Buying a rental with a tenant in place - thoughts?

Question

I've seen a decent amount of properties that are for sale that are already tenant occupied. I would like to hear experienced people's thoughts on this situation, so what do you all think? I've heard some beautiful stories and some horror stories

Drew Sygit · Answer

Challenges of buying tenant occupied:

1) How well was the tenant screened?

2) How is their payment history?- If a PMC involved: you can probably get a Rent Ledger- If a DIY landlord: you're lucky if you get a spreadsheet Rent Ledger - which I'd be suspicious of. What bank statements showing rent deposits can the seller share?

3) What the history of their maintenance requests?- Are they abusing the property or "needy"?

4) How needy or abrasive is the tenant in general?- A tenant that is constantly a pain to deal with is NOT a good tenant, even if they pay rent on time.

5) What side deals does the seller have with the tenant?

When you take over, recommend sending a Questionnaire to tenant to confirm terms of the lease and inquire about deferred maintenance issues.

Now, don't misunderstand, these are just concerns and may only be an issue 20% of the time (or less).

To cover some of them you can require the seller to sign reps & warrants at closing, making them personally liable for any misrepresentations.

Also, it is VERY COMMON that you won't be able to tour a tenant-occupied property until your inspection. - Tenants do NOT want dozens of potential buyers intruding on their HOME and disrupting their lives.

John Morgan · Answer

I've bought 35 SFR with tenants in place. They have all been great except for one I had to kick out after 3 years. I tell them all when I first buy the house they are welcome to stay forever. I value low turnovers so I treat my tenants great and keep them in for cheap. This keeps it simple and easy to self manage, and  I rarely have turnovers which saves me a lot of money. So don't rule it out!

Matthew Crivelli · Answer

Inspect the unit and to see how the tenant is living, that alone will give you insight. Also ask for proof of rent payments for the last 6-12 months. Like Brian said, it can go either way.

G. Brian Davis · Answer

It can go either way. A good tenant with a solid payment history can be a real advantage. On the other hand, inherited problem tenants can become your problem too. I'd spend time reviewing the leases, payment history, and lease terms before deciding. That's usually where you'll learn the most.