As a real estate investor, you might find yourself closing on a property that’s already occupied.
What does that mean for the process? It’s a lot more nuanced than it is if you were closing on a vacant property. Many investors find this to be hugely advantageous. After all, you’re acquiring an asset that already has a source of income. Other investors find it to be a hassle, however, because of the extra details that are required.
At ManCo Property Services, we believe it’s all in the preparation and the management.
You’ll need to pay special attention to the closing statement, and there’s some extra due diligence that’s required. Make sure you’re asking the right questions.
We’re going to detail some of the things that need special attention when you’re closing on an occupied investment property in Dayton.
Remember that every closing is a little bit different anyway. It’s always important to be surrounded by local professionals who know exactly what they’re doing. As Dayton property management experts, we can help.
A Dayton Real Estate Investor’s Checklist for Closing on Occupied Properties
When we approach a closing that includes occupied units or a tenant in a home, we spend as much time as we can laying the groundwork. Being overly-prepared is not only smart, it’s the best way to provide high quality service to both the buyer and the seller. Most importantly, it protects the tenant who is living in their home and does not want to be disrupted as the ownership of that home changes hands.
Here’s a checklist which can serve as a great starting point and remember: this is a flexible document, not one that’s set in stone. Every property is different, and all of the tenants living in the occupied properties you buy will have their own unique needs. As property managers, we’re always willing to make changes in pursuit of providing a more personalized experience for both the owners and the tenants we’re working with.
1. Review the Existing Lease Agreements
Before you show up for the closing date, ensure you obtain and review all lease agreements for the occupied property. You need to know what’s already in place, and unless you have a very good reason for changing something, you’ll have to honor these lease details until the tenancy ends and you can re-negotiate on your own terms.
Not whether there’s a lease renewal approaching. Look for any indications that there are delinquencies or lease violations that need to be addressed. As you’re checking through the lease agreements, pay close attention to:
- Rent amounts and due dates
- Lease terms (month-to-month or fixed-term)
- Security deposit amounts
- Special provisions and rules outlined in the agreements
- Tenant obligations and landlord responsibilities
This information is crucial for maintaining compliance with state and local laws and with understanding the property’s cash flow.
Look at rent rolls, too. By cross-checking the lease with the financials and the rent rolls, you can confirm that everything is accurate and up to date. This is the best way to understand how long your tenants have been in place and what kind of rental experience they are having.
2. Identify Any Financial Concerns
Outstanding payments, overdue debts, delinquent accounts are problems you are potentially going to inherit with an occupied property. Request a detailed ledger from the seller to determine if any tenants owe back rent or other payments.
Understanding where each tenant stands will help you prepare as the new landlord. Are there pending evictions? Are there legal notices waiting to be served?
Get a full financial sense of the property before you close.
3. Inspect the Property with Occupants in Mind
You’ll want to get a look at the investment property you’re buying, so coordinate a walkthrough with the seller, if possible. This can be tricky with tenants in place, but if you’re providing enough notice and working around their schedules, it shouldn’t be too difficult. Make it clear that you’re not showing up in order to invade their privacy or look for reasons to be displeased. Instead, you want to see the property and how it’s functioning.
Once you’re inside, look at the physical condition of each unit. Note any unreported maintenance issues and take stock of potential tenant modifications or possible unauthorized alterations. This process will help you assess immediate repair needs and plan for future maintenance.
4. Transfer Utility Accounts
Is the current owner paying for any utilities? This will be an important detail to establish before you take over. Determine which utilities are the landlord’s responsibility versus the tenants’ and coordinate with the seller and utility companies to ensure seamless service transfers for property-managed utilities.
5. Create and Execute Tenant Communication Plans
Does the tenant know there is new ownership coming in? This is something that should be communicated with them before you close. Discuss with the seller and your property manager how tenant handovers will be managed post-closing.
Put together a plan for notifying tenants about the change of ownership, making payment process updates, and establishing your preferred communication methods. Clear communication helps create trust and reduce confusion for your tenants from day one. This is another area where your property manager can be especially valuable.
6. Address Security Deposits
Security deposits legally remain with the property, but they need to be transferred correctly. Ensure:
- You receive a full accounting of each tenant’s security deposit
- The deposits are held in accordance with local landlord-tenant laws
- Documentation includes any prior claims or deductions on the deposits
7. Verify Insurance Coverage
Occupied properties come with additional risks, so verifying adequate insurance coverage before closing is essential. Ensure your policy includes liability protection, tenant-related claims, and property damage. Double check the coverage period to avoid any lapses during the transition.
As you can see, it’s extremely important to have the right professional partners navigating this process with you. Work with an Accredited Buyers Representative (ABR) who specializes in investment properties and has worked through closing on an occupied property before.
We know what questions to ask, and we’d be happy to support you during such a situation. Please contact us at ManCo Property Services for more information.
And remember: If it’s a property managed by ManCo, life just got better!