Purchasing a Merced rental property with existing tenants may look as if it is an ideal situation. Nevertheless, the aptitude to skip renovating the rental home, advertising, and screening tenants sounds very attractive. However, purchasing a property that is already leased comes with some profits but also some trials. To confidently purchase a property with existing tenants, it’s vital to first absorb as much as you can about the progression and what to avoid.
The instant cash flows and turnkey nature of buying a leased property may make it seem like a great option for your next investment property. But it’s important not to accept that just because a property is leased, it is in good condition or that the tenants are responsible and punctual with rent payments. Rather, do your due diligence to warrant that a leased property is a good investment.
One of the primary things you should scrutinize when considering a leased property is the current lease agreement. When you buy a property occupied by tenants, you automatically inherit the lease agreement they signed with their old landlord. Because the lease is a binding contract, you will need to be comfortable living by the terms of that lease until it ends or comes up for renewal. In some cases, the tenant has settled to terminate their lease upon the property’s sale, but that is not a common condition. Most of the time, you need to know what prior agreements govern your new investment.
In addition to examining the existing lease documents, it’s important to screen the current tenants carefully before purchasing the property. Treat the situation as if the tenants were applying for the first time, running thorough background and credit checks on them and verifying their payment history and references. Also, verify with the current owner or landlord that the tenant has paid a security deposit and that it is kept properly in a separate bank account.
Along with screening your tenants, it’s important to do a thorough evaluation of the property as well. To get a full sense of the property’s current condition, you will need to see the house’s condition and yard in person. With tenants already living in the property, it’s essential to know how conscientious they are about keeping the property clean and maintained. Also, be sure to ask the current owner about any current or past insurance claims, especially if they are tenant-caused. Too many insurance claims might make it harder for you to insure the property after the sale.
If the whole thing checks out, you may have found an outstanding, tenant-occupied rental property. But no matter if your new Merced investment by now has tenants or not, you’ll need to be ready to get and keep the property in habitable condition, ensure that the electrical and plumbing systems are safe and working correctly and that the structures are sound. While your new rental property may come with tenants already living there, the moment the sale is complete, you are fully responsible for managing and maintaining the property from that point on.
Property management can be a very involved task, particularly if you are doing it yourself. Instead, why not turn the day-to-day tasks over to professionals? For more information about the property management services in Merced, contact us today or call us at 209-722-7761.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.