An investor finds an ideal location in their search for a rental property, but there’s one complication: tenants already live there. Their lease will continue beyond the purchase unless the rental agreement specifies otherwise or the sale is part of a foreclosure. So, if the sale goes through, the current tenants will likely pass to a new landlord. 

How should a potential buyer approach a property with existing tenants to maximize the likelihood of success? The following four tips will help pave the way for a smooth transition. 

Think through the pros and cons. Buying a rental property with existing tenants has the potential to be a significant benefit. Ideally, it provides an income stream immediately and avoids an initial vacancy. On the other hand, the tenants could cause considerable stress if they don’t pay rent, fail to care for the property, or must be evicted. Weigh these potential pros and cons carefully as part of the investment analysis. 

Do your research. Since the buyer didn’t get to draft the lease or screen the current tenants, they’ll want as much information as possible. The new landlord must verify that the lease complies with state regulations and that the tenants have followed through with their obligations, including paying monthly rent. Both parties should familiarize themselves with local laws that might affect the tenants’ rights during the sale.

Inspect the property. Landlords are responsible for providing a safe and habitable place for their tenants. Performing an inspection will allow the purchaser to verify that the property is well-maintained and compliant with local building codes. In addition, a walkthrough will show how the renters care for the property and any areas needing repair.

 Ease the transition. It’s in the buyer’s and seller’s best interests to make the transition to new ownership as seamless as possible. A letter from the new landlord that gives an introduction and list of expectations going forward will help make a positive first impression on tenants who may resist change. A seller can share the tenants’ contact information and helpful details like how to make rent payments to help the purchaser ease into their new role. The entire security deposit must be transferred to the new owner since it is still due to the tenants at the end of their lease.

 With the right amount of due diligence and cooperation between the buyer and seller, the sale of a leased property can provide a painless transition for the tenants and a profitable investment for the new landlord. 

About Rentals America     

Rentals America provides full-service property management for residential rental properties. Our team is completely dedicated to property management, and we’re here to help landlords navigate the rental market.