Buying a rental property is different from buying a home. With a home, the buyer uses his/her own income to pay the mortgage. With a rental property, most often the rental income is used to pay the mortgage. As a result, proof of the rental income and occupancy history of the property is provided to the lender. It is also important that the property be fully rented at the time of sale if the income is necessary to qualifying for the mortgage.
Many times investment property sellers do not want the tenants disturbed during the time the property is for sale. A prospective buyer is often allowed to only see "sample" units that may, or may not, be representative of the whole building. A rental property may be listed as "fully occupied" or "fully rented". Occasionally the building is NOT fully rented as advertised which impacts the buyer's ability to qualify for the loan.
The buyer's insepction provides a perfect opportunity to determine that all the units of the apartment are rented. Not only does the buyer get the normal detailed information about the building's condition but at the same time, the housekeeping and occupancy of each unit is verified as well. A couple times one of my clients have discovered in the inspection that a St. Paul property listed as fully occupied were actually 50% vacant. The listing agent excused this oversight saying the other units would be rented by the time of close which was just 5 weeks away!
Because there are so many details to check when buying a rental property, sometimes the obvious things are overlooked. Such was the case with the St. Paul property shown in this picture. My client liked the building, liked the large yard, and liked the price. The seller was cooperative in providing supportive paperwork to satisfy our contingencies of proof of rental income, occupancy, etc. We were so busy verifying everything else that we missed the elephant in the room.
We arrived for the buyer's inspection to find the inspector standing across the street awaiting our arrival. He glibly asked if we had looked at the property from this angle. We turned to look at the building across the street and, much to our chagrin realized, the top of the property was listing to the right at about a 15 degree angle. In this situation, the proof of rental income and occupancy was moot.
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