Buying a vacant house, you inspect the roof and the furnace and you are mostly done. Buying a house with people already living in it, you are also buying every promise the last owner made to them: the rent they pay, the deposit they handed over, the start and end dates of a lease you did not write, and any side deals nobody wrote down. The building is the easy part. The paperwork attached to the tenants is where the surprises hide, and once you close, those surprises are yours.
The good news is that an occupied property comes with income from day one, so there is no make-ready gap and no lease-up risk. The work is due diligence: reading what conveys, confirming it in writing, and getting the money handed over correctly at the settlement table. This is the checklist I would run, in order, before I wired a dollar.
Read every lease, not the rent roll
A seller's rent roll is a summary they typed. The lease is the contract that actually binds you. Ask for the signed lease on every occupied unit, plus any addenda, and read each one for the terms that survive the sale. In most states a valid lease conveys with the property: you step into the seller's position and the tenant keeps the deal they signed until it ends. So the lease decides what you can and cannot do for months after closing.
What to pull out of each lease and write down:
- Rent amount and the end date. Confirm the rent on paper matches the rent roll, and note exactly when each term expires. A lease ending in three months is a very different asset from one with two years to run.
- Deposit held. The lease should state the security deposit and any last-month rent collected. This is the number you will chase down again at the settlement statement.
- Concessions and side agreements. Free parking, a promised appliance, a verbal rent freeze, a pet allowed off-lease. Anything the seller agreed to may bind you, so ask in writing whether any unwritten arrangements exist.
- Renewal and month-to-month status. A lease that has rolled to month-to-month generally still conveys, but the notice you must give to change anything is set by state and local law. Note which units are fixed-term and which are month-to-month.
If a unit has no written lease, treat that as a finding, not a footnote. An undocumented tenancy is still a tenancy, and you inherit it with none of the terms spelled out. Knowing the difference between a fixed term and a month-to-month tenancy changes how soon you can reset rent to market.
Get an estoppel certificate from every tenant
An estoppel certificate is the single most useful document in this whole process. It is a short form each tenant signs that states their rent, their deposit, their lease dates, whether they are current, and whether the landlord owes them anything or has made any promises. The point is that it binds the tenant to those facts. If the seller's file says the deposit is $1,400 and the tenant's signed estoppel says $1,800, you now have written proof of the real number and a way to true up the credit at closing.
Send an estoppel to every occupied unit during your due diligence window and make signed returns a condition of closing. A tenant who will not sign, or who writes in a side deal you never heard about, has told you something important for free. The estoppel certificate is also where a hidden holdover tenant or an unrecorded concession tends to surface.
Verify the payment history yourself
“All current” on a rent roll means nothing without the ledger behind it. Ask for the last twelve months of actual rent records per unit: the dates rent was due, the dates it landed, and any partial or skipped months. You are looking for the tenant who pays on the 20th every month, the one who is chronically a half-payment behind, and the one whose “deposit” is really three months of unpaid rent the seller never collected.
Tie the payment history back to your underwriting. If you screened the deal on full occupancy at face rent but two units pay late and one is short, your real collected income is lower than the pro forma, and that gap flows straight through your deal analysis into your cash flow. Run the real collected rent, not the face rent, through a cash-on-cash calculator so the return you underwrite is the return you will actually get. An occupied building protects you from vacancy risk and exposes you to inherited-tenant risk instead. Price the second one honestly.
The deposit transfer happens on the settlement statement
New buyers expect a check for the security deposits. That is almost never how it works. The total of all tenant deposits is credited to you on the closing settlement statement, which lowers the cash you owe the seller by exactly that amount. The seller keeps the cash they were holding; you take on the liability to return it later. Net result: you are funded to repay every deposit even though no separate money changed hands.
Three things to check at the table:
- The credit matches the estoppels. Add up the deposits the tenants confirmed in writing and make sure the settlement statement credit equals that total, not the seller's optimistic version.
- Prepaid and last-month rent is handled too. If a tenant paid last month's rent or prepaid future rent, that money belongs to you the moment it covers a period you own. It should be credited the same way as the deposit. Rent for the closing month is usually prorated at the table so each side keeps the days it owns.
- You inherit the full deposit obligation. Whatever the seller actually held, once you take the credit you owe the tenant the amount on their lease and estoppel when they move out. Start the deposit ledger at that confirmed figure.
State rules on holding deposits, the timeline to return them, and whether they must sit in a separate account all vary, so confirm your state's handling rules before move-out season arrives. The escrow credit gets you the money; your records keep you out of a deposit dispute two years later.
Send the day-one tenant letter
The day you close, your inherited tenants find out a stranger owns their home. A short, plain letter on the first day prevents most of the friction. Tell them who you are, where and how to pay rent now, where to send maintenance requests, and that their existing lease and terms are unchanged. Confirm the deposit you are holding and the amount, in writing, so there is no argument about it later.
Resist the urge to introduce yourself with a rent increase. A fixed-term lease conveys with its rent intact as a general rule, and even on month-to-month tenancies the notice and any local for-cause limits apply. Plan any reset for renewal, and keep good inherited tenants by being the calm, organized owner the last one was not. If this is your first acquisition, the same discipline runs through buying your first rental property and through building a rental portfolio one clean closing at a time.
Turning the inherited paperwork into tracked records
The catch with inherited tenants is inherited paperwork: leases you did not write, deposits you must repay, and end dates buried in a folder. The day after closing, that pile becomes your system of record. I built rents.ai because spreadsheets dropped exactly these things. Its deposits ledger records each transferred deposit at the confirmed figure, document storage holds the assigned leases and signed estoppels against each tenant, and renewals tracking flags the inherited lease end dates so a month-to-month rollover never surprises you. The honest limitation: it does not collect rent or sign leases for you, so you still record payments and serve notices yourself. It keeps the paper trail; you run the building.
This is general information for self-managing landlords, not legal advice. Leases conveying with a sale, eviction and notice rules, deposit caps, and deposit-handling timelines all vary by state and sometimes by city. Confirm every legal point in your own jurisdiction's statute, and have a local real estate attorney review the purchase contract and estoppels before you close.