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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.Acquiring a rental property with tenants in place is not only convenient but also a promising 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. Navigating this unique opportunity successfully requires learning about the process and understanding potential pitfalls.

Conducting Due Diligence

The quick cash flow and turnkey setup of buying a leased property may appear to be an attractive choice for your next investment. However, you shouldn’t assume that a leased property is well-maintained or that tenants are punctual with rent payments. Instead, conduct thorough due diligence to confirm that the leased property is a solid investment.

The existing lease agreement should be one of the first things you review when considering a leased property. When buying a tenant-occupied property, you inherit the lease the tenants signed with their former landlord.

As the lease is legally binding, you’ll need to be comfortable adhering to its terms until it ends or is up for renewal. Occasionally, the tenant may agree to terminate the lease after the sale of the property, though this is uncommon. Most often, it’s crucial to understand the existing agreements that 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. Handle the process as if the tenants were applying anew—run detailed background and credit checks, and verify 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 gain a clear understanding of the property’s condition, you’ll need to see the house and yard in person.

With tenants already occupying the property, it’s essential to be careful and evaluate how well they maintain the home and yard. Be sure to ask the current owner about any insurance claims, past or present, particularly those caused by tenants. Excessive insurance claims may complicate getting insurance for the property once it’s sold.

If everything checks out, you may have found a great rental property that already has tenants. Whether your new investment includes tenants or not, you’ll need to ensure the property is habitable, with properly working electrical and plumbing systems, and structurally safe buildings. Even if tenants are in place when you buy the property, once the sale is done, you are responsible for managing and maintaining it.

Property management can be complex and time-consuming, especially if you’re doing it yourself. Why not delegate the day-to-day property management duties to the experts at Real Property Management North Point? For more information about our property management services in Cumming and nearby, contact us today or at 404-905-9455.

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