Should I buy this tenant-occupied SFR?

5 Replies

Hi BP community, Looking for some advice. I currently own and manage one rental property and I’m considering purchasing the following property in the same city: 3 bed 1 bath 1,051 square feet $39,900 asking price (yes, this is a realistic asking price for this market) Homes in this area/condition can rent for around $800-$1,000 per month. It’s a low-income area, but not a bad neighborhood. I just viewed the property with my agent and it looks great. Just a few minor cosmetic concerns. All great so far! My only concern is the fact that it is tenant-occupied. The tenant is on a lease up through May of 2019 at $650 per month. Barf. I’m trying to think about the long-term gain of a great property, not the short-term loss on cash flow. I plan to make improvements to the property and raise the rent to market value ($800-$1,000) at the end of their lease. If they stay, great! If not, I’ll rent it to someone else. I’m just worried because I didn’t screen this tenant. I don’t know their background, references, or rental history. They could trash the house once they hear I plan to raise the rent. Sure, that is part of investing, but I’d love to avoid a trashed house/eviction situation if possible. This is all hypothetical, but it’s on my mind and I’d love some advice. Of course I’ll treat the tenants great and fairly, but it still has me nervous. Am I being paranoid? What would you experienced SFR investors do? Thank you so much for any and all thoughts! Christian

I suggest asking for proof that they've been paying their rent on time and for a full accounting of all expenses at the property.  If they have been paying their rent, and there aren't any expenses related to poor upkeep of the home on the tenants part, then I wouldn't be too worried.  You also should do your own due diligence on them (background screening, calling past landlords, etc.).

Joe, great ideas. I’ll definitely be asking for all of that. Thank you!

Christian,

Sounds like a good deal to me.  You need to get a copy of that lease.  Does it give you an out to raise the rent when the property changes owners?  Many leases have language that make allow them to expire if the property transfers.  If not, it might be worth working through your realtor to have the current landlord update the lease to make these changes (he can give the renter a free month to sweeten the deal if needed). 

If you can't get a lease that allows you to raise the rent when you take over, you'll need to price this 1 year loss of rental income into the purchase price and just wait it out.

I wouldn't worry about a tenant being there.  This happens all the time, risk we all take. 

Good Luck!

Chris

Get a esstopal letter, copy of the lease and all back ground info on the tenant. Do not expect them to be perfect tenants.

Moving forward as a investor you always prepare for a eviction. To not do so is reckless on the part of any investor. Assuming all is roses and being nice will resolve all issues is not rational.

Always keep in mind you are operating a business and all decisions should be made from that perspective. Yes you are being paranoid. That is a emotional reaction, no place in business for emotions.

Chris,

I love that. When I asked my agent if there was anything we could with the current lease she said “no, sorry.” But I’ll be sure to look into this, thanks!

————

Thomas,

You’re right. Thanks for helping me snap out of it haha. I’ll definitely apply that mentality moving forward.

Thank you, gentlemen!

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