Each investment property has its unique sets of risks and rewards, and this is especially true if the property you want to purchase has existing rent-paying tenants. Most investors will not be interested in buying properties that have tenants in them because it’s easier to handle, update and move an empty property. Also, some investors don’t want to deal with the pressure of dealing with renters who don’t move at the end of their lease though they are supposed to.
But for those investors who recognize that buying a home already occupied with tenants can be beneficial, then here are some risks and benefits to consider before buying:
Lease Agreement Is Still In Place
Depending on the terms and conditions of the tenancy, the renter may be allowed to remain in the property after it has been purchased by a new owner. The lease does not expire when the property is sold. Leases are attached to the property rather than the owner. This means that if a Buyer purchases a house with tenants, the lease will remain “connected” to it for the stated lease term, and the buyer will need to honor the lease till it ends, or make mutually agreed upon arrangements with the current tenant.
If the tenant is not interested in changing his/her lease, the buyer will not be able to raise the rent, amend provisions, or evict the tenant just because they are the new owner. The only exceptions are where the termed lease stipulates that the owner (the property’s Seller) has the right to terminate the lease upon transfer of the property, or if the Buyer is purchasing a foreclosure, in which case it’s best to consult the state’s “notice to vacate” requirements.
The Good And The Bad
Buying an investment property with existing tenants is wonderful…sometimes. A tenant-occupied property usually means quick cash flow, no downtime looking for the perfect tenants to occupy the home, no perils experienced with vacant properties, and low risk of the property becoming unoccupied soon (especially if the tenants have been there for a long time).
Unfortunately, inheriting current renters forces you to rely on the previous landlord’s tenant screening process, which may or may not be enough. The Seller could have accepted almost any application (regardless of credentials) just to get the investment property occupied, or they could have a renter who doesn’t pay rent on time or at all. So, Buyers beware: a landlord may be selling their house to avoid having to deal with their problematic renters. And you may be inheriting a situation where you need to evict the tenant, and that can be super costly! At a minimum, be sure to ask the Seller for the property ledger. Finally, some landlords are admittedly undercharging rent, and as taxes, insurance and costs have gone up over time, the current rent makes the cash flow of the property not desirable.
One More Thing
Whether the Buyer-inherited tenants are on a month-to-month or a term lease, there are a few things you should do before closing on a renter-occupied property to make sure everything goes smoothly. First and foremost, they should consider sending a landlord introduction letter to your prospective tenants. They’ll need the Seller’s permission before buying the property. This will put the tenants at ease during the changeover and lay the groundwork for a positive landlord-tenant relationship. It will also allow the Buyer to include critical details such as where and how rent will be collected, as well as how tenants will be able to register maintenance issues.
Final Thoughts
Investors who would like to start receiving rental income right away can consider purchasing a renter-occupied investment property. Consider the lease agreement and the tenant screening criteria done by the Seller to qualify the current tenants before closing on a renter-occupied property. If the present tenants are month-to-month tenants, the Buyer has more flexibility in amending the lease and tenancy, as long as the Buyer follows state and local rules.
Sell With JCA Freedom Homes
If you want to sell your Dallas Fort Worth property with tenants in it, then look no further, sell it to us. JCA Freedom Homes will make you a fair, market-driven all-cash offer, taking your renter situation, good or bad, off your hands so you don’t have to deal with the hassle and stress of selling a property with tenants. We buy houses in Dallas Fort Worth and surrounding areas fast and can close even if your property has tenants.
If you are considering selling your Dallas Fort Worth rental property, +1 (972)737-7571″>give us a call today.