If you’re looking to get into the rental business or you’re already a landlord and you want to expand your number of rental properties, one option is to buy a property that already has tenants living in it.

This is a unique situation that comes along with its own set of pros and cons, which are important to understand before you decide whether or not buying a rental property with tenants is right for you.

The Landlord's Rights and Obligations 

When you buy a tenant-occupied property, you inherit all the rights and obligations of the former owners. 

If you’re already a landlord, you’re probably familiar with what these are, but they can vary slightly depending on local rules and regulations and from lease to lease.

In general, you’re responsible for maintaining a safe, habitable property for the existing tenants. And in return, you have the right to receive monthly rent payments from the property’s occupants.

Examples of common landlord responsibilities include:

  • Keeping common areas clean, functional, and safe
  • Maintaining the property’s structure (walls, ceilings, stairs, roofs, etc.)
  • Maintaining HVAC, electrical, and plumbing systems
  • Providing/paying for trash removal service
  • Landscaping
  • Snow/ice removal (where applicable)
  • Dealing with any other problems related to the property that come up

Depending on the agreement the tenants had with the previous landlord, they may be responsible for some of these things themselves, so make sure to read the existing residential lease agreement carefully to get a full understanding of your obligations as the new landlord.

landlord removing snow in the winter
Landlords are responsible for maintaining a safe, habitable property by for example removing snow in the winter

The Tenant's Rights and Obligations

When you buy a property with existing tenants, all of their rights and obligations remain the same as they were before you bought it. 

These should all be outlined in the property’s existing lease agreement, and include such things as paying rent on time and keeping their rental unit in good shape.

This means that you can’t raise the rent, modify the terms of the lease, or evict the tenants before the lease is up (unless they violate the lease terms themselves).

Pros of obtaining a property with existing tenants

The property is already generating income

The most obvious benefit of buying a house or multifamily property with tenants already living in it is that it’s already generating rent income when you take over as landlord.

This is convenient because you start earning a return on your investment right away, rather than waiting until you fill vacant rental units.

May help with getting a mortgage

Another advantage of buying a property with existing tenants is that it may be easier to get a mortgage to help pay for the property.

This is because of the fact that you already have a guaranteed income from the tenants, which can go towards paying off your mortgage right away.

You don’t need to scout for new tenants

Lastly, buying a rental property with tenants allows you to skip the whole process of scouting for new tenants until further down the road.

This means you get to skip the whole process of tenant screening and you aren’t losing money while your property stays empty.

This could be particularly beneficial if you’re a new landlord, as you get to essentially skip a big part of the rental process and get right into making money off your investment.

Cons of obtaining a property with existing tenants

You are obliged to follow the terms of the current lease agreement

As we discussed earlier, when you buy a tenant-occupied property, the lease agreement that’s already in place remains legal, and you have to follow its terms.

This shouldn’t be too big of a problem unless there are terms of the lease you don’t agree with or if you want to get the tenants out to occupy the property yourself or for another reason.

To avoid potential issues, always read the existing lease agreement from front to back and make sure you fully understand its terms (and are okay with them) before you close a sale on an inhabited property.

It’s also good to remember that, as soon as the current lease term is up, you can amend it and sign a new agreement with the existing tenants. So, if you buy a property with tenants and there are only a few months left on their lease, minor terms you don’t love may not be a very big deal.

If you don’t get along with the tenants, they can be difficult to remove

Although skipping the tenant screening process can be an advantage for many landlords, there’s also a risk that you don’t get along with the existing tenants and therefore you’d like to replace them.

But, until the lease is up, there’s not much you can do to remove existing tenants, unless they’re violating the terms of the lease and you can start a formal eviction process against them (which can take months, anyway).

If you really want to get the existing tenants to leave, your best bet may be a cash-for-keys agreement, which involves paying tenants to leave. Of course, this is less than ideal because you’re losing money after you’ve just made a big investment by buying the property.

In general, it’s best to try and avoid evicting tenants after buying property — it tends to cause more expenses and trouble for you. Asking the current owners about their existing tenants and any problems with them can help you decide whether an occupied property is right for you.

Protect Your Interests as a Landlord by Getting the Right Insurance

No matter if you purchase a property with existing tenants or buy an investment property that you mean to rent out, it's vital to have the right kind of insurance. As a landlord, what you want is a customized landlord insurance, not homeowners’ insurance.  Landlord insurance will protect your property and also cover liability in case someone gets injured on your property. Honeycomb specializes in rental property insurance, wether it's a single family home or a multifamily building you can get an instant bindable quote here.