I just saw a property listed as part of an estate liquidation of four properties. Looking through the other properties it seems that the ones that were vacant sold pretty quickly, while the ones still occupied by tenants are still on the market over a year later.

I'm fairly new at this so I'm wondering if existing tenants is considered a big risk? I did a little googling and it sounds like it just requires more work, but I want to make sure I'm not missing anything.

  • 2
    Are you buying it to use as a rental property or to live in?
    – JohnFx
    Jan 19 '17 at 21:37
  • I would imagine that you probably have to abide by the tenant's current lease agreement (unless you are ready for an expensive legal battle) and be a temporary landlord if your ultimate plan is to live there.
    – MonkeyZeus
    Jan 19 '17 at 21:43
  • 2
    Maybe, but if you plan to rent, good existing tenants could also be a benefit.
    – TTT
    Jan 20 '17 at 5:11

The perceived risk depends on the entire situation, but often it is considered more risk, especially if you want to occupy yourself.

Things you need to consider:

  1. It can be very difficult to show a property with tenants occupying it. There are many reasons for this and most homes show / sell better empty. I have found many tenants make it difficult on the seller. Leaving their areas a mess, being unaccommodating and especially in markets that are flooded with options, a lot of buyers just won't bother with the difficulty of scheduling a showing in occupied properties. I've tried to purchase many properties where the renter insists on being there during a showing, but won't open the door and there's no recourse for the landlord because his lease or laws in the area don't allow you to enter without permission. Also, it can be difficult to look past a lot of clutter and other people's decorating and aroma "preferences" to be kind. :)

  2. Is the property currently under lease and what is the period of that lease? It could be that the lease is month to month, or it could be years remaining on the lease period. It is likely a legal requirement in most areas that you honor the existing lease. I would never buy a property that has multiple years remaining. While some amateur landlords will allow 2 or even 5 year leases, this is a very bad idea for many reasons!

  3. What are laws like in your area for evicting tenants? You should know this regardless of whether or not you intend to occupy or keep it a rental. It can be a very difficult process evicting tenants and this process is vastly different from country to country and state to state here in the USA.

  4. Look into the security deposit - assuming there is one. How much is the deposit? Will it cover damage that may not exist yet? Don't think that just because you plan on evicting them soon, it isn't important. People can trash a place on the way out and an expensive lawsuit could be your only recourse. It is far easier to take a deposit than sue. I would absolutely demand that the deposit transfer to you upon sale.

  5. View the current renters with a fresh eye. Especially if you are considering leave it a rental, look into all of the typical requirements: Their monthly income, their credit history, their criminal record, their payment history, their references. Are they likely to be good or terrible renters?

  6. If you're interested in the property, consider an offer which requires the current landlord to evict within the time-frame of the buy/sell agreement. This isn't an uncommon requirement.

I think the first thing to do is go look at the property and see if you can determine for yourself why it hasn't sold yet. Properties all have different reasons for not selling in a reasonable time to the local market. Having renters alone in most markets shouldn't be that big of a factor. I would suspect bad smells, nasty renters, or an unfavorable lease agreement exists.

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