Would you buy a property that already has tenants

Question

I found a property for 45K that already has paying tenants. The property has been on the market for over 18 months. There are no pics of the inside of the house only outside. The outside pics look good. I have done the numbers and I'll be getting at least a 12% ROI on this property. So it will cash flow.

This seems too good to be true. I don't understand why the owner would be selling something like this unless there is something wrong with the property or tenants. What do you guys think?

Nathan Gesner · Answer

The Seller may have health problems and needs to cash out to pay bills. Maybe they're tired of dealing with tenants. Maybe they want to sell and buy a property in Pahrump, Nevada where they can spend it all on coke and hookers. There are a thousand reasons why someone would sell a performing property and none of it really matters. Either it's a good deal for you or it's not.

Your offer to purchase should include a requirement that they provide all documentation and agree to sign an estoppel certificate (also called estoppel form or agreement). The estoppel certificate is a form filled out by the tenant and then confirmed by the Landlord. It's supposed to ensure there are no surprises after closing. For example, you buy the place and the tenant could claim the Seller allowed them to paint the walls black or that their security deposit was twice what the Seller claimed. 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 exchange "doc" with "pdf" for more options.

Here is an example and explanation: https://eforms.com/rental/estoppel-certificate/

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

Derek DeVerna · Answer

Good Afternoon Luther, If the property has been listed for 18 months at 45K I would strongly encourage you to send in an offer below list price. Within this offer I would write a contingency stating that you will need access to the property to complete an inspection.

There could be multiple reasons why the property has been sitting so long. The main factor likely has to do with the lack of access provided by the owner/tenants. Many investors are afraid of inheriting tenants or buying a property site unseen. This gives you a tremendous advantage if you are willing to do these things.

I have inherited tenants in two of my properties in Cincinnati, Ohio. All of which are still renting from me and pay on time. Many times tenants have been subjected to less than ideal conditions from their landlord and are excited about the possibility of having a landlord who cares about them. I always introduce myself as the person buying the property and ask them to provide me with a list of everything that they would like repaired/replaced upon my taking ownership of the property. Complete this list and they will absolutely love you.

I am happy to help in any other way that I can. Best of luck.

Annette Hibbler · Answer

Oftentimes, sellers will sell cash flowing property because they are looking to trade up. Ask the listing agent why the seller is selling and also insist on getting a sellers disclosure. They may try to give you some lame excuse that because the seller never lived in the property he/she won't have to provide one, but don't take that BS. Any landlord who has owned and operated property knows exactly what's been done to it and what the issues are. If they don't want to be transparent with the property, assume there's something wrong there and you'd have to pay an inspector to discover it. How old is the property? Look for knob & tube wiring, asbestos tiles, foundational cracks, mold, age of the roof, etc. These are all big ticket items you want to stay away from.

Scott P. · Answer

I've bought with tenants (and sold with tenants).  That fact alone wouldn't deter me

Dennis M. · Answer

12% is too good to be true ? Geez you have low standards . Sounds like need to find better deals or a better market if that gets you excited

Jaysen Medhurst · Answer

@Luther Avery, there are myriad reasons why an owner may be selling. It's anyone's guess. You can ask their agent, but take the answer with a grain of salt.

Yes, I'd buy a property with tenants in place. If, after inspection, you decide you don't think the tenants are a good fit (hoarders, signs of drug use, etc.) you an always put in the contract that the property is to be delivered vacant.

Would you buy a property that already has tenants

Most Popular Reply