Buying an investment property with tenants already living in it

We've talked about how to become a landlord. It can be difficult, but educating yourself can save you money and bring its own rewards. 

But what if you are looking for an investment property, and you've found the perfect one but it already has tenants? Don't give up just yet, this could be a blessing in disguise.

According to Tyler Delaney, sales representative and a member of The Julie Kinnear Team, buying a property with tenants is not a bad idea:

If the property is over-budget having existing tenants can be a blessing in disguise, especially in cities like Toronto. Of course, buyers have to do some hard work in gathering details and particulars about the existing tenants including their past history, credit check, etc.

First-time home buyers can especially benefit from already existing tenants because they usually do not have much understanding and experience in drafting a proper legal-tenant agreement and they won't have to go through the time-consuming and often exhausting process of interviewing potential tenants.

Another great benefit of buying a property with existing tenants according to Tyler is that the buyer will have their mortgage payments taken care of from the very beginning:

The rent from the already existing tenants would immediately start supplementing the monthly mortgage right from day one, so the homeowners do not have to dig into their savings, which they would have done if they had no tenants already in.

The Flip side

However, there is a potential flip side of having existing tenants, says Delaney:

When you are taking in a tenant of the new property, they already have a rent agreement in place. In the majority of the time, the rent they are paying is far below the present asking rent and under contract, and the new owner cannot renegotiate the rental fee as per the Tenancy agreement. They could increase the rent once a year but only between one to two per cent.

In other words, there is a considerable monetary loss when you move in the property that already has tenants in them. If you buy an investment property without tenants and you find them yourselves, you can do things of your own liking: 

You have the privilege to ask for higher rent as per the market value.

Keeping the rules in mind

When considering a property with tenants there are some basic rules a potential buyer should keep in mind.

If the tenant is under lease they cannot be asked to leave before the lease expires. A lease is generally for one year and when it expires, tenants would automatically come under a month-to-month agreement. A 60-day notice is required for asking the tenant to leave the property if the new owners want the home for themselves. Landlords also have to provide a 24-hour written notice to the tenant before showing a place to potential buyers.

According to the Ontario Residential Tenancies Act, in some cases, a landlord shall compensate a tenant who receives notice of termination of tenancy for the purpose of repairs or renovations in an amount equal to or less than three months rent or shall offer the tenant another rental unit acceptable to them. There is a way around this according to Delaney:

There are some instances when owners even give their tenants cash or suggest them viable places to move in, in which case the 60-day notice can be bypassed.

Get to know your tenants

If you're serious about buying the property and it meets your criteria and your budget, it's best to make sure you meet the tenants before hand.

Delaney also suggests that potential buyers should do their own research and background checks on the tenants if they are considering letting them stay in the property:

You can meet the tenant over coffee and try to know about them and their work schedule and other details. This will give both the new owner as well the tenants a fair idea if they would like to continue with the tenant-landlord relationship. And if the tenant at the time is on a month-to-month lease, the new property owner can suggest entering a new lease.

Delaney also advises buyers to make sure to add some clauses to the purchase agreement to protect them from any unpleasant surprises:

Especially when the owner takes the responsibility of the tenants or if the landlord has promised that the tenants would not be staying in the property when the new owners would move-in.

A landlord should always be upfront with the tenants when selling the property. If they evacuate tenants under the pretext of renovation or they themselves are moving but do not do any of the above and later sell the property, a landlord can be subjected to huge fines and can be taken to the court by the tenant.

It is important that both the landlord as well as the tenant co-operate with each other and adhere to the rules and understand them so that buying and selling a home is a win-win situation for both of them.

If you have any questions or you need a real estate advice, don't hesitate to contact us at

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One comment on “Buying an investment property with tenants already living in it

  1. I know a guy who’s selling a building that has tenants in it, and I was thinking of buying the property from him. The only problem was the tenants, and now that you’ve shared this information here, I know what to do.

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