Vacant or Rented, which do you prefer as an investor?

Question

When you are shopping for a rental property do you look for something that is already renting or do you prefer vacant unit so you can bring in your tenant type.

Jenny Roman · Answer

@Nitanga Jean De Dieu @Dawn Brenengen @Jesse Lynch  I must agree with both sides. Vacant , the pros of selecting a tenant that could be recession proof or have stable employment and good liquidity. Above all you will make sure the rents are at market rent or higher. In today's market and with the current uncertainty, selecting a tenant should be conducted as an interview for a job. I would recommend taking before pictures and do a quick walk through to avoid later  headaches.

Occupied- As a lender we like to see long term leases in place with a security deposit, first and last of course and length of leases. When purchasing an occupied unit we need to see at least 1.25 DSCR. Since the tenant/ rent is what will carry the mortgage for us to lend and/or refinance.

Jesse Lynch · Answer

I will add this caveat:  If it's a larger building with professional management, I wouldn't want a completely empty apartment building that I have to fill (or it would definitely affect the purchase price/game plan).

Dawn Brenengen · Answer

@Nitanga Jean De Dieu Yes, you would want to review leases, and I would have them sign an estoppel that details out the terms of the lease as you understand them, and make sure the tenant agrees.  You don't want to get into a situation where the tenant says the owner agreed to reduce rent or says they have a higher security deposit than the lease says.

Dawn Brenengen · Answer

@Nitanga Jean De Dieu Definitely vacant.  I don't want to inherit someone else's problems.  I like to screen my own tenants.  That being said, I have bought tenant occupied properties too.  Some are fine, some are not.

Jesse Lynch · Answer

Yeah, I'd say vacant all day long.  I inherited a tenant in my Rochester, MN duplex that definitely wasn't "trained" the way I would have.  Not a nightmare, but definitely got away with A LOT with her old landlord, and now I seem like the bad guy because her expectations were set by somebody else.

Brian Goodling · Answer

I personally prefer a place that already has a tenant in there at or slightly under market rent. I am a long term buy and hold, and its comforting to me to know that I will have cash flow right away rather than stressing out over whether or not I will have a tenant asap. The first deal I did had two college students in it paying market rent and I just took over their existing lease for 6 months and played by the rules they were using before. I got the security deposit transferred into escrow with my PM for the place and it was business as usual after that. Even if there were tenants in a place that was renting under market rent, it still gives me comfort to know that I can cover all expenses with their rent and then it gives me more time to put a plan together to see what I want to do. Am I going to do any rehab? Will I just raise rents and see what happens? This way I'm not trying to do it all before a tenant moves in especially since I'm still working full time.

What do I care if a tenant is paying $100/mo under market if the lease is up in 3-6 months? I lose $300-600?  Who cares, thats pennies. This also gives me time to collect some extra CapEx and/or repair money from the previous tenants as well as potentially use some of their security deposit for repairs that need to be done. Saves me more money from my pocket at the end of the day.

Im sure others are different, but its the comfortability and less stress that comes with inheriting a tenant and being able to plan logically and not emotionally for what I plan to do.

Nick Stageberg · Answer

It's a rare circumstance where I prefer to I prefer to inherit a tenant with the property, almost always prefer vacant.

Nitanga Jean De Dieu · Answer

@Dawn Brenengen

Those tenant occupied, do you go through their documents once you acquired the property

Caleb Brown · Answer

Depends, for the most part vacant. If I know the owner or PM who placed the tenant it'd be a different story.

Vacant or Rented, which do you prefer as an investor?

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