Pros and cons begin to stream through a real estate investor’s mind when considering buying a tenant-occupied property. Two of the most common are: 

PRO: Collect rent from day one 

CON: Stuck with the current tenants 

Let’s look at the PRO first. Imagine the time and stress you will not have to expend on locating and screening potential tenants and the details involved in sealing the deal to get those rent dollars flowing. Moreover, as an obvious turnkey property, it likely meets all local regulations and codes and is in good, habitable condition. So, there’s no need to factor in the time and cost of preparing the unit for a new renter. Big pluses indeed.  

Now for this common-concern CON. The tenant’s lease will still be in effect, which means you cannot simply oust the current renters in favor of tenants of your choosing or even move in yourself. Leases are tied to the property itself and not merely the owner, meaning the lease stays “attached” to the property. If you purchase it, you will not be able to raise the rent, modify clauses, or turn the tenant out until the end of the lease term. As the new owner, you’ll be placing yourself in the middle of an already established way of doing things. A way that may mesh nicely with your conducting-business methods OR may directly conflict with how you’ve always done business.  

The yay or nay of purchasing a tenant-occupied property comes down to a matter of risk tolerance and an honest consideration of this property’s income potential. Of course, the “How badly do I want this property?” conundrum will also be a factor. Am I willing to risk bumps in the road because the desire and potential are that great?  

Some of those bumps can be avoided with homework before a deal is closed. Consider that “good condition” when referring to a rental property has many definitions. While the current tenants may appear to be satisfied with the unit, a potential new owner shouldn’t assume the presence of a content tenant means the property would live up to their own “good condition” standards. The same goes for the reliability of the tenants. A motivated seller may sing the praises of the current tenants, but a wise investor will seek proof of their consistency in paying rent and their respect for both the property and the owner.  

What if an investor is completely sold on the property but does not want the tenants? A few options do exist should an investor find themselves facing such a scenario. 

• Submit an offer contingent on the property being vacant upon closing. This places the burden of breaking the lease on the current owner, who may offer the tenants a “cash for keys” deal. 

• Buy the property, tenants included, and then seek to renegotiate the terms, “buyout” the tenant(s), or attempt to break the lease. Keep in mind that tenants are not obligated to accept any offers you extend, making this a risky proposition that could expose you to legal action. 

Enter into tenant-occupied purchases with confidence by weighing the pros and cons and making a decision that fits your goals.   

 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.