Is it better to purchase units with tenants occupying or vacant ?

16 Replies

Tenants are preferable; but we do look at rent rolls and their payment record with the current owner as well as the condition of the property while under their occupancy. 

@Jackson Andrews - Depends on your goals. There are 5 types of properties. A) Nice properties in good condition with market rate tenants “turnkey” paying on time. B) Fixer upper properties with below market rate tenants paying on time. C) Properties with problem tenants / not paying on time. D) vacant property that’s fixed up and rent ready E) Vacant property that needs to be rehabbed before renting.

There are more opportunities to get a cheap / value add deal with B, C, and E type properties. If you take on a problem tenant, you may get a price discount worth the hassle or not. Usually these landlords are motivated. A and B landlords aren’t usually very motivated and D owners can sell to other homeowners or rent it out. I tend to buy E / vacant foreclosures or estate sales the most, but C properties with tired landlords can be really motivated sellers and “off market” so others aren’t competing for the deal.

@Jackson Andrews - Depends on the business plan and quality of the tenants among many other things.  If it's occupied you have to honor any in place lease agreements, so in the short run you have to deal with the good and the bad residents.  The upside is income.

Vacant properties are easier to rehab and you have the benefit of screening your tenant base.  The additional holding cost need to be worked into the budget.

@Jackson Andrews

If you are buying a vacant apartment building you should be getting a large discount since multifamily (5+ units) buildings are priced based on their income. This is great if you have funds available to float the property during rehab and the additional down payment funds that will be most likely required by your lender.

@Jackson Andrews it really comes down to what type of investor you desire to be or are:

Are you a distressed value add investor?

Do you buy and hold turn key?

Stabilized value add investor?

What’s your risk tolerance?

What’s your business model?

Quite a few questions to explore.

@Jackson Andrews

I don't think it should be a very weighty consideration in your home buying.

I really wanted full occupancy at first but as much as I love getting rent checks at closing I would now rather clean up the units and pick my own tenants. My first triplex came with an amazing first floor tenant, vacant second floor, and deadbeat third floor tenant. Cost me close to a grand in eviction and related fees just to get 3rd floor out before I could rehab. Vacant unit was filled within a month. If I were you, I would ask to see rent rolls and verify why any vacant unit is vacant. But I think you have more control with a vacant unit to pick and train the tenant.

@Jackson Andrews what does your business plan recommend? If you need cash flow and remodel one at a time, great.

If your plan is recommending total remodel, then you have to finance and create other income for remodel.

I’ve done both. If you run into issues with a unit then you have a hold up construction to address issue... with one unit remodel at a time you still have income. I’ve found it best one unit at a time... JMHO

@Jackson Andrews

Pros: You get prorated rents immediately. No work to finding to new tenants.

Cons: You never know what you’re getting.

I always ask for not only copies of leases during due diligence, but I state seller must inform of any past late payments or adverse actions against current tenants. And based on that I have asked for some units to be vacant at closing. If the place is a disaster during initial showing I immediately know I will be asking for seller to deliver unit empty at close. I never want to file for eviction as soon as I purchase a property.

@Jackson Andrews if you have a mortgage to pay right away then having tenants in place is a great benefit. I suggest during the inspection period you request copies of all leases and past payment history. See how they care for that unit. Not all landlords screen their tenants when moving them in so this is important to see what you’re getting into. If they are often late, I’d see when they can be out by.

Originally posted by @Jackson Andrews :

What are all the pros and cons to having tenants occupying property vs vacant units ??

 If they are good tenants with the tenants. If they are bad tenants vacant....Issue is how to you know if they are good or bad? That's the rub. You're going to have to accept some risk one way or the other. So I wouldn't base my buying decision on the occupancy if we're talking about small stuff here. Single houses, duplexes etc.....Now if you've got yourself a 30 unit apartment building that's empty, well that's a problem.........Well I guess it could also be an opportunity if you buy it as a value add play.

I would say it just depends but def look at the rent rolls. 

I bought 8 plex and was happy to have 4 vacant as I got to work on the 4 and had some income coming in. 

then put the 4 to peak market rent. Now working on raising rents with the initial 4 that were rented to get a good appraisal for our BRRRR.

n also, gave us the control of who we are putting in, because we had no history on proper screening 

from previous owners.