Buying SFH or Duplex that is tenant occupied

[Nicholas Gallinot]

Hi everyone!

I nervously asked a question on here a week or so ago and I got some very positive vibes from the quick answers/help I received, so here goes round 2. I am in the 'research and money saving stage' of my REI career and I feel overwhelmed at times by how many ducks I need to get in a row in order to comfortably take that first plunge when the time comes. My last question dealt with looking for a property manager and other members of my 'team' that I should have in place as I get started, and I now think I have a pretty good idea of how to go about taking care of that.

My new concern is dealing with the occupancy of the property at the time of purchase. As I had said in the past, I would like to focus on primarily buying multifamily homes (duplex or triplex) or if the situation happens to be perfect I would definitely consider a SFH. So assuming I am going to be tight on money at the time of purchase, and if I go about scrounging up enough cash to put in the necessary down payment/closing costs/any other upfront money needed, would it be beneficial to find a property that is already tenant occupied? I feel as if getting instant cash flow, even if it is just until the end of their current lease, would be very beneficial to getting my footing. Otherwise, I will have to have even more money saved up to cover the vacancy until filled, correct?

I understand there are some risks that go with having tenants already in place, such as they weren't screened by myself or my PM, they may not fully agree to the terms of my lease as opposed to the previous landlord, current rent price may not be where I want it, etc.  I'm just wondering if it is better to have these risks versus a vacancy of an undetermined amount of time that could end up costing more than I could afford and putting my out the game super early. 

I know its bit wordy for a simple question, but just trying to explain my thought process.  Thoughts? 

[Jeff G.]

My first property was a duplex which had existing tenants.  Both those tenants are still in that property 2 years later with zero problems. I really liked the idea of having tenants in place initially as it was the peace of mind knowing that finding tenants is one thing I didn't need to tackle right off the bat.  Tenant screening can be overwhelming and stressful.  BUT the previous property owner had a great reputation in town as being no only a good landlord but an exceptional property manager for other investors.  So I knew there was a high likely hood that the tenants would be just fine.  

It's one of those things that is going to be so situational based that you will not get an answer on here that will be specific to your situation when the time comes.  Just look at every house based on the numbers, if a property presents itself that has tenants ask the existing owner how he screens them.  Despite the best screening everyone will end up with poor tenants sooner than later.  If you have to ride out an existing lease with crappy tenants to get an amazing house, that is a small price to pay.

As a newer investor who went through all the thoughts you are going through my advise is this.  Don't worry about every minute detail, you cannot be paralyzed by the fear of the unknown or all the possibilities of every situation that may happen.  Save your money, start looking at properties now so you have a feel for what you like and don't like.  Build a relationship with a realtor and tell them your time line for investing and what your plans are for the next 3-5 years.  Analyze properties based on current rents in your area that you see for sale.  This will give you experience to know how properties cash flow at different price ranges in your market and be confident when you are ready to make a move that your numbers are solid.  Read books and listen to pod casts every day!  Absorb everything you can from this sight, you will not find a better one out there with more people willing to help you out.  Then when you have the funds to put down on a house and you find one that the numbers are solid on JUMP in with both feet and join the ride.  Its can be scary and overwhelming and intimidating but it is amazing and you will figure stuff out as you go through experience and by relying on the vast knowledge base of the people on BP.

Good luck!