Is it a good idea to buy an apartment with no tenants in it?

40 Replies

The property I am attempting to buy is in a very nice wealthy neighborhood in central Illinois, however, It doesn’t have a single renter occupying the property at the moment. I’m wondering if I should forgo buying this particular property without the potential of receiving immediate cash flow starting from day one?

@Etim Fisk

Think of it this way. YOU get to pick the tenants. YOU get to reset the rent rate back to market. You won't have to kick anyone out to do the rehab. You won't have anyone there in your way.

Just do your own pro forma analysis. Leave some margin for overestimating the rent and underestimating the expenses. 

How many units is this? The only question I would really have is "why is it empty"?

@Geordy Rostad the apartment is a four unit building with over 5000 square feet of space. The current owner of the building occupies the top two units and the two lower units are both sitting empty. I do not know why she kept the two lower units empty. I will need to find out and get back to you.

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@Etim Fisk sounds like this could be a great opportunity if you can get it at the right price. I don’t worry about vacancies as long as I am confident I can fill the units and it's not a market issue but a management issue.

I rather know who is in my buildings, tenants already in the building can be troublesome and cost a lot of money to get out if they weren't screened properly or if leases were not done correctly.

I bought a 3 unit and I had to get rid of all three tenants. Not one person paid rent, cared about the property and didn’t even pay utility bills so everyones electric was shut off. It took time and money to get rid of each tenant. 

@Etim Fisk - I don't see it as big problem, assuming you plan for it properly.  The additional holding costs should not be too much for a four unit.  It's certainly not uncommon to see some tenant turnover when a new owner comes in, so you've got a bit of a head start on the project with some vacancies.

If you decide to move forward with it, use the closing/due diligence period to get contractors lined up and scheduled.

This is a great situation...........owner occupied top two floors; two were empty! Perfect-fix-em up and rent them out. What could be better. You say it is a great neighborhood. Go for it if the price is right.

@Etim Fisk I wouldn’t unless you are going to hire a reputable property management company that has a history of finding tenants quickly so you can have cash flow instead of just paying the expenses with no cash flow help. Because at that point you just have a liability that is costing you money every month instead of a cash flow producing asset.

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I don't agree with the logic of "I would rather buy an empty building". It takes time to fill four apartments, so there will be holding expense while you wait. It is also guaranteed there will be expense involved in getting it ready to rent. It is not a problem buying a vacant property, but you need to figure it into your costs. Vacant buildings can be trouble magnets. I prefer people living in my properties just to keep an eye on things if nothing else. 

I get it though, some people have purchase buildings from bad landlords so have bad experiences. Just keep in mind not all inherited tenants are bad and not all new landlords do a better job screening than the last owner. 

I'd rather buy it vacant...as long as there is some reasonable reason its vacant..... not that its go some issue that made it so no one wants to rent it.... the rental market is bad in the area, so no one is applying for it etc....

yes there is some holding costs until you get it filled..... but Id rather have the control of the tenants placed.....and there are cost to evicting bad inherited tenants too....so those holding costs can be worth the extra $$

I like them occupied for a couple reasons . The main one is instant cash flow on day one to help cover costs the other is knowing the systems work . Being I buy without inspections there’s many scary “what ifs” if a tenant is living there I know for the most part the plumbing heating electrical systems work and usually it ensures the city is okay with a tenant to even be there . You really gotta watch these sellers on off market deals . Having a tenant in place mitigates some risk .

@Cody Ruff that’s precisely what I am worried about. I am not totally comfortable digging into my pockets to cover the monthly expense cost and after paying the down payment and closing cost I will not have much of a margin of safety do all the extra things I want to do to the building. All the units are well maintain and cared for and the building is structurally sound. Maybe, I am thinking way too much about all the things that could potentially go wrong.

I like to choose my own tenants, but I would make sure that each unit is fully legal--zoning, fire, etc.

@TIm Harstead thank you for answering my question and giving me a different perspective. However, I am still worry about my financial margin of safety, but I would still have those issues with or without tenants.

@Brian Hamel thank you for answering my question and giving me a different perspective. However, I am still worry about my financial margin of safety, but I would still have that issue with or without tenants.