Whether or not you are buying a single-family house, a duplex or a multifamily property there are things you need to address, during the buying process. These important questions will let you know if you are buying someone else’s problems. Here is what you need to ask for when buying a rental property.
First item I think a buyer of a rental property should ask for is the tenant(s) payment ledgers. Payment ledgers or transaction histories will show all charges and payments the tenant has ever made. If a seller/current landlord cannot produce this, then that shows they are not keeping good records. If they are able to provide this info, it will show you the history of the tenant’s payments. Items like constant late payments, bounced checks, and or tenant caused maintenance issue will show on this ledger; this will clue you into what you can expect from the tenants as past behavior is a good indicator of future actions.
Second item you should get, all critical documents and information from the seller. In the purchase and sale agreement a buyer of a rental property should require the seller to provide the follow critical documents.
- Copy of the tenant’s rental application and updated contact info. Most landlords cannot provide the full screening report for the tenants but a buyer of the rental should always request a copy of the original applications to rent the property. This will contain the tenant’s personal information which would be needed if the new landlord has to evict or go after collections of an amount owed.
- Fully signed around copy of the move in condition report. This is critical! If you cannot prove the condition the unit was in when the tenant moved in, you cannot charge them for damages. In my home state of Washington a landlord cannot hold a deposit if a signed move in condition report does not exist. If you buy a rental and do not get the move in condition report, then charge a tenant for damages you know they did, you would most likely lose in court if the tenant challenges the charges. So be sure to require the seller to provide a fully signed move in condition report. If the report allows the tenant to make changes after move in [which many do] then be sure the copy you receive is the final version.
- Fully signed around copy of the lease/rental agreement. This one may seem like a “no brainer” but you would be surprised at the number of times I have come across someone that purchased a rental and did not even get a copy of the lease/rental agreement. This can be a big deal. If the selling landlord signed a new lease with the tenants before the sale took place and you don’t know that, then you could be stuck with terms you were not anticipating. Also make sure to READ the lease/rental agreement for current tenants
- Information on any pets [or ADA animals] in the property. If the lease/rental agreement does not include pet information then their may be a “pet addendum”. A buyer of a rental should request and then attempt to verify what pets [or ADA animals] are living in the property. Tenants with pets should have rules in the rental agreement regarding their pets [such as a requirement to keep dogs on a leash if they are not in a fenced in yard and to agree to pick up any dog waste].
- Copies of ID of all occupants/tenants. Landlords should always require copies of ID and keep those on file. With ID theft as prevalent and it is, this is critical to ensuring that tenants are who they claim to be.
After the critical info listed above a buyer of a rental property should get the overall financial information as well. Requesting profit and loss statement going back three years is a good rule. Reviewing these reports will allow you to see the gross income the property is producing, and the operating expense. With these you can calculate your ROI [Return On Investment]. Just be sure to look over the expense discerningly. If the property is well maintained, then the maintenance costs in the profit loss should be pretty accurate. If the property has a lot of deferred maintenance, then you can plan on higher expenses.
Getting all of this information will set you up to be able to successfully manage the rental after your purchase. It is always more difficult trying to get these documents after closing. Not all sellers will have this info, but knowing that before you buy is important so that you know what you are getting into. By using the above tips, your venture into buying a rental will be seamless for all parties involved, since now you know what you need to ask for when buying a rental property.
