Purchasing Property with Tenant In Place

[Donovan Plummer]

Hi BP'ers - I am seriously considering making an offer on a property that has a tenant in place. The current lease expires 06/2016 and the CAP rate is is in line with my preference. I am a lot more comfortable vetting my own tenants. So I am a little bit uncomfortable making the deal with a tenant who is pretty much an unknown quantity, at least from my perspective. I welcome all constructive feedback on the pros and cons of making a deal with a tenant in place. Thanks.

[Matt R.]

This is a good question. I can share my experience. Some like and some don't. I sold one house with a tenant paying higher than market rent and that was part of the reason it sold. I bought another one vacant and that was part of the reason I bought it. I could have paid a lot less for an identical property with a tenant included. (under market rent). So it depends I think on who the tenant is and what is the rent in some cases. 

Many investors do not like to buy homes with tenants for various reasons and one big one is yours. Or they want to rehab or drastically raise rents etc...Perhaps if you can do some dd on the tenant and that could help. Keep in mind many areas have high turnover and the tenant issue resolves itself. In my last case they had been there 7 years but the rent was $500 under market vs the vacant one. I did not have the stomach to kick them out just so I could make a buck. Good luck!