Buying Investment Properties with Existing Tenants

Tenants are lifeblood for any landlord. These are the people who pay the bills and make it possible for the landlord to provide for the family. It's easy to vilify tenants. There are enough of them who mistreat properties and provide splitting headaches for their landlords. However, many of these experiences are truly the fault of the landlord. He is the one who has the responsibility of conducting proper screenings before letting anyone reside on his property. He is the one in charge of drafting strong leasing agreements.

As a rule, most landlords go after distressed properties that have been left vacant. However, opportunities do arise where landlords may want to purchase a property that still hosts a number of existing tenants. Obviously, these tenants may not have been put through the vigorous screening processes that are the norm for any responsible landlord with a good head on his shoulders. They also do not have a leasing agreement with the potential new landlord. These conditions could easily pose a risk.

The first thing to keep in mind is that these existing tenants possess very clearly-defined rights. The new owner needs he tenant's consent before he can modify the leasing agreement with that person. This means that it is against the law to kick out these people before their lease is up. It is also illegal to raise the rent on them. The landlord is obligated to honor every single classes in their lease with the prior owner of the property. Only possibly foreclosure can void the agreement between the tenant and the prior owner.

There are good and not so good things about inheriting existing tenants. One of the great things is that the landlord already has paying tenants without having to do any fixing up or showing of the property. The purchase will generate instant cash-flow.

The negative side of the deal includes the fact that the landlord can very easily end up stuck with bad tenants that must be taken care of until their leases expire. The prior owner might have been trying to load up his property with anyone he could find just to make things look better. The bad tenants may have been the reason the prior landlord decided to sell the property.

There are many ways that the buyer can protect himself. The first thing to do is to copy every agreement and lease as a condition of the purchasing contract. These should be reviewed and approved before the deal is closed. The names of the various tenants can be run through databases to find anything suspicious. However, the prospective landlord cannot pull their credit reports. That permission must be specifically granted in writing by the tenants. The final step is to look over the last two years' worth of expense and income statements to find any deadbeats living on the property.

If there are no written leasing documents, the landlord needs to have each tenant fill out short estoppel agreements. These agreements should specify ownership of appliances, rent amount, duration of lease, amounts of deposits and that sort of thing. The seller and tenant should sign and date each agreement. This agreement is a good excuse to speak with the tenants and explain that their existing agreements will be honored. They need to be put at ease. Once the sale closes, the landlord can distribute an information packet detailing contact information, how to pay rent and other things.

Buying a property with existing tenants can be a little more difficult than purchasing a distressed property. However, following these instructions can make things much easier.