Investing in real estate is a bit like online dating—you think you’re getting a dream property, but sometimes you inherit a few surprises along the way. One of those surprises? Buying a house with tenants who already live in the home you’re purchasing! This strategy can be a fantastic way to step into a turnkey rental income opportunity, but it comes with unique considerations. Whether you’re a seasoned investor or a first-time buyer, understanding the ins and outs of buying a house with tenants is crucial. Here’s what you need to consider before signing on the dotted line.
1. Read the Lease Agreement Like It’s a Mystery Novel
Before you even think about closing the deal, take a deep dive into the lease agreement. Think of it as the backstory to the investment you’re about to inherit. The lease will outline crucial details such as rent amounts, expiration dates, renewal clauses, and any special terms (like whether the tenants are allowed to turn the living room into a reptile sanctuary). Florida law protects tenants’ rights, so you need to honor any existing agreements until they expire—no loopholes, no evictions without cause.
Pro Tip: If the lease is set to expire soon, this could be a chance to renegotiate terms or assess whether you want to continue buying a house with tenants or seek new renters.
2. Know Thy Tenants
Would you buy a car without checking the mileage? Of course not. Similarly, when buying a house with tenants, you need to do some due diligence on who’s actually living there. Look into payment history, length of tenancy, and overall care for the property. A tenant who has never missed a rent payment? Gold. A tenant who keeps pet alligators in the bathtub? Maybe reconsider.
Ask the current owner for rent rolls, maintenance history, and any relevant background on the tenant’s relationship with the property. If the tenants have been consistent with payments and treat the home well, you may have just found an investor’s dream scenario—a steady stream of passive income with minimal headache.
3. Run the Rental Income Numbers Like a Pro
A house with tenants is only a good deal if the numbers make sense. Does the rental income cover your mortgage, taxes, insurance, and maintenance costs? Is the rent below market value, meaning you’ll need to adjust it when the lease expires? The Pensacola to Panama City rental market has seen steady appreciation, with median rents rising over the past few years—so ensuring your investment is aligned with current trends is key.
Market Snapshot:
- As of 2024, the average rent for a single-family home in Pensacola is $1,800/month, while in Panama City, it’s around $1,900/month.
- Florida’s rental market has remained competitive due to high demand and limited supply, meaning well-maintained rental properties can command strong returns.
If the current rent is well below market value, you’ll want to factor in potential increases when running your investment calculations. However, be aware of rent control laws and tenant protections in Florida that may affect how quickly you can raise rates.
4. Calculate Your Expenses Beyond the Purchase Price
Investing in a house with tenants isn’t just about collecting rent—it’s about covering all the costs that come with ownership. Beyond the mortgage, be sure to account for:
- Property taxes (varies by county but can be estimated at 1-1.5% of the home’s value annually)
- Insurance (expect higher rates due to Florida’s storm risks)
- HOA fees (if applicable)
- Property management fees (if you don’t want to handle the tenants yourself)
- Repairs & maintenance (because A/Cs love to break in the middle of July)
5. Get a Home Inspection—Tenants or Not!
A home inspection isn’t just for buyers looking to live in the property. Even if the house already has tenants, you need to know if you’re inheriting a solid investment or a money pit. Inspectors can uncover hidden issues like faulty wiring, plumbing nightmares, or roofs that look fine but are secretly conspiring against you.
Pro Tip: If the home needs repairs, negotiate with the seller to cover the costs before closing. A few thousand dollars in repair credits can go a long way!
6. Financing a Tenant-Occupied Property: What to Expect
Lenders tend to scrutinize rental properties with tenants more than primary residences, so be prepared for a few extra hoops to jump through. They may require:
- Proof of rental income (leases, bank statements, tax returns)
- A higher down payment (typically 20-25% for investment properties)
- A higher interest rate than an owner-occupied home
That being said, financing options like conventional loans, FHA loans (for 2-4 unit properties), and even hard money loans are available. Make sure to shop around for the best loan terms.
7. Work with a Real Estate Pro Who Gets It
Buying a house with tenants is different from your typical house hunt, so working with an experienced real estate investor or agent is key. They can help navigate lease agreements, negotiate with sellers, and ensure you’re making a smart investment.
At The Gulf Coast Property Group, LLC, we specialize in connecting investors with rental properties with tenants that offer solid income potential. Whether you’re looking for your first investment or adding to your portfolio, our team knows the Pensacola to Panama City market inside and out. We can even recommend property managers to keep your investment running smoothly.
Is Buying a House with Tenants Right for You?
If you’re looking for an investment that starts generating income on day one, buying a house with tenants could be a fantastic opportunity. But as with any investment, doing your homework is critical. By reviewing lease agreements, vetting tenants, calculating expenses, and working with the right professionals, you can turn a rental property with tenants into a profitable and hassle-free asset. Interested in finding a tenant-occupied investment property in the Pensacola to Panama City area? Reach out to us today and let’s find the right deal for you! (850) 203-5788