Purchasing tenant occupied real estate can be a smart move for an investor whether you manage your own property or not. There are pros and cons to tenant occupied and vacant property. Let’s look at both.
Tenant occupied rental property is exactly what it says, a property with a tenant already in place. When researching the potential property, you want to be certain to ask the current owner (or property manager) for the rent roll. Hoping that you are provided with accurate records you will get a quick look at if the tenant in place pays the rent and if they pay on time. In today’s uncertain times with the rent moratorium this snapshot is crucial. Now keep in mind people lie. I once had a property manager tell me a tenant had never missed a payment and the rent roll showed exactly that, but when I took over the property, I learned I had a squatter that had not paid rent in a year. So, as I have preached, not all property managers are looking out for you-research diligently!
If your research proves you have a cash flowing property here is what I do not suggest doing…contacting the tenants or knocking on their door before purchase, asking them to sign an estopple (unless it is commercial property), hiking up the rent dramatically the first lease renewal under your management unless you have made significant repairs, or coming off as a tyrant and not a professional business owner. Doing this only scares the tenant and sets the relationship up to be shaky and guarded. Do not create uncertainty for your clients (tenants). If you have a good tenant, you want to make them happy and develop a relationship with them. Let them know you care because you should care.
Your agent will tell you when you buy tenant occupied property 95% of the time you cannot look inside until the offer is accepted and due diligence money is paid. This keeps the tenant from having to have people in and out of their house for weeks on end; therefore, worst case scenario is you lose your due diligence money. Find a good agent with experience in rental property and tenants and listen to their advice. Not doing so will not serve your best interest.
So, what do you do if everything about the property screams perfect, but the tenant is not paying? This is a tough question today. A year ago, I would have said no problem because evictions happen every day and they happen fast. Evictions can still happen today under certain guidelines, so I suggest research them. Always seek out an attorney before you just sit back and let things happen with your biggest asset is my advice. Purchasing a SFR (single family rental) with a nonpaying tenant is a bit riskier than a multiple family unit with only one nonpaying tenant. Run the numbers and talk to an accountant. Also get all the facts from the owner or property manager of why the tenant is not paying and what your plan of action can be. This current state will not last forever.
Of course, vacant property is a clean slate for you to find your own tenant. In today’s market finding a good tenant does not take much time, so do not let the holding cost while you vet a tenant scare you.
I have purchased tenant occupied and vacant rental property and had luck with both. I attribute that to great research, great advisors and agents and my approach to the tenants in the tenant occupied home. A small gift and a card delivered by myself and my cute son always helps ease the tension with tenant occupied homes. After all, I believe it is our job to make the world a comfortable place.
Remember if there is anything in the world, I can do for you, please reach out.