Buying apartment complex with tenants

[Damon]

I am eyeing this apartment complex that's for sale in my area. The only downside is that there are various tenants already paying rent at this apartment complex. I think around 8 people are living there currently. 

What's your preference for buying such a property? Is it worth it? Or would you pass on this? 

[James]

This is typically how I buy investment property. It is much easier to value when the property is generating cash flow. This is exactly what you are looking for. If rental rates are below market make sure to figure out how much time is left on the leases or if they are already month to month. 

If the property has a ton of the value that can be added you will likely want to start working each unit one at a time so 30 day vacate notices to month to month leases will work perfect for getting the place turned over. You will still have the revenue from the other units while you work so you do not have a property just sitting there not producing any cash. 

Make sure to take a look at the rent rolls. Ask about missed payments. During covid time there have been a lot of missed payments and some places are still under eviction protection so that is a risk. 

Buying property with current tenants is typically a good thing. It is when you buy something with a bunch of problem tenants that things can go sideways. Of course you can never know for sure but diving into the apartment complexes financials should be able to answer a lot of those questions. 

During your due diligence phase you should also get the tenants to tell you how much they pay in rent and sign a piece of paper stating that. I think its called a Tenant Estoppel. That way you can verify the other financial information you have been given. I got cheated out of rent on the last transaction I did because the lease stated the tenant paid $800 a month. When I went to collect my first bit of rent they paid me $1300. Which means in escrow when the property changed hands I was a bit short changed. It is preventable.