Pros and Cons of Already Occupied Rental

[Harold Henderson]

I've come across a property that meets major criteria, ie location and price. One potential bonus is that it's already occupied with tenants. I must admit that that information set the warm fuzzies ablaze as finding tenants would be one less thing to worry about for my first investment property. On the one hand, it seems like the stars are aligning in my favor. On the more level headed, practical side I don't want to let my emotions take over and impulsively jump into a potentially bad situation. I've heard it's best to screen tenants yourself or at least have final word over who occupies your property. I've already requested more info on this property and I'm dying to find out why the owner is selling in the first place. Oh, and I actually lived near this location so I'm familiar with the schools and neighborhood. It even comes with a built in exit strategy... worse case scenario, I evict the tenants and live there myself. By my calculations the base monthly expenses ( including taxes and insurance, minus cashflow from renting it out) would be the same as I pay in rent right now. Almost exactly the same!

But, back on point, is it advisable to pursue an already occupied property and why or why not? I can already hear the "NOOOOOO's"... or maybe that's just my imaginary friend Cpt. Winky the snuggle monster talkin' to me again.

[Paul Ronto]

I agree with both the comments above. Pros are you are cash flowing from the day you close, no stress about finding new tenants ASAP which may make you cut corners on screening just to get someone in there that first month before the mortgage payment is due. The cons are obvious, you didn't vet the tenants, they could be terrible. The last owner may have gotten them in there just to cover costs but didn't do any deep screening. 

If they are bad, you can always ask if them if they want out of the lease early and if it's mutual you can terminate the lease together, this is unlikely, but maybe not, you never know what tenants need until you ask. You could also ask them if they would agree to terminate the old lease to move to a new lease that you create, they may agree since a change in ownership can bring about changes like these, can't hurt to ask... 

I'd say, review the current lease, have a lawyer review it as well. Have a new lease ready if you want to keep them, and have them use the new lease once the old lease is over if nothing else. Make sure you have good documentation on property condition before they moved in, and on their security deposit so you have recourse should they destroy the place by the time they move out. 

Good luck, hope it works out. We've bought places with renters in them and it's been fine, but I could see it going the other way too.