So you’re looking at buying a new rental property – exciting! You can buy a rental property from another landlord with a tenant already in place, but is inheriting a tenant a good idea?
Pros of Inheriting a Tenant
Buying a property with a tenant already in place can come with some upsides. The main one is that you will not have any vacancy period nor the associated costs of vacancy. You don’t have to do the work of advertising the property and doing showings to place a new tenant. This will save you both your money and your time. Placing a tenant can take several showings and can result in you working significant hours over the course of a week or longer as you prep the house and meet potential tenants. In addition to the already mentioned costs to hold a vacant property, there are other associated expenses: advertising bills, fuel/trip costs, and expenses to pay someone else to place a tenant for you if you choose not to do it yourself.
Cons of Inheriting a Tenant
As previously mentioned, if you take possession of the property while vacant, you will be carrying the mortgage and other expenses for at least a couple weeks as you find a new tenant. Consider this might also possibly take longer if there are any repairs, maintenance, or cosmetic work to do prior to looking for your tenant.
In addition to all of those costs, you also run some risks. When you inherit a tenant from a previous owner, it’s possible to inherit the headaches that can come with managing difficult people. The regulations in most regions obligate the new owner to honour the existing lease until its expiry. At that time you, the new owner, can elect to not renew the lease and search for a new tenant. But until then, you need to do your due diligence and only buy a property with a reputable tenant. While it certainly adds another element of complication to the purchasing process, the tenant can be assessed by asking some important questions.
What to Consider if You Might be Inheriting a Tenant:
There is some important information you and your realtor should be obtaining from the current owner. This includes: monthly rent roll, lease documents (application, walk-through & the lease itself). Ask questions like: Does the tenant pay rent on time? Do they respect the property (are they careful not to damage things and to keep it clean? Are they responsible in caring for the lawn/yard)? Do they have pets?
The tenants’ damage deposit should also be transferred to you in addition to a copy of their move-in report. Make sure that this is taken care of by working with your realtor and lawyer through buying process.
And if you End up with a Vacant Property?
The upsides of this scenario are that you can pick the new tenant based off of your own screening procedures. Your screening should be thorough. To start, it should always include a background check. Streamline offers a Tenant Verification Report, that includes eviction notices (court records), credit check, and history of any criminal record. If an applicant has any of these flagged, move onto the next applicant. You will then also want to do an income verification check or credit check. This can include viewing tenant pay stubs or bank statements and calling the tenant’s employer references.
Both scenarios have pros and cons, and both can work out in your favour. Your main focus should be on being thorough in either scenario and your outcome will most likely be a positive one.
