Any experienced real estate investor has been through a number of closings. You know the drill. Even if you’re new to this, you’ve likely closed on your own home.
But closing on an occupied property is a little different. When you buy a home with a tenant in place, or you sell one, it’s important to ensure a continuity for that resident. This will demand thorough preparation and due diligence. This is not a home you’ll be moving into or beginning renovation work on. With tenants or occupants in the mix, there are added complexities, especially concerning legalities, relationships, and transitions.
We have been through this before, and we can help investors feel confident during the closing process. Let’s take a look at the checklist we use for occupied properties that are being bought and sold. Here’s how to prepare.
Why Occupied Properties Require Special Attention
When acquiring a property with occupants, you’re not just purchasing real estate—you’re also inheriting an existing situation that includes relationships, expectations, lease agreements, rental payments, and the responsibility of tenant communication.
These complexities make it essential to understand your responsibilities as the new owner and what the closing process entails.
This is something you should discuss with the seller during the negotiation so the process can be smooth for all parties. If a property manager is in place, even better.
Closing Checklist for Occupied Properties
Here’s what needs your attention. While every closing will be different because every property and every deal is different, you can expect, at the minimum, to handle the following.
Perform Due Diligence on Existing Leases
Before closing, carefully review all lease agreements and tenant records. Verify the following details:
Lease Term and Terms. Are leases short-term or long-term? Are they month-to-month? You’ll need to know how long you can expect tenants to be in place at the property you’re buying.
Rental Rates. How much rent is coming in monthly? Understanding existing rent allows you to evaluate the potential return on investment (ROI).
Tenant Payment History. Hopefully, you’re buying a property with good tenants in place. Take a look at the rent rolls. Are there any late fees or outstanding balances?
Lease-Included Services. You need to know what you’re responsible for as the new property owner. Are utilities, maintenance, or landscaping services included in the rent?
Your due diligence will help you determine whether the current leases meet your financial goals and ensure no legal surprises post-closing.
Verify Tenant Occupancy and Documentation
Ensure every unit has a verified occupant. Request proper identification and lease agreements along with any applications filled out during move-in. It’s important that you don’t overlook these documents—it helps safeguard against any disputes or "phantom tenants" after closing.
Understand Tenant Rights and Laws in Washington State
Tenant rights vary by state and local regulations, and if you’ve never owned rental property in this market before, you’ll need to familiarize yourself with laws around fair housing, habitability, security deposits, and evictions. These laws will help you understand your role, rights, and obligations once you close on the property. For example, how much notice will you have to give existing tenants if you plan to terminate the lease when it’s over?
If necessary, enlist the help of a property manager to ensure compliance with all landlord-tenant laws.
Plan for Communication With Current Tenants
Transparency is going to help you establish a good relationship when inheriting rental property occupants. During the closing period, outline a plan to introduce yourself as the new owner or landlord.
Send a welcome letter to tenants explaining the change. It’s a good opportunity to introduce yourself and assure them that nothing will change right away.
Share pertinent information regarding how to address rent payments, maintenance requests, and other communication.
Establishing clear lines of communication helps create a positive first impression and builds trust early on.
Arrange a Property Walkthrough Before Closing
Schedule a walkthrough of the property with the seller to inspect the property. Pay close attention to:
Any signs of damage or disrepair.
Property compliance with local safety codes.
This inspection ensures you have a comprehensive understanding of the property’s current condition and any potential repairs post-purchase.
Negotiate Security Deposits
When tenants are part of the sale, it’s necessary to transfer any existing security deposits to the new owner. Verify the deposit amounts and terms during the negotiation and closing process to avoid disputes with tenants later.
Review the Estoppel Certificate
An estoppel certificate establishes the current status of the lease terms for a third party, which in this case, would be the buyer. An estoppel certificate is a document signed by tenants that summarizes their lease terms. It verifies:
The details of the lease agreement.
The tenant’s security deposit and rent due date.
Any additional obligations or benefits specified in the lease.
Estoppel certificates also confirm that there are no ongoing disputes between tenants and the seller, ensuring a smoother transition.
Work With Experienced Professionals
Closing on occupied properties requires specific expertise. Partner with professionals who specialize in real estate transactions involving tenants for a seamless experience. As property managers and real estate experts, we have the landlord and tenant knowledge to help you through this process. You’ll find it’s less stressful for everyone when you work with an experienced management team.
Closing the right way on tenant-occupied properties protects you from legal risks and sets the stage for financial success. A smooth transition shows tenants that you’re a responsible investor, which is key to ensuring consistent rental income and lease renewals.
Whether you’re looking to buy an occupied property or you’ve found the right opportunity and you need help navigating the process, we’re here to help. At SunWorld Group, we specialize in guiding real estate investors like you through the intricacies of the closing process—whether the property is vacant or occupied.
Contact us at SunWorld Group, and we’ll make sure that everything goes to plan when you’re buying a tenant-occupied investment property.
