Buying investment property with tenants good idea?

[Paco Rabi]

I’m planning to buy an investment home that is already rented. The tenant lease expires in a year. What do you think? Should I go for it?

Thanks!

[Nathan Gesner]

Quote from @Paco Rabi:

If you decide to make an offer, be sure to ask for an estoppel. I will explain below.

Buying with tenants can be good or bad. Are they paying market rents, or close to it? Are they caring for the property? Do they have a strong written agreement? Any lease violations or concerns?

You have to consider the numbers, then compare that to reality. If market rate is $1,500 and tenant has agreed to pay that, then the numbers look good. But the reality may be that the tenant hasn't paid in two months, or pays 20 days late every month, or their dog is destroying the carpet, etc.

There are literally hundreds of threads explaining the dangers of buying a property with existing renters. Use the search bar and spend an hour or two reading.

ESTOPPEL

Your offer to purchase should include a requirement that the Seller provide all documentation and agree to sign an estoppel certificate (also called an estoppel form or agreement). The estoppel is a form filled out by the tenant, then confirmed by the Landlord, and then accepted by the Buyer. It's supposed to ensure there are no surprises after closing. For example, I often see Buyers purchase property thinking there is a $1,000 deposit but then the tenant claims it was $2,000 because they paid the last month's rent. How will you know? An estoppel certificate fixes this problem.

Some things it may include:
1. Tenant name, contact information, and address
2. Occupancy date
3. Is there a written lease? If so, review it to ensure it matches the estoppel certificate
4. Are there any modifications to the written lease?
5. Are there any verbal agreements or arrangements between the current Landlord and Tenant?
6. Current lease term (expiration date, month-to-month)
7. Current rent rate
8. Rent due date
9. Security deposit amount
You can find plenty of examples by searching for "tenant estoppel certificate doc" or exchanging "doc" with "pdf" for more options.

Here is an example and explanation: Sample Estoppel

Some have a lot of legal jargon but this document does not need to be so detailed. This is an essential tool for anyone buying a tenant-occupied property.