Purchasing an investment property that already has a tenant means you collect rent from day one, with no vacant period and no lease fees to find a new tenant. The lease just carries on as it did before you purchased the property.
There are plenty of upsides to buying an investment property that already has a tenant, as well as a raft of risks. Here’s how to minimise them.
-
Check whether the lease on your prospective investment is current or the tenants are on an expired lease. If the tenants are off-lease, they can give a short period of notice and vacate the property leaving you to incur the costs of finding a new tenant.
-
Make sure the bond has been lodged properly. Your agent will arrange for the bond guarantee to be transferred into your name on settlement.
-
Check the property condition report, making sure that it is a complete and accurate record of the property as you inspected it.
-
Ensure there are no rental arrears. If there are, or if a landlord has agreed that rental arrears can be taken out of a bond payment, stipulate that this amount is deducted from the purchase settlement amount.
-
Ask the leasing agent about the tenants and their payment record. You cannot demand that you meet the tenants, but attending the open house will give you a sense of how they live in the property. If possible, sight the tenants’ original application for the property and rental ledger.
-
Look at the yield for rental properties in the area and compare them to yours. You won’t be able to increase the rent until the end of the lease.
-
Be aware of any concessions or conditions that are either in the lease or have been agreed with the landlord or property manager, because these will become your responsibility. For example, does rent include electricity or other utilities? Has the landlord agreed to install a new oven or paint a room?
Of course, if you love a property but have doubts about the tenants, the lease or the managing agent, all is not lost. You can easily change the managing agent when you settle. You can also make vacant possession of the property a condition of settlement, you may need to wait until the lease expires to settle, but you aren’t taking on the previous owners’ problems and responsibilities.
If your only problem with a tenanted property is the rental yield, keep in mind that increasing rent on a good, long-term tenant may well drive them away anyway, so do your sums. Work out whether the amount you’d like to increase the rent by equates to more over the year than the lease fee plus any rent lost if your property is vacant for a few weeks.
Source: MFAA
Reproduced with the permission of the Mortgage and Finance Association of Australia (MFAA)
Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author.
Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
