What you Need to Know about Buying a Property with Tenants

KEY WEST, Fla. - Feb. 20, 2017 - PRLog -- Per Fred Mullins, Top Producing Member of Team Mullins at Coldwell Banker Schmitt in Key West and owner of www.lowerkeys-homes.com,"Most property investors prefer to buy distressed homes (foreclosure and short sale real estate). Generally, it allows investors to obtain a good bargain, mitigating their outlays for rehabilitation. However, in these instances, it is still necessary to accuracy forecast improvement costs and holding costs, as well.

To gain a more stable investment, some investors choose to purchase properties with paying tenants. This allows them to gain immediate income and forego marketing the property to renters. However, this does not mean as a purchaser, you are given the right to change what's already in-place.

If you are considering buying a property with tenants, understand you will be bound by the legal agreement currently between the existing owner and the tenants. You cannot change the terms of the agreement without the consent of the buyer. That works two ways. For instance, you cannot raise the monthly rent or ask for a larger security deposit. But, if you wish to slightly lower the rent in order to retain the tenants longer, you'll still have to legally amend the lease.

The existing lease is a legally binding contract which does not change when a property title is transferred from one party to another. An exception would be foreclosure, where the lender is suing to obtain the real property collateral.

Another consideration about buying real estate with tenants is it still entails risk. If the current owner is honest and transparent about the tenants paying on-time, it's generally a good deal. But, there are owners who are not honest and are not transparent. They just want to be free of the obligation.

So, due diligence is always necessary. Request all documentation, including proof of rent payment, as well as income and expense statements, from the current owner. In addition, you should have all parties sign an estoppel certificate. It certifies the in-place lease and all its details.

When you close on the house, meet with the tenants and give them your contact information (or your property manager's information). Let them know what you expect and tell them about any future plans you have.

Fred Mullins, P.A. holds an MBA, B.S., real estate license United States Coast Guard Master Captain's license and commercial pilot's license. With over 20years of cross functional experience in real estate, international asset management and construction management, Fred's experience places him as one of the top real estate professionals in the Florida Keys.For help with buying or selling Real Estate in the Lower Florida Keys,see http://www.lowerkeys-homes.com