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Guide to Buying Rental Properties With Existing Tenants

Published: 06-27-22 Category: Investing

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Finding a property that is right for you can be challenging. There are almost 20 million rental properties in the U.S., with more properties scheduled to be built each year.

The average occupancy rate for rental properties in the U.S. is 96.9%. The commercial rentals in your area may vary in terms of current occupancy rates.

There are so many factors to consider and so many questions to ask when considering buying a commercial property for sale with tenants.

How will you manage the property’s existing tenants? What if you want to create and enforce new commercial lease agreements?

Read on to find out.

Why Buy a Property With Existing Tenants?

There are many reasons why you might want to consider buying commercial rentals in your area with existing tenants in your search for commercial rentals in your area, such as:

If you do not want to deal with finding commercial real estate tenants or screening applicants for a rental property, you can eliminate that hassle by purchasing one that is already rented out.
You can also obtain higher prices on the property because of the income that it is drawing in.
You’ve found the perfect property and you don’t want to wait until it becomes available without commercial real estate tenants occupying it.

In most cases, commercial property for sale with tenants are renter-occupied properties.

This means that the renter had an agreement with the previous or existing landlord to rent out the space.

However, the property could also be occupied by the rental property owner. Depending on where you live, this type of tenant may have different rights.

How to Protect Yourself When Buying a Property With Existing Tenants

Before you buy a property that is already occupied, it is important to understand the rules and regulations that apply in the state or region.

You should also speak to your local council or housing association to find out what they require of commercial real estate tenants who are renting a property.

#1 – Understand That Existing Tenant Leases Are Still Valid

If a property has existing tenants, the lease agreement is still valid. In this instance, the existing tenants have exclusive rights to use the property and are not subject to eviction.

This means that they can continue to live in the property as long as they are paying their rent and don’t cause problems, in accordance with their lease terms.

But You Can Try and Break Them With an Offer Contingency

A contingency is a condition that must be met for the deal to go through. It is an agreed-upon condition before you sign on the dotted line.

In your offer to buy a rental property with existing tenants, you can state that you’d like to put an offer contingency on the property being vacant upon selling, or, in other words, absent of its existing commercial tenants.

#2 – Understand That You Can Ask Existing Tenants to Sign New Lease Agreements

Existing month-to-month tenants can sign a new lease agreement with you, even if they are already living in the rental property.

When you take over ownership, you can enter into a new lease agreement with these current commercial real estate tenants.

This is an ideal way to bring existing occupants on board, as it gives them peace of mind that their rent will remain the same and that you are committed to the property.

Consulting With the Previous Landlord

When buying a rental property with tenants already occupying units, it’s a best practice to ask the previous landlord how they vetted and screened commercial real estate tenants.

You’ll want to make sure to ask what screening they did and whether their approach was thorough enough such that they were able to catch any red flags.

A thorough background check is key in this situation, as you don’t want to find out later on that your new tenant has a long history of bad or unethical tenant behavior.

If you’re not sure how much screening should be done, start by asking the previous landlord or owner.

They may be able to give you some insight into what they did when screening potential tenants.

Enforcing Your New Lease Terms

When buying a rental property with tenants already occupying units, be sure to enforce new lease terms even if their actions might have been allowable under the old lease with the previous landlord before the switch with the commercial property for sale with tenants.

This can be especially important when it comes to situations like rent increase disputes and tenant evictions.

It is possible that the previous landlord may have allowed some of the commercial real estate tenants to continue with their unauthorized behavior under the assumption that it was permissible under their old lease.

#3 – Understand That You Can Hire Professionals to Help You

Purchasing commercial rentals in your area can be a good way to invest in commercial real estate, but it’s also a big commitment.

You have to be prepared for all the things that come with property management and upkeep, including making repairs and keeping your tenants happy.

If you’re not sure how to go about these processes, there are professionals, like commercial real estate attorneys, who can help you.

Working With a Property Management Company

A property management company can help you negotiate the best deal for your situation and price range, as well as navigate tenant issues like evictions or rent increases.

They can provide guidance on landlord-tenant issues, and they can take care of maintenance, policy violations, utilities, and dealing with existing tenants.

Don’t Forego the CRE Attorney, Either

Choosing a commercial real estate attorney is one of the most important things you can do before purchasing a rental property.

There are many different ways to go about this depending on the type of property you want to buy, but a basic requirement is that you have a lawyer who understands both the legal and financial aspects of being a landlord.

Most commercial real estate attorneys have experience with both residential and commercial properties and have also been trained in how to negotiate challenges and deal with potential issues, such as construction delays or tenant turnover.

They may also be able to help you find commercial property for sale with tenants.