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.
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.