There are many reasons you may want to consider purchasing rental properties with existing tenants in your search for buying commercial properties in your area.
By Brian Kidder
Finding a property that suits your needs can be difficult. There are approximately 20 million rental properties in America, with more properties expected to be built every year.
The commercial rental rates in your area may differ depending on whether they’re currently occupied or not.
When deciding whether to buy a commercial property for sale, there are so many factors to take into consideration and so many questions to answer.
What will you do if there are already tenants living in the building? What if you wanted to create and enforce new contracts for commercial leases?
Keep reading for details.
Purchasing rental properties with existing tenants is an excellent way to get started in real estate
There are many reasons you may want to consider buying commercial properties in your area with existing tenant populations when searching for commercial rentals in your neighborhood.
- If you don’t want to deal with finding tenants or screening potential renters, you can avoid that hassle by buying an apartment building that has already been leased.
- You can also get higher prices for the property because of the additional income it generates.
- You’ve found the perfect property and don’t want to wait for it to become available without commercial real estate occupants before buying it.
Most commercial properties for sale with existing tenants are tenant-occupied properties.
This means the tenant has an agreement with the current landlord to rent the space.
However, the property may also be owned by someone who rents out the space. Depending on where you’re located, this kind of tenant might have different rights.
When purchasing an investment property, here are some tips to protect yourself against potential legal issues.
It is important to know the rules and regulations before buying a property that is already inhabited.
Speak to your local council or your housing association to find out exactly what they require from commercial landlords who rent properties.
First, understand that existing tenant leases are still valid
Even if there are existing tenants, the lease is still valid. As long as the existing tenants don’t violate any laws, they’re free to stay there.
They can stay there as long as they pay their rent and don’t cause any trouble, according to their lease terms.
But if you want to break them, then offer a contingency.
A contingency is a situation that must occur before the deal goes through. It’s an accepted condition before signing the contract.
If you want to be able to sell a property without having to evict any current tenants, you could say that you would like to include a condition where the property must be empty when you sell it.
Secondly, understand that existing tenants can sign new lease agreements
If existing tenants want to renew their leases with you, even though they currently live there, they can.
If you buy out the existing owner, you can enter into an entirely new lease agreement with these tenants.
This is an ideal method for bringing current tenants onboard because it allows them to know that they won’t be charged any extra fees and that you’re committed to the property.
Consult with the previous landlord
If you’re purchasing a rental property with existing tenants, it’s a good idea to contact the previous landlords and ask them how they vetted and screened their tenants.
Make sure to ask what screenings they did and whether their approaches were thorough enough so that they could catch any red flags.
You need to thoroughly investigate any potential tenants before renting an apartment to them. Otherwise, you might end up finding out that they have a long history of bad tenant behavior.
If you’re not sure how much screening to perform, ask the previous landlords or owners.
They might be able to give you an idea of what they look for when selecting new tenants.
You should enforce your new lease terms
If you buy a rental property with tenants living there, make sure to enforce any new lease terms even if they were allowed under the old lease with your former landlord.
It can be especially important when dealing with situations like rent increases and tenant evictions.
It is possible that they may have assumed that the previous landlord had permitted them to continue doing something that was not permitted by their old lease.
Lastly, know that you can hire experts to help you
Buying commercial rental properties in your local area can be a good investment strategy, but it’ll take time to get started.
Property managers need to be ready for everything that comes with managing a rental property, including making repairs and maintaining tenant happiness.
You don’t need to be an expert at everything to get started. There are experts out there who can guide you through the steps.
Working with a property management company
Property managers can help you negotiate the right lease terms for your situation and budget, and they can also handle any tenant issues you may encounter, from eviction to rent increases.
They can help landlords with tenant issues, including handling lease renewals, evictions, and complaints from tenants.
Don’t forget about the attorney who handles commercial real estate transactions.
Before buying a rental property, choosing an experienced commercial real estate attorney is among the most important things you need to do.
Depending on the type of property that you’re buying, there are many different ways to approach it. However, one thing you need to be sure of is that you have an attorney who knows both the legal and financial sides of being a landlord.
Commercial real estate lawyers usually have experience with both residential property and commercial property and have also been trained to handle challenges and deal with potential problems, such as construction delays and tenant turnover.
They may also be willing to help you find commercial properties for sale with tenants.
About the author:
Brian Kidder of MyEListing.com started in finance as a retail broker, started his own office at age 25, co-headed an investment banking department, launched with Gexa Energy funding in 2002, acted as a chief compliance and anti-money laundering officer for multiple firms, institutional sell-side broker, then ran an OTC equity trade desk. He has put together or participated in over 100 equity offerings and held 8 federal licenses including three principals’ licenses.