Investing in a rental property that’s already occupied can be advantageous to rental property owners, given the fact that rent is already coming in when you take possession of the home. There’s no need to go in search of tenants, to invest in upgrades and updates right away, or to create a lease agreement. All of those pieces are in place.
That doesn’t mean investing in an occupied property is easy.
As many investors can tell you, buying a rental home that already has renters comes with a few extra steps. You’ll need to understand a few key details, and working with a professional property manager can help you navigate negotiations with the seller and their existing tenant.
Here’s what we can tell you, based on our own experience helping investors buy a tenant-occupied rental home.
Review the Existing Lease Agreements Thoroughly
Before closing, request all current lease agreements from the seller. These should include important pieces of information, such as:
- Start and end dates
- Monthly rent amounts
- Security deposit information
- Renewal clauses or month-to-month terms
- Any special terms, for example are utilities included? Is there a pet policy in place? Who is responsible for the landscaping and other minor maintenance issues?
You’ll need to honor the existing lease agreement until its termination date. This means you’re stepping into the shoes of the previous landlord and taking on all legal obligations as they’re written. Make notes of what you might want to change at lease renewal time.
Verify Tenant Payment History
Buying a rental home that already has tenants in place is great unless those tenants pay late or don’t pay at all. Make yourself familiar with the tenant’s payment histories, including whether they’ve historically paid on-time or late. Note whether there are any rent balances due. Look for a history of bounced checks or non-payments.
This financial data gives you a better understanding of what kind of tenants you’re inheriting. If there’s a pattern of delinquency, you may want to renegotiate your offer or be prepared to take action post-closing.
Confirm Security Deposit Transfer
In markets such as Kansas City, when a rental property changes ownership, the seller is responsible for transferring all tenant security deposits to the buyer at closing. The buyer then becomes responsible for returning those deposits at the end of each tenancy. Ask the seller for a ledger of all security deposits held and ensure those amounts are accounted for on the settlement statement. Designate the account you want the security deposit funds transferred to, and make sure they show up immediately after closing.
Conduct a Pre-Closing Property Walkthrough
Occupied properties don’t always get the full inspection treatment since tenants can restrict access. You’ll want to ask for their consent to enter the property and verify the condition of the home before you close the deal. Note any damage or deferred maintenance that will need your attention.
Tenants need plenty of notice before you enter their home. When you’re respectful and committed to not being disruptive, you’ll start your tenant relationship off on good terms.
Clarify Prorated Rent and Expenses
Since you’ll be taking over the rental property mid-lease, the rent and expenses should be prorated to reflect the actual date of closing. For example, if your closing is on the 20th of the month and rent is $1,500/month, you should receive a prorated share for the remaining 10 or 11 days.
These prorated amounts are typically listed on the settlement statement. Be sure to double-check that they’re calculated correctly.
Understand Your Property Management Options
If you’re not already working with an expert partner, this is an excellent time to connect with a reputable property management company who can help with the tenant relationship and the logistics around security deposits, rent, maintenance, and lease agreements. A good property manager will take over tenant communications immediately and handle lease enforcement and rent collection proactively.
In some cases, the seller may already be working with a property manager and the transition can be seamless. But, you’ll ultimately have to decide whether to continue that relationship or transition to a new firm after closing.
If you’re not sure about where to turn, contact us at Key Partners Property Management. We have worked with investors on transactions like this before, and we have processes and technology in place to keep complications to a minimum.
Request All Tenant-Related Documentation
You’ve already received the agreements, but we recommend that you also ask for:
- Tenant applications and background checks (if available)
- Maintenance records and open work orders
- Notices issued (late rent, violations, etc.)
- Copies of tenant communication related to repairs or complaints
This information gives you a clearer picture of tenant expectations and ongoing property issues. It also prepares you for any immediate needs post-closing.
It’s best practice to formally notify tenants that a new owner is taking over. This can be a welcome letter or change-of-ownership notice, including:
- Your name or your property manager’s name
- Contact info for maintenance requests and rent payments
- Reassurance that the current lease remains valid
- Any immediate updates (if applicable)
Many investors overlook this step, but it sets the tone for a positive landlord-tenant relationship and prevents confusion. Again, if you’re working with a property manager before you reach the closing table, you’ll have all of this working for you seamlessly and as an owner you won’t have to worry about the details. Your management partner will take care of it for you while keeping you informed about any concerns or issues that may arise.
Closing on an occupied property can be smooth as long as you’re prepared. Unlike vacant properties, these investments come with existing tenants, obligations, and their own histories. By following this checklist, you ensure you’re not only protecting your investment but also laying the groundwork for a successful ownership transition.
We believe this rental market offers incredible potential for long-term growth, especially when it comes to rental properties. If you need some help identifying an opportunity, negotiating a deal, or managing a property you’ve already closed on, please contact us at Key Partners Property Management.
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