Purchasing my first investment property. Already Has a tenant
Chicago, IL · Member since 2016 · 3 posts · 1 vote
Purchasing my first investment property. Already Has a tenant
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Real Estate Agent · Tampa, FL · Member since 2016 · 131 posts · 47 votes
10yLooks decent... except for the renter.
I would do your due diligence on the renter during your inspection period, get a lease in place, and perhaps have the tenant put a deposit in escrow that would be released to you at closing.
If the tenant does not qualify, or there are big red flags. Don't close unless the home is vacant. Could be a giant headache to evict and have 30-90 days with no revenue coming in.
10 Replies
- Rental Property Investor · Carlsbad, CA · Member since 2014 · 127 posts · 28 votes10yWelcome Cristiano Botticelli ! You've come to the right place, no doubt. I invest out of state myself so I can kind of relate, but am no expert in your market or possibly the market you're investing in. Where are you investing again? As I post this I can't see your post to double check. Anyways, do you know why the previous seller is selling if they have a renter and can cover the bills? Next, just covering your mortgage and association dues isn't going to guarantee you the chance to put money in the bank. I'm assuming your payment includes the escrowed property tax and insurance but beyond that you're going to have other payments like possibly property management or any other usage expense. The good thing is the property is relatively new so maybe some cap ex things are ok, but things like appliances could be nearing their end if it's been a rental from the beginning. Then on top of that you will probably have to get it reinspected and could require some updates as well. I invest in purely cash flow and not just the chance of it plus maybe appreciation. So I would just double check your numbers and plan conservatively, because in my experience it rarely turns out better than expected. Bruce
- Residential Real Estate Broker · Winston Salem, NC · Member since 2011 · 345 posts · 120 votes10y
Why do you want the building? Have you run it through the rental calculator to see if it's the type of return you want? Buy and hold calculator.
I highly recommend to talk to your agent and an attorney in the area to get a grasp on landlord/tenant laws, eviction process etc. You should also check out the association.
Good luck!
- Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes10y
Originally posted by @Cristiano Botticelli:
Im really excited to write this post. I joined bigger pockets two weeks and today Im getting preapproved to make an offer on a townhome out of state. I need some advice and direction. Im sure some of this info is covered and I will do a search on my own, but I still want to see what others have to say.
So here's the situation. Its a newer property built in 2008. Currently has a tenant. The tenant will stay. They are currently paying a little less than the rental market in the area. The rent will cover my monthly payment, association fees, and I can put some in the bank.
I have zero experience with tenants or with leasing agreements. I hate to jump into something without the proper knowledge. If you have any advice from past experiences, I certainly appreciate your feedback
If the inherited tenant is a good tenant then no problem, but run them through a background and credit check yourself as a prerequisite to keep them. Trust but verify is the best policy in these situations.
Also, make sure that all of your expenses will be covered as well. Run it though the BP calculators as was mentioned above. Get the real expense data verified by receipts from the seller. Again trust but verify.
Then take a look at the lease and have someone with experience that you trust look at it as well. Consider what you are getting into. Many leases have clauses where if the property switches ownership the new owner has the right to cancel the lease and the tenant has so many days to vacate the property. It would be your call to utilize that or not.
Best of luck and reach out with any questions! I'll send over a colleague request.
- 10yMindy JensenPro MemberBiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
Welcome to BiggerPockets, @Cristiano Botticelli.
What is market rent and what are they paying? "A little less" means different things to different people.
I'd ask the current owner how they screened the tenant to get them into the property. If they "went with their gut" then you should be leery. After you purchase any property with existing tenants, give them a run through your own tenant screening criteria to see if they would pass. If not, you will most likely have to allow the lease to run out, but you wouldn't necessarily have to renew the lease at the end.
Read How to Screen Tenants for more information about what to look for.
Have you actually seen the property? I would schedule a trip to view it. You're paying tens or hundreds of thousands of dollars, you should visit it to make sure it is what you think it is.
When does the current lease run out? What sort of emergency fund do you have in place? (If your answer is nothing, think about how you would pay for a new furnace if this one broke. Or a new water heater. Or both, if they broke at the same time...)
- Member since 2016 · 13k+ posts · 12k+ votes10y
post all the numbers for the property and experienced landlords will evaluate before you get in too deep.
Inherited tenants can be good but often are a landlords worst nightmare. You need to find out every detail you can. How long have they been a tenant, are they in a term lease etc.
- Chicago, IL · Member since 2016 · 3 posts · 1 vote10y
Hey guys thank you for all the replies. I will try to answer all of the questions as best as I can.
The property is in Florida in the Tampa area and I am in Chicago.
So @Bruce Scannell asked why the owner was selling, especially with a tenant. According to the listing agent, the owner purchased the unit to live in but had to relocate because their job changed locations. The owner rented never intending to be a landlord or have an investment property. It was just temporary and so they have decided to sell
@Jeff Valentino I want the property because Tampa is growing at the moment, but also because we vacation there at least once a year and love the area. My 5 year plan is to become financially independent of my current employer and eventually move down to that area. I feel its a good time to buy and has a lot of potential for a flip.
The tenant currently is not under a lease. Its month to month and the rent is $1300. Way too low. So I would do my own background check on the tenant and negotiate a 1 year lease with a rent increase. The agent sent comps for rentals and I can easily get $1450. I would list it a $1500.
I have not seen the property in person. Before I make an offer I would fly down to inspect it myself. I work full time and make a good wage. While I dont always have as much as $5000 set aside, I usually have additional income throughout the month. I mentioned in the previous paragraph that the lease is month to month. The tenant is paying $1300. I would likely raise to $1500 based on comps
@Thomas S. So the numbers look something like this.
Purchase price $170,000, taxes $3000, insurance $1200, Association Fee $130. Depending on how the loan works out, Im anticipating paying $1250 and renting for $1500
To some of the experienced investors, Im guessing you will say the margins are not large enough. Im not dead set on this property, but it can serve a dual purpose if I do decide to move down there. In the event of a long vacancy, I can handle the mortgage. It would be difficult but I can do it if I have to.
- Real Estate Agent · Tampa, FL · Member since 2016 · 131 posts · 47 votes10y
Looks decent... except for the renter.
I would do your due diligence on the renter during your inspection period, get a lease in place, and perhaps have the tenant put a deposit in escrow that would be released to you at closing.
If the tenant does not qualify, or there are big red flags. Don't close unless the home is vacant. Could be a giant headache to evict and have 30-90 days with no revenue coming in. - Member since 2016 · 13k+ posts · 12k+ votes10y
I would strongly recommend not having a term lease. Stay with M2M for this tenant and future tenants. A lease will not insure a tenant stays or guarantee receipt of any payments owed. A M2M will afford you, as the landlord, maximum flexibility and control over your investment. You will have the security of terminating with one months notice when a tenant goes bad.
I only have M2M leases.
You also need to make it a priority to study and understand all the state landlord tenant regulations. It is your responsibility as a landlord to know the regulations to be able to properly operate your business. Ignorance is not an excuse.
- Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes10yCristiano Botticelli are you planning to manage the property remotely yourself? If you need a local PM, you can deduct 8-10% of the gross rent. How is vacancy going to be covered if the tenant moves out in a month or two? Who has the security deposit from the renter? Make sure you get that from the previous owner and have the tenant sign a letter stating the amount given. Get a copy of the lease or have them execute your lease as soon as you take over. Any pets?
- Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes10y
Christiano,
Chicagoan here, now living in Chicago's southernmost suburb - Tampa. You'll see what I mean by that when you move here. 2008 was the tail end of the Chinese drywall debacle down here. You need eyes on this. 1200 - 1500 a month on a townhome sounds like a pretty nice area. Is it near Westchase?
And yes, as Robert above said check out the tenant. Evictions are a PAIN here.
Tim
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