Every real estate investor wants to find tenants for their investment properties right away. As soon as you acquire a new property, tenant placement means rent starts coming in. That’s good for your earnings and your income.
Imagine buying a rental property that already has a tenant in it! This provides you with immediate rental income and little stress over marketing for a tenant, screening, and establishing a lease agreement. That’s already in place.
This does not mean that buying an occupied property is without challenges, however. This situation also means there’s no opportunity to choose your own tenant. You won’t be able to make major renovations to the property before renting it out.
And, you have to get through the closing process.
We’ve helped many rental property owners close the deal on an occupied property, and we’re here to provide some checklist items so you can do it with ease.
You’re Getting More Than a Rental Property
When purchasing an occupied property, you’re not just investing in the structure of a rental home. You’re also inheriting lease agreements, tenant obligations, and maintenance commitments. Florida is a pretty landlord-friendly state, but tenants still have rights and protections, and respecting the lease agreement that they’ve signed is something you’ll have to expect. Transitioning ownership requires a lot of details and attention.
Occupied closings can involve:
- Active lease agreements
- Month-to-month tenants who are not working with an existing lease
- Verbal agreements or understandings that may be in place between tenants and current owners
The key to a smooth closing lies in proper documentation, communication, and compliance with state laws. Professional property management can help, especially when tenants are involved.
Pre-Closing Checklist for Occupied Properties
As the closing date approaches, you’ll want to be prepared, and this begins with a review of the lease agreements that are in place. Here’s our approach to handling these details ahead of closing:
- Review and Verify Lease Agreements
Before you close, request all written lease agreements from the seller. You’ll want to verify lease start and end dates, rent amount and payment schedules, and any responsibilities for utilities and maintenance. Are there HOA fees? A landscaping contract currently in place?
It’s also important that you know the security deposit amount and where it’s held.
- Understand Tenant Rights and Florida Laws
Florida law generally protects tenants under the lease even after a sale. This means you cannot evict that tenant without cause if there is a lease agreement protecting them until the end of that agreement. If you’re buying a property with a tenant in place who is renting under a month-to-month agreement, you’ll need to provide 15 days of notice at least before terminating their tenancy. Those security deposits must be transferred properly. We strongly encourage new owners to know their rights and their legal obligations before taking title.
- Conduct an Occupancy Verification Inspection
Getting inside the property before you close can help you understand your starting point. Schedule a walk-through or occupancy inspection before closing. This will help you confirm who is occupying the property and it will also verify the condition of your investment. This is a good opportunity to check for unauthorized occupants or pets, and you can review maintenance and repair needs in order to budget for the coming months and year.
Not every seller and tenant are eager to allow buyers into the property ahead of closing. If access is restricted, require a post-closing access agreement or a seller’s sworn affidavit about occupancy and condition.
- Request Estoppel Certificates for Multi-family Properties
If you’re purchasing a multi-family or commercial property, your next checklist item is to ask tenants to sign an estoppel certificate. This is a standard document which verifies rental amount and payment status, lease terms and expiration date, and security deposits paid. This is also a tenant’s opportunity to disclose any claims or disputes that may be ongoing with the existing owner.
In Florida, this is not legally required for single-family homes, but you can still ask for one. It provides valuable protection against post-closing disputes.
Security Deposit Transfers
The security deposit collected by the seller must be transferred to you at closing. The alternative to this is that the owner will return the security deposit to the tenant with a written agreement. We recommend that you have the deposit transferred to you so you’re not at risk of paying for property damage when the tenant moves out.
Make sure your closing attorney or title company includes the deposit amount in the settlement statement (HUD-1 or Closing Disclosure). If it’s not addressed, you may become liable to the tenant without reimbursement from the seller.
Receive a Copy of the Tenant Ledger
As the closing approaches, ask the seller or their property manager for a full tenant ledger, which includes:
- Rent payment history
- Late fees
- Maintenance requests
- Lease violations
This gives you insight into tenant behavior and potential risks. It also helps with accounting and setting expectations post-close.
Provide Notice of Change in Ownership
Once the deal closes, you must notify your tenants in writing of the change in ownership. Provide your name, contact info, and instructions for paying rent and making maintenance requests going forward. Florida does not require a specific form, but it must be delivered in writing
This is also a good time to introduce yourself, communicate any policy changes, and establish expectations.
If you’re working with a property manager, all of this will be taken care of by your management team. It’s our contact information you’ll provide, and we’ll initiate the tenant contact and make sure that everything transfers from the seller.
Closing on an occupied property in Florida comes with more complexity than a vacant purchase does, but there is also enough opportunity that the transaction is more than worth the effort. With rental income starting from day one, the benefits are fantastic if you do your due diligence.
If you have any questions about closing on your occupied property or anything pertaining to property management in Florida, please do not hesitate to contact us at Park Avenue Property Management. We provide exceptional leasing, management, and maintenance expertise in Celebration, Orlando, Lake Buena Vista, Kissimmee, Maitland, Altamonte Springs, West Palm Beach, Tampa Bay, and throughout Central Florida.
