Conducting Due Diligence
The immediate cash flow and ready-to-go nature of purchasing a leased property can make it seem like an appealing option for your next investment. However, it’s crucial not to assume that just because a property is leased, it’s in good condition or the tenants are responsible and pay on time. Empower yourself by doing proper due diligence to make sure the leased property is a smart investment.
One of the primary documents to review when considering a leased property is the existing lease agreement. If you buy a property that has tenants, you automatically assume the lease agreement they signed with the prior landlord.
Given that the lease is binding, you’ll need to follow its terms until it concludes or is due for renewal. Sometimes, the tenant agrees to end the lease when the property is sold, though this isn’t common. Typically, you’ll need to be aware of any prior agreements that govern your new investment.
Assess tenant payment history and lease terms
In addition to reviewing the existing lease, it’s crucial to carefully screen the current tenants before acquiring the property. Treat the screening as if the tenants were new applicants by running background and credit checks, and verifying their payment history and references.
Verify with the current landlord or owner that the security deposit has been paid by the tenant and is stored in a separate bank account.
Inspecting the property with tenants in place
Besides screening your tenants, it’s important to perform a comprehensive evaluation of the property. To properly assess the current condition of the property, an in-person inspection of the house and yard is necessary.
Since tenants are currently living in the property, it’s important to be mindful and assess how well they maintain the house and yard. Be sure to ask the current owner about any insurance claims, past or present, particularly those caused by tenants. If there are too many insurance claims, it might be challenging to insure the property after the purchase.
If all goes well, you could have found a great tenant-occupied rental property. Whether your new investment includes tenants or not, you’ll need to ensure the property is habitable, with properly working electrical and plumbing systems, and structurally safe buildings. Even though your new rental may already have tenants, once the sale is final, you are entirely responsible for the management and maintenance of the property.
Property management can be a time-consuming task, especially when managing it on your own. Why not let the experts at Real Property Management Queen City handle your daily property management tasks? For more information about our property management services in Huntersville and nearby, contact us today or at 980-392-4048.