What You Need to Know When Purchasing Properties with Inherited Tenants
By Thirdstone Properties LLC - Monday, November 29, 2021
Many investors ask whether purchasing a house with inherited tenants is something to avoid. My answer: do not let the inherited tenant be the deciding factor. The deciding factor should be the property itself. My first three properties came with inherited tenants. The first two required evictions while the third still has the original tenants from when I bought it in early 2019.
The main risk with an inherited tenant is that you know nothing about them: their rental history, credit, income, or temperament. But as long as the property fits your criteria, occupancy status should not be a dealbreaker.
Pros of Inherited Tenants:
Instant cash flow from day one of closing.
Potential long-term stability if the tenant has been in place for years.
Saves time and the cost of placing a new tenant, which can equal one month's rent in placement fees.
Saves money on getting the unit rent-ready.
Cons of Inherited Tenants:
No background, credit, or eviction history available.
You must honor the existing lease until it expires.
No established rapport. You will need to set expectations around payments, maintenance requests, and emergencies.
Unsafe conditions revealed by the tenant may need immediate attention.
Tips for a Smooth Transition:
Ensure the security deposit is transferred to you at closing. It legally belongs to the tenant and you will be responsible for it when they move out.
Call the tenant immediately after closing to introduce yourself. Most will not know the property was sold, so be prepared for some wariness.
Follow up the call with an email or letter covering your contact info, payment instructions, what happens to their deposit, and lease terms. If you cannot reach them, post a notice on the door.
Be prepared for the possibility of eviction. Out of 50-plus tenants we inherited over one year, 7 ended in eviction or abandonment.
Sample introduction script: Hi, my name is [name]. I am calling from [company]. The property you live in was just sold and we are the new property managers. I am calling to introduce myself, get you transferred to our payment system, and see if there is anything in the home the previous owner did not address.
Some of the best deals available today are properties with inherited tenants at below-market rents. Having a clear process in place for inherited tenants gives you the confidence to buy occupied properties. Best of luck!
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