The Pros and Cons of Inheriting Tenants (And How to Protect Yourself)

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You finally find the perfect property—good price, solid neighborhood, promising numbers—and then you see the fine print: tenants in place. Depending on your experience level (and maybe your stress tolerance), this either feels like a total win—or a giant red flag. 

Inheriting tenants can be one of the most overlooked parts of a deal, especially for rookie investors. On paper, it sounds great: instant cash flow, no time spent marketing or screening. But what if those tenants haven’t paid rent in two months? Or worse, they’re wrecking the place, and you can’t do anything about it because they’re locked into a lease for the next nine?

I’ll break down the pros and cons of inheriting tenants and, more importantly, how to protect yourself before you close. Whether you’re buying your first rental or your 50th, this is one part of the deal you don’t want to ignore.

The Upsides of Inheriting Tenants

Let’s start with the good stuff—because inheriting tenants isn’t always a bad thing. In fact, it can be a huge advantage if handled right.

Cash flow on day one

One of the biggest perks? You’re collecting rent the day you close (assuming they’re actually paying). No need to scramble to fill the unit, cover a mortgage out of pocket, or worry about vacancy costs. The income starts flowing immediately—just make sure to verify their rent history before you start counting your money.

Skip the leasing process

Finding good tenants takes time, and if you’re managing the property yourself, it can be a hassle—photos, showings, applications, background checks, etc. Inheriting a tenant who’s already in place and paying on time saves you all of that. It’s like buying a turnkey business that’s already running.

Free insight into the property

Tenants who’ve been living in the unit often know it better than anyone. They’ll be the first to tell you if something’s been neglected—leaky sink, faulty furnace, you name it. You can learn a lot just by talking to them (and a few friendly questions can go a long way in building trust from the start).

A chance to raise rent (eventually)

If the tenant is on a month-to-month lease or their lease ends soon, you may have the opportunity to bring rent up to market rates. And since you didn’t spend money turning over the unit, every additional dollar is profit. I’ve even used rental comps to show tenants what similar units cost in the area—it makes a strong case when asking for a bump up.

The Downsides of Inheriting Tenants

Of course, not every tenant is a dream. Sometimes, what you’re really inheriting is someone else’s problem—and now it’s legally yours.

You’re locked into their lease

If the tenants have time left on their lease, you’re bound by it. That means if you were planning to renovate, raise the rent, or move someone else in, those plans might have to wait. I’ve had deals where I couldn’t do anything for nine months—a long time when you’re trying to reposition a property.

Problem tenants become your problem

Late payments, complaints, damage, lack of communication—you name it. If the previous owner didn’t screen well or was just trying to keep the unit full, you could be walking into a tough situation. And let’s be real: Evictions cost time and money, and they’re never fun.

You didn’t screen them

As investors, we usually have a screening process—credit checks, background checks, income verification, references, etc. With inherited tenants, you’re trusting someone else’s judgment (or lack of it). It’s like buying a used car without seeing the inspection report.

Rent could be well below market

It’s not uncommon to find tenants paying hundreds less than market value. Sometimes, the owner kept rent low to avoid turnover, or the lease hasn’t been updated in years. And unless their lease is expiring soon, you’re stuck with that underperforming asset until you can make a change.

How to Mitigate Risk Before You Close

Inheriting tenants doesn’t have to be a gamble—if you do your due diligence before you close. This is where a little extra work upfront can save you from a lot of headaches later.

Start with an estoppel agreement

This is a simple form or questionnaire you (or the seller) send to the tenants before closing. It gives you a chance to verify key info directly from them—like how much they’re paying, if the rent is current, whether there’s a security deposit, who’s living there, and what the lease terms actually are. I also ask if they pay for any utilities, own any appliances, or have pets.

Why is this important? Because sometimes what the seller says and what the tenant knows don’t match up. The estoppel gives you a second data point to compare against the lease—or to create a paper trail if there isn’t a written lease in place. 

If the seller doesn’t want the tenants to know the property is being sold yet, you can have them distribute the estoppel form under the guise of “updating records.” That way, you still get the info you need without causing alarm.

Check that the security deposit transfers properly

Make sure you’re getting credited for the full security deposit at closing. This should be listed on your closing statement. 

I’ve had deals where the seller tried to reduce the amount because of unpaid rent. Big mistake on my part not to push back—I ended up with barely any deposit in hand. Fortunately, the tenants stuck around and took care of the place, but it easily could’ve gone the other way.

Start the relationship off right

Once I know who the tenants are, I like to enter their info into my property management software and let them know how rent collection will work moving forward. It’s a good opportunity to introduce yourself as the new owner and set expectations from day one. Even just a quick welcome letter with payment instructions can go a long way.

What to Do If Rent Is Below Market Rate

One of the biggest surprises investors run into when inheriting tenants? They’re often paying way below market rent. This can kill your cash flow and throw off your projections—especially if you were planning to increase income from day one.

So what do you do?

Give them options, not ultimatums

I always try to frame it as a choice. People like to feel in control, and giving options makes the transition smoother. When their lease is up—or if they’re month-to-month—I send them a letter with two clear choices:

1. Accept the rent increase to bring them closer to market rate.
2. Decline and plan to vacate when the lease ends.

This keeps it professional and puts the decision in their hands.

Justify the increase

I like to include rental comps in the letter to show that I’m not pulling numbers out of thin air. It helps tenants understand the increase is fair and based on current market conditions. It also makes moving out less appealing if they see similar places going for the same amount of rent (or more).

Use a step increase if needed

For long-term tenants who’ve been solid and taken care of the unit, I’ll sometimes offer a step increase—raising the rent gradually over a few months, instead of hitting them with a $200 hike all at once. It’s a way to retain good tenants and still get the unit closer to market rate over time.

Know your state laws

Don’t forget—you can’t just raise rent whenever you want. You need to follow your state’s rules about lease renewals and proper notice. Make sure you check how much lead time you need to give if you’re planning to raise rent or not renew the lease.

Final Thoughts

Inheriting tenants doesn’t have to be a deal-breaker—but it does require a little extra attention. Sometimes, you’ll hit the jackpot and walk into a well-maintained unit with a great long-term tenant already paying close to market rent. Other times, you’ll need to do some damage control. 

The key is doing your homework upfront. Use an estoppel agreement, double-check the lease and deposit details, and communicate clearly from day one. When handled right, inherited tenants can be a fast track to cash flow instead of a costly mistake.

If you’ve inherited tenants before, I’d love to hear how it went—good or bad. Drop your experience in the comments, and let’s help each other navigate this part of the investing journey together.