When buying an investment property, is already rented out better?

Question

When buying, say a duplex, is it better to buy one empty or already rented out?  What are the pros and cons... I can think of a few...

Pro:  Already rented

Conn:  You have to follow the current lease agreement

Question:  Will I be able to thuroughly inspect the property, i.e. behind the washer and dryer if there are renters in there?

What are some real pitfalls here?

Kelly N. · Answer

Hi Jeff,

Our purchases have always been with tenants in place, and I prefer it that way.  Sure, you have to follow the lease but only until the lease is up.  Verify that they are in good standing with the current landlord and that the leases are agreeable enough- study them carefully.  One landlord had included that the tenancy would automatically go month to month at the end of the 12 month term at the same rate and that the rent wouldn't be increased if they signed for a new 12 month term.  You will get the prorated rent for the month that you close and make sure their security deposits are transferred to you at closing as well.  Tenants are usually not happy to have a change of ownership in the middle of their tenancy, do your best to put them at ease by confirming that you will honor their lease and what the terms are, and make sure they know how to pay you and contact you about repairs or other issues.

Plan on finding new tenants when the leases are up- so far with 10 units we have had only 3 renew their leases- one was month to month, one ended up having all kinds of trouble paying towards the end of his lease term with us, and a third ended up moving into a larger apartment of ours (would have stayed in her apartment but didn't renew before I rerented it).

We bought a 4 plex where the prior landlord didn't bother with the move in checklists so we kind of have to wing it as far as damages go when they move out.  The first one had a couple of minor issues we deducted from the deposit and quite a few we didn't, the second had nothing worth deducting, and the third one I am due to walk through in a few hours with the vacating tenant.  The 4th is rented through April and was in the best shape.

For tenants that want a new lease, I have them fill out an application and I pay for the background check- not their fault that I bought the place and they have to go through screening again!

We are waiting to close on two more properties with 6 units and 3 will be vacant when we take possession and it is making me twitchy but I am optimistic it will all work out- there are very few apartments available in the area at the moment.  I do like that it gives me a chance to fix anything that might be wrong without a tenant in place- one unit recently passed the city inspection but there are a couple of things I want changed anyways, the other two have a bit of work to do to get them ready to pass inspection.

Hope that helps,

Kelly

Nicole A. · Answer

I have bought a duplex with renters. The landlord will tell you all day long that the renters are good people and pay. If they can't show concrete proof of the consistent, non-late payments, the renters probably aren't that great. If the renters tell you long-winded stories/explanations especially when you didn't even really ask, take note as it's probably a red flag that they're full of excuses.

If the tenants are currently month-to-month, you could request the landlord have everyone vacated before you close.

If you keep the tenants, be sure to be firm but fair. They will probably test you (especially if this is a C class type area). Start the eviction process *as soon as* they're late. Don't buy the excuses and promises that they'll pay in 2 days or that the "check is in the mail".

You have the right to inspect. Depending how much stuff is around obviously makes it more difficult. It shouldn't be hard to check behind a washer/dryer or check under sinks and things like that. Just look with a critical eye, but don't expect perfection.