Should I buy An Investment Property with or without Tenants?
Sometimes, when you find a nice investment property that you would really like to buy, one of the requisites in order to acquire that property, is that you have to be willing to take in the tenants or at least deal with the existing tenants.
That is is a dilemma that you may deal with at some point and that’s why you need to know what to do.
Today we are going to cover something that goes through everyone’s mind, everyone who has ever come across a nice investment property but then eventually, they have to face a dilemma and make a decision on whether to keep the existing tenants or just get new ones.
Pros of keeping the tenants after you acquired the property
- One of the pros that you’ll get is that you will get income right away.
Why is that good especially if you have a mortgage? If you acquired a nice tenant that comes in, the income is going to flow right away and you don’t have to worry about any vacancy rates or having to worry about making a mortgage payment out of your pocket while you wait for that right tenant to come in place because it is already existing there.
- Another advantage that you get out of it is that you don’t have to do any renovations whatsoever.
Why? Because things change, trends change all the time. If you have a tenant that has been living in that property for quite a long time, chances are that tenant is pretty satisfied, it’s pretty happy and therefore they’re not going to demand any changes because you’ve just simply taken it over.
Therefore you can save money on renovation, whether it’s a major renovation or something that is cosmetic, which can still cost you a couple of hundreds if not even a couple of thousand dollars.
Cons of keeping the tenants after you acquired the property
Before buying a house with tenants, make sure to check the rental prices in the area
On the cons side we have:
- You might not want to inherit a tenant if it’s a really bad tenant.
That could be one of the reasons why the seller is trying to get rid of that property in the first place because maybe they tried everything they could to get rid of this tenant or to keep up with the maintenance and everything and it’s just a headache.
What they’re doing is they just want to get rid of the property once and for all. If you’re buying a property that comes with a bad tenant, that might be something that you might want to think about it twice.
- The second disadvantage or a con of getting an existing tenant is that there’s a high chance that they’re probably not paying market rent.
Why? Because that person has lived in the property for years. They started off with a certain rent and because they’re great and they always paid on time, the existing landlord or the seller in this case just didn’t want to raise the rent. Why? Because if “they’re happy, I’m happy. I’m getting money. I have no need to increase the rent so everybody’s happy.”
Before moving forward, that’s something that you really want to ask yourself and you need to consider. Do you want to keep a tenant that it’s excellent and it’s great and you know for a fact that it’s always going to pay you on time or do you want to risk losing this tenant, increasing the rent, but maybe getting a person that may or may not pay the rent on time? You go through the great qualification process but in the end, the future it’s uncertain and you never know what could happen.
A necessary tool: Your power team
Whether you’re buying a multifamily complex or whether you’re buying a single-family complex, you always have to leverage your power team. Your power team could be anyone from your attorney, from your realtor, from your property manager to create a win-win situation.
A tenant that has never missed a payment and has never made a late payment is definitely something that you want to consider. You can start negotiations with the tenants if they are paying below the market because you also have responsibilities to worry about. It has to be a win-win situation. Somewhere between the wellness of your new tenant and your peace with your investment because you know it’s working out the right way.
Your property manager needs to follow the local laws and the regulations, because you definitely have to respect those. He or she can negotiate with the tenants a new amount or let them know the process they need to follow if they want to move out. They can have a time frame for around 60 or 90 days to find another place in the case that they decide to find another property.
With a payment plan for your tenants you can agree to a gradual increase in rent
You always have to work with your power team. Especially with your property manager. You need their support because you’ll have tenants that are always paying on time, but sometimes you’ll deal with tenants that are not so great.
Investment Property: Rent Rolls
You need to ask them to see the rent rolls or what they call income statements. When you ask to see the income statements, you will see every month something that they call late fees.
That’s your cue to see which are the tenants or the apartments or the houses that are not literally paying on time then you get to decide whether that’s something you want to deal with or not.
You might want to have to check with a Real Estate attorney to make sure that all the local rules and regulations are being followed. That’s when you decide and you just provide the notifications saying, “We are under a new management.
We have a new owner now who has just recently acquired this complex.” Then you want to make sure that you want to decide that or not. Then same thing as with the single family tenant, you give them the new rules and you ask them if they want to comply, if they’re willing to comply or not. If not, then feel free to move out and look for another place that could meet that criteria that could benefit you.
That’s the best approach that you and your property managers could follow to come up with the win-win situations where you, as an investor, don’t have to deal with a loss of a good tenant but at the same time, you don’t have to deal with a bad tenant.
The idea is that the tenants feel financially comfortable to be able to keep up with the rental payments and that you also can meet your financial obligations with the lender as well.
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