If you’re buying a rental property that’s not brand new, the odds are good that there are already tenants living at the property. So where does that leave you?
You should know that you’re not the only one with questions about this — but we’re here to help! Here’s the ManageGo guide to buying a property with existing tenants.
Can I change the terms of the lease?
Unfortunately, generally speaking, you’re not able to change the terms of an existing lease when you buy a property. The lease is an agreement tied to the property, not to its owner. Because of that, the terms of the lease are still in effect even if the property is sold, so you’re not able to raise the rent, change the terms of the lease, or force tenants to leave before the lease expires.
It’s worth noting that it’s OK to propose lease changes to tenants with an existing lease or to try to renegotiate, but be aware that the tenants are under no obligation to actually agree to any of your terms, and you won’t be able to make changes unilaterally.
What if there’s an existing month-to-month lease?
In a case with an existing month to month lease, you have much more flexibility. The lease, in a sense, expires each month, so you’re able to change the terms of a lease at the end of a month. If you do, note that you’re subject to the same rules that would govern any other lease renewal. This means that you’ll need to provide proper notice of changed terms to the residents, and you should meet with your tenants to discuss any points that might require particular attention.
Are there any other potential problems with inheriting existing residents?
Unfortunately, there are. One of the biggest potential issues is that, while the residents will become your residents when you buy the property, it’s the old owner who managed the screening process, and they may not be as thorough as you. You could be left with some bad tenants in a situation that you have little control over.
Also, even if the tenants are good, they may not like that the building has been sold. That may make them less receptive to changes you propose or differences in your management style.
Are there any upsides to buying a property with existing residents?
Yes! When you buy a property with existing residents, you’ll start receiving monthly payments right from the start, without needing to find residents to fill the units. It can be hugely beneficial to have an incoming cash flow right away with no downtime.
Additionally, if any of the residents have been there a long time, they’re more likely to continue renewing their lease, limiting the chances that you’ll face a move-out or vacancy in the near future.