Before purchasing a property with a tenant currently living there,what are some of the questions/things i should look for to insure i do not have problems in the future?
Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
6y
Here's what I recommend when buying a property with tenants in place:
1. Obtain the rent roll and leases. Have the tenants consistently paid on time? What time is remaining on the leases? How long have the tenants been there (just through current lease period? Longer?). Are the tenants required to provide renter's insurance and did they provide it? What happens at the end of the lease term? How much notice must each party give for non-renewal? How do tenants remit rent (electronically, check)?
2. Obtain any screening information.
3. Inspection reports. Has the current owner been completing regular inspections? What were the findings? These indicate the tenants' respectful use of the property.
4. Security Deposits. Were they collected and where are they held?
And, you will want to walk the units. You can tell a lot about the tenants when you do so.
If any red flags appear, you can always make your offer contingent upon the property being vacant at closing. I like buying properties with tenants in place from (here's the clincher) - business people. The owner/landlord who actively recruits quality tenants and manages the property to the contract is the person who you want.
Congrats on your soon-to-be new acquisition. And, you're smart to be doing this research upfront.
@Brock Mogensen thanks for the response. How would i go about that,from reading around i thought that i could not make any changes to the lease agreement until the lease is up?
Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
6y
Good point. Depends on the length of the lease. If the lease is a yearly lease you'll most likely have to wait until it is due. Never hurts to consult with the tenant about possibly changes you'd like to make. Many tenants are willing to work with you on terms.
Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
6y
Here's what I recommend when buying a property with tenants in place:
1. Obtain the rent roll and leases. Have the tenants consistently paid on time? What time is remaining on the leases? How long have the tenants been there (just through current lease period? Longer?). Are the tenants required to provide renter's insurance and did they provide it? What happens at the end of the lease term? How much notice must each party give for non-renewal? How do tenants remit rent (electronically, check)?
2. Obtain any screening information.
3. Inspection reports. Has the current owner been completing regular inspections? What were the findings? These indicate the tenants' respectful use of the property.
4. Security Deposits. Were they collected and where are they held?
And, you will want to walk the units. You can tell a lot about the tenants when you do so.
If any red flags appear, you can always make your offer contingent upon the property being vacant at closing. I like buying properties with tenants in place from (here's the clincher) - business people. The owner/landlord who actively recruits quality tenants and manages the property to the contract is the person who you want.
Congrats on your soon-to-be new acquisition. And, you're smart to be doing this research upfront.
@Brock Mogensen great advice. The thing that concerns me is that the property will be getting managed by a property manger once i close on it. Do you have any experience/advice on transitioning a tenant over from dealing with the landlord to dealing with a property manger?
@Patricia Steiner This will be my second (out of state) property, first of which have tenants in place so i'am trying to due as much due diligence as possible. Your response was extremely informative and helpful, thank you!
Being that the property is out of state i will not personally be able to walk it. However my property management team and broker will be able to, is there any key things that i should ask the to look out for when walking the property?
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
6y
First, I would just assume the tenant is not as good as the one you would put in place and there is a higher liklihood they will become deliquent in the relatively near future and just account for that in your offer.
You should also view the property to see how they keep it up and preferably while they're there to see what kind of impression they give off. You should get the lease and rent ledger to see if they pay consistently on time. And preferably the screening report (although the tenant has to give you permission to look at this, at least in most states) and some sort of proof of deposit for at least the last month's rent (I haven't always been able to get this).
And of course, you want to do any normal inspections you would do as if the property was vacant.
Dalton, MA · Member since 2017 · 38 posts · 8 votes
6y
I have purchased two properties: the first one was empty but the second one is a duplex with two rental units, both occupied at time of sale. The property owner wanted to keep the tenants so I wrote a letter to assure her I would keep them both in place. There was another bid from a guy who openly disclosed he would give notice to the tenants. I got the property. Within one month, one of the tenants gave notice. The other tenant is still there. I only raised her rent $25. Having her there has been helpful since she knows the property. I drafted a lease (there wasn't one before) and she signed it. She pays on time every month. Don't assume the existing tenants are no-good-nicks.
Investor · Pekin, IN · Member since 2017 · 47 posts · 27 votes
6y
@Antonio Verderosa
We’ve done that. I like to speak to the tenants and have them explain their agreement to me. I like to make sure that what they say is in line with the info provided by seller. I also like to reassure them and tell them my plans and I usually want them to stay and usually they do.
Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
6y
Antonio
From an insurance perspective you should check for things that the Tenants are doing that might give you problems getting or maintaining coverage.
1. Do they have pets? Would any (such as an aggressive dog breed) cause you problems
2. Are any of the tenants running a business out of their unit?
3. If the building is built prior to 1978 has it been tested for lead paint (twice as important if there are children)
4. do they have a trampoline or pool in the yard
Those are a few items to add to your checklist as you do your walk through.
Good luck