Buying a house with tenants in place

[Lolo Druff]

I'm thinking about submitting an offer on a property, where the selling agent is also the property manager. They said the tenants pay on time every month, and they have never had any issues. If we open escrow, what do I need to ask for regarding the tenants leases? Do I need to get an estoppel certificate?

[Theresa Harris]

Get copies of the lease and proof that they are paying on time and yes get an estoppel certificate.  Also include the security deposit and prorated rent.  You are going to have to refund them 100% of the deposit when they move out because you have no idea of the condition of the home.  Also do you plan on continuing to use the PM?  If not, then the seller has to make sure they pay all of the costs associated with breaking their contract with the PM.  If you do use the PM, sign your own contract.

What did the house look like when you went in?  That will give you an indication of what they are like.

[Gregory Schwartz]

@Theresa Harris is spot on. I've also asked for the current tenant's original application. How much do they make, credit score, rental history? If I'm buying an investment property and the current tenants dont meet my screening criteria I need to know that up front.

I usually assume that the current tenants either weren't screened or don't meet my criteria. Its better to be pleasantly supprised than utterly disappointed 

[Nathan Gesner]

Quote from @Lolo Druff:

Just like turn signals, you should always trust, but verify that the seller is telling the truth.

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.

[Adam Bartomeo]

On a SFH home you can ask but you would be lucky to get a lease or rent rolls. Your best bet is to get an estoppel that verifies their lease dates, rent being paid, security deposit, and advanced rent.

[Preston Dean]

Hi @Lolo Druff

With any property that is being sold and is tenant occupied I would always proceed with caution. The worst thing you can do is inherit a bad tenant and then you'll have to go through the eviction process. 

If you can do you property due diligence then I would say go for it

When you are under contract you should receive a copy of the leases. If you go through with the purchase make sure that the security deposits are transferred over to you at closing!