General Real Estate Investing

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Jeff Mora
  • Orlando, FL
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Wanting to buy a tenant occupied rental

Jeff Mora
  • Orlando, FL
Posted Nov 24 2022, 03:39

Good morning Bigger pockets family. Im looking to buy my first tenant occupied property but not sure if right now is the best time due to the market. 

If so, what is the best avenue to obtain one? 

Greatly appreciate it from a future real estate investor! 

Ps. Happy Thanksgiving!

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Andrew Freed
  • Investor
  • Worcester, MA
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Andrew Freed
  • Investor
  • Worcester, MA
Replied Nov 24 2022, 03:46

@Jeff Mora - I personally think now is a great time to purchase an investment property, way less competition. A couple things you can do to ensure you get a good deal for your first investment property. Figure out what the average, good, and great cash on cash return is for an investment property in your area. For instance, in my area, 5-7% COC is average, 8-9% COC is good, and 10+ COC is great. Only target the good or great deals.

Additionally, days on market is your friend. If you can target properties that have 45+ days on market, I guarantee the seller is willing to negotiate which will definitely help you get better returns. Target high days on market and make low-ball offers. See if anyone bites and negotiate from there. 

Lastly, make sure to incorporate seller concessions into your offer. If the seller will provide seller credits to buy down closing costs or the interest rate, that will reduce your out of pocket costs hence increase your cash on cash return. Those are my tips on how to find a fantastic deal in this market. Good luck!

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Jezelle John
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Jezelle John
Replied Nov 24 2022, 03:50

Best advice is ensure you have reserves. Real estate is interesting because everyone has a different strategy. Some like tenant occupied because it means the unit is livable. Some prefer unoccupied to do a full gut renovation. I own a triplex in Cleveland and I’m on my 2nd property manager and thankfully I’m only paying for water & sewer , while the tenants pay everything else. It’s smooth sailing now but that’s not how it started. Work on getting your boots on the ground - handyman, contractor, pest control, your PM should be able to assist for a fee but do your own due diligence. Plan that as soon as you close on the property , the tenants are going to complain about something. Have reserves- get new smoke/CO2 detectors, lead inspection documents, find out the property taxes- somehow the previous owner for my property paid for 2021 but did not pay for 2020 or 2019, so I got the bill after closing. Are the tenants on voucher programs, if so get all that information to call so payments can be switched to you or your PM. I like Cleveland - not much appreciation but ok cash-flow as long as your tenants pay their rent. The renovations are what will eat your cashflow so try to stay ahead of it.  

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Jeff Mora
  • Orlando, FL
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Jeff Mora
  • Orlando, FL
Replied Nov 24 2022, 04:09
Quote from @Jezelle John:

Best advice is ensure you have reserves. Real estate is interesting because everyone has a different strategy. Some like tenant occupied because it means the unit is livable. Some prefer unoccupied to do a full gut renovation. I own a triplex in Cleveland and I’m on my 2nd property manager and thankfully I’m only paying for water & sewer , while the tenants pay everything else. It’s smooth sailing now but that’s not how it started. Work on getting your boots on the ground - handyman, contractor, pest control, your PM should be able to assist for a fee but do your own due diligence. Plan that as soon as you close on the property , the tenants are going to complain about something. Have reserves- get new smoke/CO2 detectors, lead inspection documents, find out the property taxes- somehow the previous owner for my property paid for 2021 but did not pay for 2020 or 2019, so I got the bill after closing. Are the tenants on voucher programs, if so get all that information to call so payments can be switched to you or your PM. I like Cleveland - not much appreciation but ok cash-flow as long as your tenants pay their rent. The renovations are what will eat your cashflow so try to stay ahead of it.  


Thank you all for your quick replies, specially on Thanksgiving 😄

Do you guys recommend section 8 tenants ?

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Jezelle John
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Jezelle John
Replied Nov 24 2022, 06:04

I welcome section 8, meet all the requirements and inspection needs and it is a steady check. You will never please everyone but you can give your best effort. Have regular pest control before the tenants ask for it too. Are you self managing? 

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Eliott Elias#2 All Forums Contributor
  • Investor
  • Austin, TX
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Eliott Elias#2 All Forums Contributor
  • Investor
  • Austin, TX
Replied Nov 24 2022, 08:12

Get a copy of the lease, ask the landlord how tenants have been with payments and responsively. Ideally you want to bring on your own tenant, only thing you can do is abide by the lease in place. 

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Diana Costta
  • Investor
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Diana Costta
  • Investor
Replied Nov 24 2022, 09:08
Quote from @Jezelle Johne John:

I welcome section 8, meet all the requirements and inspection needs and it is a steady check. You will never please everyone but you can give your best effort. Have regular pest control before the tenants ask for it too. Are you self managing? 

@Jezelle John

I am a newbie investor in Cleveland. Who do you use for Pest control? Sending you a DM.

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Jezelle John
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Jezelle John
Replied Nov 24 2022, 10:01

Hi,

I was using pest responders but I cannot recommend them. I found them on Facebook. My property manager now handles the repairs pest control. 

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Jay Thomas
  • Real Estate Agent
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Jay Thomas
  • Real Estate Agent
Replied Nov 24 2022, 10:26

The current market conditions are favorable for anyone looking to invest in property. With fewer competitors and more properties available, now is the perfect time to buy an investment property. With so many potential options, it's worth doing your research before you invest. Evaluate the risks carefully and make sure you understand all of the associated costs with purchasing a property.

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Aj Parikh
  • Rental Property Investor
  • Centreville, VA
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Aj Parikh
  • Rental Property Investor
  • Centreville, VA
Replied Nov 24 2022, 10:50

Hi Jeff!! Happy Thanksgiving!! 

One of the easiest ways of scaling in real estate today is to invest in turnkey properties out of state. If you have a busy 9-5 routine but have the money to get started and don't have enough time, turnkey companies provide some of the best resources to scale your portfolio. I have used that strategy so feel free to reach out if you want to discuss.

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Mitch Mangum
  • Realtor
  • Houston, TX
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Mitch Mangum
  • Realtor
  • Houston, TX
Replied Nov 25 2022, 01:58

@Jeff Mora

Pleasure to meet you. Why do want to buy one that’s tenant occupied?

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Andrew Freed
  • Investor
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Andrew Freed
  • Investor
  • Worcester, MA
Replied Nov 25 2022, 04:08

@Jeff Mora - Section 8 tenants are great! You usually have low vacancy (tenants stay for years), continuous rent increases, and constant payment. Units do tend to be treated rougher but that is mitigated by the longer tenancy. The downside is more scrutiny and administrative burden via forms and having annual inspections. Half of my portfolio is section 8 tenants and it's been a relatively good experience. 

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John Morgan
  • Rental Property Investor
  • Grand Prairie, TX
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John Morgan
  • Rental Property Investor
  • Grand Prairie, TX
Replied Nov 25 2022, 06:31

@Jeff Mora

I've bought 8 SFR with tenants in place. Landlords are definitely motivated to move these properties! If the pics on Zillow show messy houses and kitchens, then it's a tired landlord that wants to dump it. Lol. If there's a lease in place with several months to go, you have a ton of leverage since the tenant has to stay with the house until the lease is up. Flippers won't touch these and a family won't either. So not much competition buying these. Low ball them and see what happens. That's what I've done and it's worked. I've kept almost all my tenants and slowly fixed them up and raised rent to cover my costs over time. A win for the seller, tenant and me. It's a great way to buy properties very cheap and you have instant rent coming. Good luck!

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Simon Ashbaugh
  • Realtor
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Simon Ashbaugh
  • Realtor
Replied Nov 25 2022, 08:18

I think nows still a great time to buy! Where are you looking? Yes section 8 usually pays top market rent and is basically guarenteed

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Leo Ray#2 General Real Estate Investing Contributor
  • Investor
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Leo Ray#2 General Real Estate Investing Contributor
  • Investor
Replied Nov 25 2022, 10:20

@Jeff Mora it's difficult to give you a meaningful answer without any context. For instance, we don't know anything about your goals, your limitations, your market, the type of property you're looking for, how much money you have, how much loan you qualify for, etc., etc.

The two details you do mention are that you want to buy a tenant occupied property, and you're not sure if right now is the best time to get into the market...so, here are my thoughts on those issues:

1) Tenant-occupied properties.  Why are you wanting to buy a tenant occupied property?  Often, if a landlord is selling a tenant occupied property, there's a reason. Landlords rarely sell tenant occupied properties that are performing well, have no problems, and have high-quality tenants...instead, they're often selling because the tenants are a nightmare, the property has problems, and/or it's not performing well... Because of this, if you buy a tenant occupied property, you're often taking on someone else's problem. Also, it takes away your ability to screen your own tenant--which can cause a lot of problems. As a landlord, I want to be able to screen my own tenants so I know who I'm renting to. If you want to be a landlord and real estate investor, you'll have to learn how to screen and manage your own tenants--it's a fundamental part of the gig, so the sooner you learn how to do it, the better.

2) "Is now the right time to get into the market?"  ANY time is the right time to get into the market if the deal is right. When I find an A or B class property in an A or B neighborhood that I know I can make cashflow, and that I know will attract quality tenants, and it's in a city with where the fundamentals of the economy are strong, I don't care what the broader market is doing. 

For instance, I bought a property about 10 months ago at the absolute peak of the market. 
Am I losing sleep over the fact that I bought it at the peak of the market? Not a bit.
Because: the property cashflows 1k/month, it's B class, it's low maintenance, attracts top-notch tenants, it's in an area with historically great appreciation, and the mortgage is locked at a very low rate (which gets better and better as we experience high inflation). I'll enjoy the cashflow, mortgage paydown, tax benefits, and ease of management as I hold the property for at least 10 years (and probably longer). As long as I can find tenants (which, barring an apocalypse, I'll be able to do), the financial model pencils out--regardless of what the market does.

The smartest, most highly qualified people in the world are rarely able to time markets.  So, don't worry so much about timing the market, worry more about whether the deal makes sense.

Good luck out there!

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Mark Jones
  • Property Manager
  • Indianapolis, IN
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Mark Jones
  • Property Manager
  • Indianapolis, IN
Replied Dec 7 2022, 08:14

Hi Jeff!  I agree with Leo in regards to the market.  As long as the deal is right, it's always a good time to buy!  We manage over 1200 doors in the Indianapolis area.  Sometimes our investors are looking to sell their properties that are tenant occupied.  I'd be happy to add you to our list and let you know when something is available for you to take a look at.  We also manage lots of section 8 properties.  There are pros and cons to using section 8.  It all depends on the type of property you are looking for.  Class A, B, or C?  Feel free to reach out if you have specific questions you want to discuss.  In the meantime, I'll let you know of any tenant occupied properties we have for sale.  

Broker Indiana (#IRB14036355)

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Jake Knight
  • Property Manager
  • Indianapolis
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Jake Knight
  • Property Manager
  • Indianapolis
Replied Dec 8 2022, 06:56

I agree with Mark here, if you find the right deal do it.  Even better, since it's occupied you have immediate cash flow and it's a slow market right now.

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Melanie Thomas
  • Real Estate Broker
  • San Antonio
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Melanie Thomas
  • Real Estate Broker
  • San Antonio
Replied Dec 8 2022, 06:57

I would chat with property management companies in your area. They are bound to have reluctant landlords looking to dump properties! Good luck and happy investing!

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Easton Hill
  • Phoenix Arizona
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Easton Hill
  • Phoenix Arizona
Replied Dec 8 2022, 07:06

Ensure that you get an "estoppel agreement" from the tenant before closing. 

An estoppel agreement is a document that requires the current tenant to verify the lease terms, lease length, security deposit amount, and any other terms that they've agreed to with the old landlord. 

It ensures that you don't have any issues after closing! 

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Kyle Baker
  • Real Estate Agent
  • Indianapolis IN
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Kyle Baker
  • Real Estate Agent
  • Indianapolis IN
Replied Dec 9 2022, 11:55

Hey Jeff! I agree with a lot of what everyone has said here. Now is great as the competition is much lower. Around the holidays and the higher rates have really started to put the ball back in the buyers court. I am a local investor friendly agent to the entire Indy Metro market. If you need any assistance finding these properties feel free to shoot me a message. 

Real Estate Agent indiana (#46687)

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Drew Sygit#3 Managing Your Property Contributor
  • Property Manager
  • Birmingham, MI
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Drew Sygit#3 Managing Your Property Contributor
  • Property Manager
  • Birmingham, MI
Replied Jan 7 2023, 05:46

@Jeff Mora you're making the mistake of ASSUMING you'll have less issues with an already rented property and a paying tenant!

This mostly true with Class A properties & tenants, but your chances of success drop with the Class of property/tenant.

Have seen many BURNED buying Class C rentals in Detroit area. Buyer finds out after purchase some of all of the following:

1) EVERYTHING about the tenant and their payments was fake

2) There is a tenant, but they aren't paying, meaning you'll have to handle eviction

3) Tenant payment history frauded

4) Lease amount frauded

5) Tenant uses ownership change as excuse to stop paying rent

Here's a clause we recommend all our clients use when buying occupied rental:

Purchase Agreement Clauses for Buying Tenant-Occupied Rental

If you’re considering buying a tenant occupied rental property, there are some documents you want to acquire for review prior to
the closing. Once the closing takes place, the seller has zero incentive to cooperate with supplying them.

Not only do you want to obtain these documents, you also want time to review them well before the closing because unfortunately,
there’s always the potential that one, or several, of the documents may be fraudulent.

So, let’s go over each document and why it’s important:

1. Lease: this one should be obvious. A lease is a contract between the landlord and tenant. It spells out the monthly rent,
when it’s due, the length of the lease (or term), should contain clauses required by the federal and state governments, and
much more. Without the lease a buyer has no legal means to collect rent from a tenant or evict them for nonpayment.
2. Rent Ledger: this is a record of all tenant charges and payments. It proves if the tenant is current on their rent and their
history of whether they’ve paid on time or not. It should also show any security deposit collected, pet fees, cleaning fees
etc.
3. Tenant Contact Information: current phone number and email address are needed to be able to communicate with tenants.
4. Tenant(s) Government Issued ID: typically, this will be a driver’s license to prove the identity of the tenant(s). Without, you
have no way of confirming the occupants of the property are those named on the lease. Proper identification of tenants is
also needed if you want any chance of having local code enforcement write tickets against the tenant and not the owner.
5. Any Legal Action Documents: you’ll definitely want to know if the current landlord is evicting or suing the current tenant(s).
6. Tenant(s) Social Security Number: this should have been obtained by the current landlord to do a background check during
the application process. A new owner will need it if they want to pursue collection and garnishment for unpaid rent and/or
property damages.
7. Tenant(s) Employment & Bank Information: additional information useful for garnishment actions to collect unpaid rent
and/or property damages. Usually collected as part of the application process.

Fraud: let’s not pretend it doesn’t happen. Desperate sellers do desperate things. We’ve seen fake leases and rent ledgers, even fake
tenants - who were placed by the seller to backup the fake lease and ledger. So. it’s not uncommon to request proof of rent deposits
via bank statements and corporate/LLC tax returns. Of course, it can be almost impossible to validate any rents the seller claims they
collected in cash. So, sellers can also be asked to sign notarized affidavits personally guaranteeing the validity of leases and ledgers.

So now, let’s get to the clause to include on your purchase agreement to make sure you get all this information in enough time to
review it.

Seller(s) agrees to provide the following to the buyer within X days of buyer’s satisfactory inspection, but in any case at least
X days before closing: All rental leases, rent ledgers, tenant(s) valid phone numbers and email addresses, rental applications
& supporting tenant identification, income and asset information, any documents corresponding to any ongoing legal
actions pertaining to the property, leases, service contracts, etc., at least three (3) months of the most recent bank
statements for any account(s) rental funds were paid into and any company or corporate tax returns for proof of income and
expenses. Seller(s) also agree to sign an affidavit at closing personally guaranteeing the validity of all leases and rent
ledgers.

Now that may seem like a lot for a seller to agree to, but if they have nothing to hide, why would they not agree?

As always, none of this should be construed as legal advice and we recommend you consult a real estate attorney.