Is it a good idea to buy a rental property with tenants who stay?

Question

I have noticed several properties that say do not disturb tenant.  This makes me leery that tenants may not be aware the property is being sold.

Derrick W. · Answer

I like turn key operations. Existing tenants have usually accepted the condition of the place and are comfortable there.  This buys you a little time when it comes to painting or replacing flooring or other similar things that would need to be done to attract new tenants.

Robert Syfert · Answer

Hi @Dequindra Quinn,

Just adding to the good points other BP members have shared with you.

Your concern is understandable, but see it from the seller side. In many cases they do not want to raise concerns to the tenants, with just tire kickers. If the seller feels you serious, they can just let the tenants know there is going to be an insurance inspection.

I would also second Derrick W. suggestion that a good turnkey company with property management may be a path you want to look into. They can help you know about the current tenants and their business is to sell properties with renters in place. If your dealing with a good turnkey provider it should cover your concerns. The return may be a little less, but the risk is less also.

Just keep in mind there is a reason someone is selling, so just make sure your not inheriting the reason they are selling.

Dequindra Quinn · Answer

Thank you Christian,

Thank you Neda

Neda Navidnia · Answer

I would ask for the history of rent payment, and I want it in writing, once I bought a property and the previous property manager said the tenant have been paying the rent on time, my mistake was not asking for proof and believing what they said.

The rent was way below market price, we met with the tenant and said we will upgrade the property and rise the rent after current lease is expired, they seemed happy, but stopped paying the rent after the closing.

Christian Bors · Answer

you still need to walk through the place and ask the current landlord for the lease agreement and rental application. I have had good luck with inherited tenants and I have had bad. If the tenant's place is realivitly clean and the lease is on a month to month agreement, I would feel comfortable inheriting the tenant. However, if the lease was over 1 year I would strongly reconsider.

Dequindra Quinn · Answer

Thank you Mike

Thank you Fred

Mike D'Arrigo · Answer

It doesn't necessarily mean that. A landlord should respect their tenants privacy and doesn't want potential buyers and "tire kickers" bothering their tenant.

Fred Heller · Answer

@Dequindra Quinn    Not allowing showings without an offer in place is common practice. It doesn't reflect on the quality of the current tenants, or whether or not they know the home is for sale.

It just a way to keep people who are not serious buyers from traipsing in and out all the time.

Most people think that occupied properties is a plus because of "instant cash flow." And agents brag about it in their listings. But I consider it a negative for one reason: the tenants are always paying significantly less than market rent. I don't know if it's because the sellers were too nice or what. But they never raised the rent.

I was looking at a really nice lakefront 4-plex in a more rural area of the Houston metro earlier this year. The market rent in the area was in the $800 range. The tenants in place were paying $500. And the listing agent informed me that the owner had just signed new 2 year leases with all the tenants for $500. I walked away from that really fast. And it's still on the market 8 months later.

Sean Dawson · Answer

yeah, thats a tough questions sometimes. first property i bought i stopped the month to month lease so i could move in but kept the downstairs tenants. retrospect should have moved in downstairs and kept the upstairs.

most recent purchase kept all the tenant until we were able to see whats what and started evictions on those that needed it. nothing for anything crazy just nonpayments. Our management company gave the tenants ample time to "get to know us" as it were.

ymmv

Dequindra Quinn · Answer

Thank you Marco G.  I am a little concerned with vandalism in the Metro Detroit market also.

Is it a good idea to buy a rental property with tenants who stay?

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