Closing on a property is pretty standard, especially if you’ve been through it before. Money is exchanged. Keys are handed over. The negotiated terms are finalized and the deal closes. Everyone usually walks away from the table happy, either with their earnings or the fact that they now own a new investment.
But what happens when you’re closing on an occupied property? It’s not like you’ll be collecting the keys and heading over to turn the place into your own. There’s a tenant whose privacy and entire life you have to respect, and that tenant is not going to be at the closing table.
As Las Vegas property management professionals, we work with investors, landlords, and tenants as they encounter all sorts of situations. We’ve found that buying and selling occupied rental properties can be particularly stressful and challenging.
But it doesn’t have to be. When you’re prepared, when you know what to expect, and when you’re working with the right professional team, these things can go quite smoothly.
Here’s your checklist for what to expect at closing when you’re buying (or selling) an occupied rental home.
Nuances and Needs: Occupied Properties Are Different
The closing process is always full of details that need managing. When you’re dealing with an occupied property, there are extra details and considerations, obviously. Tenants are living in the property that you’ve just bought, which means you’re getting humans as well as houses. This can create additional complications if you’re not prepared and careful.
When closing on an occupied property, you inherit more than just the structure of the property or the building itself. As the new owner, you’re also stepping into existing lease agreements, tenant relationships, and potential liabilities. There may be a list of maintenance requests that are waiting for your attention. There could be a lease that’s about to renew or a couple of rent payments that are way behind. You become a landlord as soon as the deal closes.
Occupied properties require additional due diligence. You don’t want to approach the closing table without reviewing lease agreements, checking rent rolls, ensuring compliance with landlord-tenant laws, and verifying the condition of the occupied units. Being proactive during the closing process can help you mitigate risks and set yourself up for a smooth transition.
One thing we always stress to investors is the importance of working with a real estate expert who can also provide property management support. This will be critical to your success, and it will make your tenants feel a lot better about the changes that are occurring. Yes, you own the property now. But someone else considers it their home. If you can be sensitive to that, everyone will have a better experience. Property managers can be the objective third party you need between you and your new tenants. We understand the leasing, the management, and the maintenance. We can save you a lot of trouble and stress.
How a Checklist Can Help
Your real estate agent likely has their own checklist of the tasks to be marked off before and during closing. We respect that.
We’d also like to add to it.
As property managers, when we approach a closing that includes occupied units or a tenant in a home, we do as much work ahead of the closing date as possible. Being prepared is not only smart, it’s also better 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 are some of the most important parts of our own checklist. Remember – this can be a flexible document, not one that’s set in stone. Every property is different, and all of your tenants will have their own unique needs. As property managers, we’re always willing to make changes in pursuit of a more personalized experience.
Step One: Review the Lease Agreement
Review all lease agreements for the occupied property that you’re buying. Whether it’s a multifamily building with six lease agreements or a single-family home with just one, you have to be aware of what kind of terms are in place when you acquire the asset. Unless you have a very good reason for changing something, you’ll have to honor these lease details until the tenancy ends and the tenant moves out or the tenancy ends and you can re-negotiate a lease renewal on your own terms.
What are you looking for when you comb through the lease agreements already in place? Here’s where you want to start:
- Find out what the rent amounts are and when they’re due. Are there any accounts in arrears? What are the late fees and the grace periods?
- Examine the lease terms so you know if you’re dealing with month-to-month tenants or residents on a fixed-term lease.
- Security deposit amounts and where those funds are currently held.
- Special provisions and rules outlined in the agreements.
- Tenant obligations and landlord responsibilities. Who is responsible for what?
The information is crucial for maintaining compliance with your existing lease agreements. It is also going to help you understand the property’s cash flow.
Step Two: Familiarize Yourself with All Financials
Financial due diligence is part of any closing process, but there’s a new sense of urgency when you’re taking on a property where rent payments are already coming in and security deposits have been collected.
Request a detailed ledger from the seller before you close so you can determine if any tenants owe back rent or other payments. Taking on these properties will not get off to an easy start if you’re set to inherit unresolved disputes or unpaid rental amounts. Are there security deposits due to go back to departing tenants? Money owed from tenants who left damage behind? Pending evictions?
Include these details in your negotiations or closing agreements. Taking possession of your new investment property should not require you to immediately begin chasing down late rents or overdue debts. You want to know where each tenant stands, and why any money that is owed has not yet been collected.
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
Sort the insurance, too. 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. Find out whether renters insurance is something that tenants have.
Step Three: Conduct a Property Walkthrough
Before you close, it’s important to walk through the property. With tenants in place, you’ll want to be respectful of their time and privacy.
Most tenants will be understanding and willing to coordinate a walkthrough with you, especially when they are provided with plenty of notice. 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. When walking through occupied units, consider:
- Property condition. Is everything safe and functional? Are there potential places for upgrades and improvements once you take ownership?
- Any unreported maintenance issues. If tenants have been slow to report repairs in the past, you’ll want to address that for the future.
- Tenant modifications or possible unauthorized alterations. If you spot lease violations during your walkthrough, make a note to bring those tenants into compliance after you close.
This process will help you assess immediate repair needs and plan for future maintenance. Talk to the tenants, if you can. Ask about improvements they’d most like to see and try and get a sense of their satisfaction with the property. They might appreciate the opportunity to provide feedback.
Discuss with the seller how tenant handovers will be managed post-closing. This includes notifying tenants about the change of ownership, payment process updates, and 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.
Approach Your Closing with Confidence and Expert Support
It requires some extra steps, but closing on an occupied property doesn’t have to be overwhelming.
With thorough preparation and attention to detail, you can smoothly transition into ownership while minimizing potential risks. By following this quick checklist we have provided, you’ll be well-positioned to take control of your new investment with confidence.
Remember that we’re here to serve as a resource, a support system, or a leader when it comes to buying, selling, or investing in rental properties. We help real estate investors make informed decisions every step of the way. From navigating the real estate closing process to building solid tenant relationships, we provide the tools and resources you need to succeed.
Please contact us at New West Property Management. Our team expertly manages residential rental homes in Las Vegas and throughout Clark County, including Henderson and North Las Vegas.
