Buying a Property that’s Already Tenanted?

One of the great things about buying turnkey rental property is that, often times, the property already has a tenant in place. This means immediate cash flow for the new owner and no need to stress and worry about finding a tenant as quickly as possible.

While all of our tenants are thoroughly screened to ensure our investors have high quality renters, this isn’t the norm for all turnkey providers. That’s why it’s so important for you, as the new owner, to perform your due diligence when buying a property that already has a tenant in place. Doing your homework on the existing lease and tenant will help ensure there are no nasty surprises later on, and it can also aid in a smoother transition to the new ownership for your tenants.

Here’s what you need to do when considering a property that’s already tenanted:

Review the Lease

First thing’s first - you need to get a copy of the existing lease from the seller. Not only will this stand as proof that what you’ve been told regarding income on the property is true, it will also provide other pertinent details. Information like the security deposit amount, lease expiration, and rent amount will all be contained within the lease. Review these details, then decide whether they will work for you or not. You cannot alter an existing lease in any way after you take ownership, so if there’s something you’re unhappy with, you’ll need to make a decision whether to move forward or not.

Get an Estoppel Agreement

An estoppel agreement is a legal form that lines out all the information about the lease. Tenant names, rental amount, lease dates, who pays utilities, who owns appliances, etc. The tenant should complete and sign this form, and the seller signs it as well. Basically, this form serves as protection after you close on the property, by preventing tenants from claiming something untrue about the rental agreement after you take ownership.

Introduce Yourself to the Tenants

If everything checks out and you think there’s a pretty good possibility you’re going to move forward with the purchase, take the time to meet the tenants. Meeting them in person will help put their mind at ease about the transfer of ownership, and you can also use the time to outline any other information you feel they should know. If you can’t meet them because you’re located out of state, send a letter introducing yourself, letting them know how to contact you, and where to send rent payments. A change in ownership can be a stressful and uncertain time for tenants, and taking steps to reassure them that their rent isn’t going up and that you’re not going to kick them out is a benefit to you both. If you can establish a positive relationship early on, it will be better for you both in the long run.