Buying a tenanted investment property

 

Purchasing an investment property that already has tenants has many benefits. However, there are also quite a few risks. Here some steps that will help you minimise those risks.

Firstly, it is important to ensure that the bond was lodged correctly. Throughout the settlement process, your agent will organise for the bond guarantee to be transferred into the buyers’ name.

When you inspect the property, you should also thoroughly review the property condition report. Check that everything listed in the report is in the same condition and is an accurate representation of the property. Ask if there are any conditions that are in the lease of which the landlord had agreed to, as these will become your responsibility once you take over the property. For instance, has the owner agreed to install a new appliance? Does rent include utilities or electricity?

Speak with the leasing agent and ask about the current tenant and their payment history. Additionally, check that there are no rental arrears. If there are, ensure the amount is deducted from the purchase settlement amount. Unfortunately, you cannot demand to meet the residents. However, when you attend an open house pay attention to detail as this will give you a fair idea as to how the tenants live in the property. Also, it is a good idea to view the original rental application of the property for the current tenants as well as the rental ledger.

While you won’t be able to increase the rent until the lease has reached its end date, you should do some research on the yield for rental properties in the surrounding suburbs to compare them to yours.

If you have your eye on a property, but you also have doubts about the current tenants or the managing agent, not to worry. The managing agent of the property can be changed once you’ve settled. If you have doubts about the tenants, you can request vacant possession of the property a condition of settlement. If you would like these issues solved, you may have to wait until the lease expires, however, there is peace of mind that you won’t be taking on the previous owners problems.

If you have a problem with the current rental yield, keep in mind that if the property currently has a good long-term tenant, increasing the rent may drive them away. With lease fees and any rent lost if the property is vacant in mind, work out whether the amount you would like to increase the rent by over the year equates to more than the other option.

If you’re looking to purchase an investment property and would like to know more about getting on the property ladder, feel free to get in contact with us.