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Buying a tenanted house or apartment can make life a little bit easier if you already intend for that property to be an investment property, as those tenants will become your tenants, at least until the lease expires or you mutually agree to end it early.
However, it can also bring about its own complications, so it’s important to understand what your rights and responsibilities are as a landlord before buying a property with tenants.
You should find out who the tenants are, what sort of lease agreement is currently in place, if it’s cheaper to buy a tenanted property, and what your responsibilities will be once you buy a tenanted property.
Who are the tenants?
Generally, landlords get to choose their tenant/s from a range of prospective candidates. However, in this situation, that choice is taken away from you. As a result, it’s important to find out as much as you can about the tenants who you will be inheriting, as they will be the ones paying the rent and (hopefully) keeping your property in a reasonable condition.
Before you buy, ask the seller about the tenant/s background, including:
What they do for work
How long they’ve lived there
What is their income
If they have any pets
How many people live there
How often do they pay the rent
If they pay the rent on time
If there have been any problems they’ve caused/complaints from neighbours
How reasonable they are with making maintenance requests
If you discover there have been multiple missed payments, previous lease breaches, or property damage, this could be cause for grounds for early termination of the lease.
What lease agreement is currently in place?
The current lease will either be a periodic lease or a fixed-term lease agreement.
If the lease is a fixed-term agreement, it will have to be honoured and the tenants will be allowed to stay there until the end of the agreement. Of course, there are exceptions to this rule: the tenants may wish to break the lease early, or there could be cause for grounds for early termination of the lease.
If the lease is the less common periodic type, you need to give the tenant 60 days' notice to vacate as long as you do so during the settlement period or before the purchase is complete.
Is it cheaper to buy a tenanted property?
In some ways, it can be cheaper to buy a tenanted property as you don’t have to fork out all the extra costs associated with finding new tenants. If there are tenants already there, you can start collecting rent immediately.
But there are some cases where it’s not always cheaper to buy a tenanted property. Perhaps you want to renovate the property before renting it out, or you discover the property is undervalued and have to go through the process of raising the rent to reflect its current value.
Buying a tenanted property can be quite inconvenient for some investors who usually have to wait until the lease expires before they can provide the tenant with notice to leave.
What other responsibilities or obligations do I have when buying a tenanted property?
After buying an investment property, many landlords will choose to obtain a property manager. If there was already a property manager in place when you bought the property, you’re not obligated to continue using the same property manager as the last owner, but it can be a good option for consistency. The property manager will be able to guide you through the process of managing the property from settlement and ensure this process goes as smoothly as possible for the landlord and tenant.
If you’re self-managing the property, you’ll need to advise the current property manager and arrange to get copies of the tenancy agreement, tenant ledger, lease extensions, ingoing inspection, routine inspection, and any other paperwork, keys to be collected upon settlement. You also need to get the tenant’s contact details and provide them with your contact details upon settlement and update them on how the rental payments need to be made going forward.
To find a good value investment home loan, speak to one of our loan specialists today or check out our range of investment home loans to get started.