Is having a tenant/management in place at purchase (all cash) a good trade off for a lower cap rate?

Considering purchasing a home in Texas that is already rented and has management. But the cap rate is barely 6%. I can get better elsewhere but risk vacancies and initial leasing costs. So I think having a tenant already in place is a benefit (one year lease through 6/2010). Opinions?
In Buying Property - Asked by Mike M. - Jun 26, 2009
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Chris D.
Fort Mohave, AZ

If you consider that Property Management companies typically charge a placement fee in addition to the monthly fee it could be. Find out what the placement fee would be if a tenant were to be placed at the current rate. Then consider that fee in your cap rate calculations. Also make sure that if you do not want to keep the services of the management firm that the cancellation fee (if any) is given consideration prior to the close of escrow.
One more thing to consider is the quality of a tenant. It looks like this might be a new tenant with a limited payment history. You should consider asking the management company that placed the tenant to explain their screening process and criteria.
Good luck with all your Real Estate ventures...

Jun 26, 2009
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