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Buying a Tenant-Occupied Property: Essential Tips and Considerations

A charming house surrounded by a well-kept yard, featuring lush green grass and colorful flowers.Purchasing a rental property with current tenants isn’t just convenient—it’s a valuable opportunity. Skipping the renovation, advertising, and tenant screening process is just one of the perks. However, it’s important to realize that buying a property with current tenants also brings its own set of challenges. To successfully seize this opportunity, it’s important to learn the process thoroughly and be aware of what to avoid.

Conducting Due Diligence

The immediate cash flow and turnkey nature of acquiring a leased property can make it seem like a great choice for your next investment. However, it’s crucial not to assume that just because a property is leased, it’s in good condition or the tenants are responsible and pay on time. Empower yourself by doing proper due diligence to make sure the leased property is a smart investment.

One of the primary documents to review when considering a leased property is the existing lease agreement. If you buy a property that has tenants, you automatically assume the lease agreement they signed with the prior landlord.

Given that the lease is binding, you’ll need to follow its terms until it concludes or is due for renewal. There are instances when the tenant has agreed to end the lease once the property is sold, but this is not typical. Most of the time, it’s important to know which existing agreements will govern your new investment.

Assess tenant payment history and lease terms

Along with examining the lease documents, it’s vital to screen the current tenants carefully before buying the property. Approach the screening as if the tenants were new applicants by performing thorough background and credit checks, and verifying their payment history and references.

Additionally, confirm with the current landlord that the tenant has paid the security deposit and that it’s kept in a separate account.

Inspecting the property with tenants in place

Along with checking your tenants, it’s essential to thoroughly assess the property. To properly assess the current condition of the property, an in-person inspection of the house and yard is necessary.

Since tenants are currently living in the property, it’s important to be mindful and assess how well they maintain the house and yard. Be sure to ask the current owner about any insurance claims, past or present, particularly those caused by tenants. Multiple insurance claims could make it harder to secure insurance on the property after the sale.

If everything turns out fine, you might have secured an excellent rental property with existing tenants. Tenant-occupied or not, your new property must be kept in livable condition, with safe, functional electrical and plumbing systems, and structurally sound buildings. Even though your new rental may already have tenants, once the sale is final, you are entirely responsible for the management and maintenance of the property.

Property management can be a time-consuming task, especially when managing it on your own. Why not leave the day-to-day property management to the professionals at Real Property Management MetroWest-Worcester? For more information about our property management services in Marlborough and nearby, contact us today or at 508-329-6000.

Originally Published on March 12, 2021

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