Buying a property with Existing Tenants

Each investment property has its unique set of risks and benefits. This is especially true if your property already has rent-paying tenants, allowing you to begin receiving rental money immediately. There are complexities to buying a property with a tenant-occupied rental. Every owner should be aware of the drawbacks and advantages of inheriting tenants with their new investment property.

Leases are still permitted:

While a lease is a formal arrangement between tenants and a landlord, it does not end when the property is sold. Leases are connected to the property itself, not just the owner, just as easements and other conditions that are regarded to "run with the land." This implies that if you buy a property, the lease remains "connected" to it, and you won't be able to raise the rent, change conditions, or evict the tenant just because you're the new owner.

The only exceptions are where the termed lease states that the owner (the property's seller) has the right to terminate the lease upon transfer of the property, or if you are acquiring a foreclosure, in which case you should consult your state's notice to vacate rules. If you genuinely do not want the renters in the house–whether because you want to live there yourself or want to start over. You may make an offer that is contingent on the house being unoccupied at the time of closing. In this case, the seller has the legal responsibility of breaking the lease.

Enter into a new contract:

If the existing tenants are on a month-to-month arrangement rather than a term lease, you have a few additional choices for changing the renting situation. You have the option of asking your new renters to sign a new lease agreement or raising the rent as needed–as long as you provide them the notice required by state and local regulations.

This may safeguard you and your investment while ensuring that you and your new tenants are on the same page. Treat this like any other lease signing. Read the lease conditions carefully to ensure that your renters do not engage in any lease-breaking behavior based on the assumption that it was previously permitted.

The good and the bad of existing tenants:

Buying a property with current renters is excellent in principle. This implies instant income flow, no downtime looking for the perfect tenants to occupy your new property, and a low chance of the property being unoccupied shortly.

Tenant screening is critical for safeguarding your investment. Unpaid rent, property damage, and protracted eviction lawsuits are ways that poor tenants may cause trouble. The seller might have accepted any application (regardless of credentials) to get the investment property listed as occupied, or they could have a long-term renter who refuses to pay rent on time or at all. Buyers beware: a landlord may be just selling their home to get rid of their problematic tenants by selling it to an unwary investor. Unfortunately, inheriting current renters means relying on the prior landlord's tenant screening procedure, which may or may not be enough.

CONCLUSIONS:

For investors who want to start receiving rental income right away, buying a property with tenants is an exciting option. Consider the lease agreement and the tenant screening criteria employed by the seller to qualify the present tenants before closing on a tenant-occupied property. Continue with a property owner introduction and establish an agreed estoppel agreement if you agree to the lease conditions and feel confident with the present tenants. If your existing tenants are month-to-month tenants, you have more flexibility in altering the lease and tenancy, as long as you follow state and local regulations. Contact local property managers and real estate investing clubs for additional information about rental properties in your region.