600/Mo.
• Property condition - With a tenant in the property it can be difficult to determine the actual condition of the property if there is collusion between the tenant and the current owner.
About 50% of the time when one of my clients buys a property with an existing tenant we end up evicting them, usually for non-payment of rent. So, unless I know the property manager and their management characteristics, we will not buy a property with an existing tenant. I would only consider a tenant occupied property where there is no property manager involved if the tenant has been in the property for multiple years, their credit shows no late payments on utilities, they have been at the same job for multiple years and the property is in good condition.
While buying a tenant occupied property sounds good, they can be a nightmare unless you know the property manager managing the property and their screening process. Another factor to consider is how long evictions take and cost in your area. For example, in Las Vegas an eviction typically takes less than 30 days and costs less than $500. I understand that in California if the tenant resists, it can take up to one year. In some parts of New York state, up to 18 months. So, be very careful buying a tenant occupied property unless you have a very good reason to know that they are good renters.
I hope the above helps.
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