I have seen listings where the description states "tenant would like to stay" and their rent is below market average or they have a 1/2 year contract with rent below market value. What would be positives about having a tenant in place versus buying another property and vetting the tenants out? Anyone have ideas on this?
Chandler, AZ · Member since 2020 · 295 posts · 272 votes
6y
I would definitely want to read the rental contract and look at the payment history and deposit before I agreed on a purchase price. As stated, there is a very good chance the situation is sub-par. I would still move forward with the deal, but account for in my offer any likely lost income due to sub-market rents, likelihood of Covid non-payment, etc...
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
6y
Hi @Account Closed, this is a good question you've asked! The key benefit is that you've reduced the risk of vacancy in your initial few months of ownership.
The downsides are that you are purchasing a lease contract fully subject to the previous landlord . . . their systems, their tenant screening, their everything. So, if they happened to be excellent at their craft and scrupulous (the VAST minority) then great! If they happen to cut corners and have placed a bad tenant, OR if they placed a perfectly good tenant and set bad habits, OR if they did something like set an expectation of below market rent with a perfectly good tenant then you get all of that.
So, reduced risk with all the seller's habits wrapped up in it, or increased front-end risk with none of that.
It's not always that simple, but sometimes it is :)
Chandler, AZ · Member since 2020 · 295 posts · 272 votes
6y
I would definitely want to read the rental contract and look at the payment history and deposit before I agreed on a purchase price. As stated, there is a very good chance the situation is sub-par. I would still move forward with the deal, but account for in my offer any likely lost income due to sub-market rents, likelihood of Covid non-payment, etc...
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
6y
I've sold several units for landlords with tenants in place. For my clients, many times selling has nothing to do with tenants. The landlord is moving from the area and doesn't want to hire management, divesting to retire or buy a bigger house for his family, or just decided he wants to simplify but doesn't want to have to force the tenant out. Some just want to make sure they're getting the rental income through the sale period or afraid of it sitting vacant. For others, we've offered tenants free rent for a month if they leave or cash for keys as we know we'll get more money and competition if it's vacant, but some tenants just want to finish out their lease and hope new owner will let them renew.
The pluses to investor are usually you get a better price, less competition because it would have sold higher to owner-occupants if vacant, and you can either raise the rent on the tenant at end of lease term or have them vacate and find higher-paying tenants. If it's a problem tenant, that's different, but a sale where it's a landlord who can prove timely payments and decent tenants who want to stay can work well for all -- landlord sells, tenant gets to stay at least thru lease term, and investor gets a solid deal with potential for rent increases in the future.