The Pros and Cons of Buying a Tenanted Property (and Pre-Buy Checklist)

Are you in the market for a rental property? Properties with existing tenants already paying rent can be a great way to get started, requiring less groundwork and more immediate cash flow than brand-new rental operations.

However, like anything, there are two sides to the coin. By understanding both the pros and cons of buying a tenanted property, you can more confidently decide if one is right for you. 

Keep reading to learn these pros and cons, as well as other tasks to check off before signing on the dotted line. 

Pros of buying a tenanted property

1. Immediate cash flow

Existing tenants mean existing flows of monthly income, something you don’t get when buying a new, unoccupied rental property.

2. Established tenant base

Another benefit to having an established tenant base is not having to find, screen, and sign new tenants. This means more time saved, less stress, and the peace of mind of knowing you (hopefully) have tenants with a reliable record of paying rent.

3. No need for advertising 

The costs of advertising your rental property can add up quickly, especially the longer your property is on the market. This includes financial costs, but also time costs. Existing tenants mean less money in advertising and more in your wallet.

Rhenti gets your listing noticed with professional-grade marketing automation and is less expensive than doing it yourself.

‍Chat with our team to learn more.

4. Potential for rental increase

Charging people the right rent can require lots of research. Getting your property’s worth while staying competitive is a fine line. But assuming the previous owner of your property did their research, you'll be saved the trouble of having to research from scratch. 

That said, it’s still important to keep tabs on the market. This way, when your tenants’ existing leases expire, you know what market value to bring your rent up to. Staying up-to-date will also help you get the most out of your rental increases. 

Cons of buying a tenanted property

1. Inherited tenants may not meet your standards

Coming into a rental property with perfect tenants doesn’t always happen. The existing tenants may have met the standards of the previous owner but not yours. For example, the previous tenants may have been friends or family members, or had some sort of other relationship with the previous owner that allowed them to get away with less-than-stellar behaviour. 

In cases like these, prepare yourself to explain to your tenants that will no longer be the case — and navigate the resistance that will likely come from this conversation.  

2. Potential for tenant turnover

Like when a company changes owners and employees leave, it’s possible that when you come in as a new owner and start making changes tenants will leave. Lease conditions and mandatory notices will affect how quickly tenants can leave, but tenant turnover—especially en masse—can leave you in a tough spot. 

To minimize the chances of this happening, communication and gradual roll-outs are key. If you plan on making changes, ensure they’re legally allowed, explained in writing to tenants as far out as possible, and introduced as gradually as possible. Some turnover may be unavoidable no matter what you do, but this approach will at least minimize it. 

If you do face your situation of needing to find a new renter, you can reference the ultimate Canadian tenant screening checklist here.

3. Difficulty in increasing rent without losing tenants

While existing rent prices can save you from having to do the research to set them yourself, they can also make things harder if you want to increase them, especially if your tenants have been paying under market value. 

For example, let’s say you buy a property, do significant work on it, and want to increase rent by more than the normal 2.5% in a year. Other than applying through the Landlord and Tenant Board, you’ll also have to deal with introducing this price hike to your tenants which might not go over so well.

4. Tenants may be difficult to manage

There are all sorts of existing dynamics you can come into when buying a tenanted property; dynamics you don’t have to worry about with vacant properties. 

For example, a previous landlord-tenant relationship might have allowed a tenant to get away with paying their rent late. Or maybe there was conflict between two tenants that the previous landlord always dealt with. As the new landlord, these issues suddenly become yours. 

What should property owners know and do before buying a tenanted property?

Before buying a tenanted property, check off each of these items: 

• Review existing lease agreements
• Conduct a thorough property inspection
• Review the tenant payment history
• Verify tenant information/ask about existing challenges
• Consider hiring a property management company

Let’s take a closer look at each of these items.

• Review existing lease agreements

Legally, you want to know exactly what you’re coming into. Before signing anything, go over all lease agreements with a magnifying glass. If you’re not comfortable doing this yourself, enlist the help of a professional who can help you understand what you’re looking at. 

Going over existing documents will also catch you up on what existing tenants are paying, how long they’re renting, who is renting what part of the property, and generally acquaint yourself with the people you’ll be managing.

• Conduct a thorough property inspection

This goes without saying, but conduct a thorough, in-person property inspection before buying. Reading or being told something is one thing but seeing it in person is another. If needed, enlist the help of a third party to make sure you’re getting an accurate impression of the state of the property during your inspection.

• Review the tenant payment history

To help identify any issues you may have to deal with after buying your property, review the payment history of all tenants. Other than identifying potential payment problems, this can also help unearth previous tenant-landlord arrangements that you may be inheriting (like late or partial payments being acceptable). 

• Verify tenant information

A tenant’s current situation may look very different than when they first moved in. This is why it’s important, with their written permission, to re-verify the financial and credit information of all tenants before committing to buying a property. You’ll likely have to ask the existing owner to help you with getting this information. 

It’s also useful to ask about any existing tenant challenges that exist within the property you’re considering. Does the tenant on the first floor constantly not do their share of the household chores? Does the couple on the second floor blast their music late into the night? Getting a full tenant run down can let you know what to expect and prepare for when buying a property. 

• Consider hiring a property management company

Managing a rental property by yourself can be a lot of work. Renovations, tenant management, handling payments, staying up to date on renting laws for your area; these require a lot of time and energy, and it’s important to decide before buying if you’re up to the task. If you want to keep room for other priorities in your life, hiring a property management company to handle most of the work may be a better option. 

Rent easier and faster

Like anything, there are pros and cons of buying a tenant property. But by following the checklist above, enlisting professional expertise where needed, and using automated lead-to-lease software like Rhenti, you can mitigate most challenges that come with tenanted properties. 

Sign up today for free to learn why thousands of landlords, property managers, agents, and leasing professionals across Canada use Rhenti to streamline their leasing operations.