Buying Property with Existing Tenants

Author: Todd Christiansen | Category: Tenants

With so many foreclosures on the market these days, my customers rarely have to deal with inheriting tenants.  In years past, we would have tenants from the previous landlord all the time.  As short sales on multi-family properties become the majority of deals on the market, there is a good chance that you could inherit a tenant.  So what are some best strategies for working with a tenant that you did not chose?

  1. Make sure you have a copy of their lease prior to closing.  If you are unsure or skeptical about the terms of the lease, have the existing landlord and tenant sign an estoppel letter stating the terms of the lease.  This is a simple letter that outlines what both the existing landlord and tenant believe the terms of the lease are, signed by both parties.  It eliminates the chance the landlord didn’t disclose some part of the agreement or that the tenant claims the terms were different.
  2. In most cases, you will have to honor the existing lease that is in place.  This doesn’t prevent you, however, from attempting to sign a new lease with the existing tenant.  Just keep the lease terms the same, but tell them that you want to get the lease in your name.  Convince them of the benefit to them by extending the lease at the current terms.  They are not obligated to sign anything obviously, but hopefully they will.
  3. Keep a close eye on the rent payments of these existing tenants.  The previous landlord may have said this tenant was fantastic and paid on-time each month.  I have seen this story more times that I can count that month 2 after you own this new property, the tenant starts missing rent payments or is late every month.  How you handle the late rent will set the tone for the rest of the relationship with this tenant.
  4. If you have to evict, make sure to have all your ducks in a row since you may still be operating under a previous lease.  Even if this is not required in your jurisdiction, you may want to use an eviction letter to make sure you have fully spelled out for the tenant the seriousness of the late rent and your determination to do what it takes.
Getting a tenant when you buy a new investment property can be a good thing.  Instant cash on day 1 of owning your property.  No need to go out and work on leasing when you can just take the easy road and manage the existing tenant.

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