Although there's no definitive answer to whether purchasing a tenanted home is a good investment or not, there are some pros and cons to buying a property that you will be taking over tenants. Once you have identified a property that meets your requirements and budget--whether it's a retail, office, industrial or multifamily--consider these factors when weighing the benefits and risks of assuming tenants:

Consider The Risks

• You assume the responsibility of a tenant selected by another party. You will also have to accept any potential liability and revenue associated with the tenant. You are responsible for their rent and are bound by the terms of any lease they have. You can compare their rent to the market rents in your local area by knowing what they are worth.

• There have been cases where a seller filled the property with his business. This has led to an increase in the property's price. You wouldn't be capable of finding a tenant at this rate if they had to move out.

• You may have limited rent-raising power based on local rent control laws if you buy a multifamily investment. This could have a negative impact on your property's value and cash flow.

• When considering an office building, remember that not all clients and companies are equal in terms of tenant culture. Their business type may be allowed within the property zoning. However, you may not believe that the work they do will add the most value to your property due to factors like clientele, risk, and hours of operation. Landlords face the dilemma of whether their business fits the profile they desire, given the legalization of marijuana in several states and provinces.

• Your investment property's net operating income (NOI) is an essential factor in its value. You may not see your property's value increase at the rate it should if the lease you purchased did not negotiate market rent escalations.

The Benefits:

• Tenanted properties can be easier to finance. Leasing gives lenders confidence that the property will generate income. Signed leases are a way for lenders to guarantee the rent.

• Rent will be available immediately. This means that you can save both time and money after the property transaction is closed. You won't have to worry about an indefinite vacancy or the associated costs of leasing.

It is essential to review all leases before purchasing a tenanted property. This will help you minimize your risk and accurately assess the potential.