How to Buy a Property with Tenants
Last updated on May 4th, 2022
Investing in rental property means taking on the responsibility for everything that comes with it – the overhanging tree, the council bills, and of course, the existing tenants, if there are any.
The seller’s agent will notify prospective buyers if the property is on lease and what terms are included, such as rental amount, expiry date, and other special conditions. All the property details will be outlined in the vendor statement so buyers are aware before they agree to a sale.
Below are some of the most frequently asked questions about buying a house with tenants.
What are the pros and cons of buying a house with tenants?
Buying a property with existing tenants can be advantageous – assuming that they are responsible tenants who pay their rent on time and take good care of the property. With renters already in place, the property will continue to generate revenue even after a transfer of ownership.
One important consideration when dealing with existing tenants is the market value of the lease. The former owner may have leased the property at a lower price, and you need to increase it to be profitable. You have to check if there have been any recent increases in rent and provide adequate notice to the tenants.
Of course, bad tenants will always be a potential issue. For example, if you buy a property with tenants, you will have to deal with renters who have outstanding bills or are careless with the property.
Likely, if you are looking to buy property for a different purpose, having tenants may also be an inconvenience.
Are buyers required to recognise an existing lease?
As a new property owner, you must honour any existing lease, whether fixed or periodic. However, if the tenant wishes to end the lease early, you can negotiate the vacant possession of the property.
Are there any extra charges when buying a house with tenants?
There are no extra costs when buying a home with tenants, but there might be property management fees to consider. Here you can potentially save some money by not having to advertise to lease the property.
What should a buyer look for before making a commitment?
If the property you are eyeing has existing tenants, talk to the seller’s agent and ask about the tenant history. You can also speak with the property manager to gain a better understanding of the current tenants.
If you are buying as an investor, do some research about vacancy rates in the area, demographics of the neighbourhood, and the median rental value.
You also want pertinent information about the existing lease – whether the tenant plans to renew the lease or terminate it when it expires. This will bring stability to both the buyer and the tenants.
Will the new property owner take over the tenant’s bond?
The property manager submits the tenant’s bond to the relevant rental tenancy authority in your state or territory. Once you take over a tenancy, the bond will stay in place, but the relevant authority will amend ownership information.
What are the duties of a landlord after buying a house with tenants?
Once the sale is completed, the new landlord could hire a professional property manager to ensure that the transfer of ownership results in minimal disruption to the tenant.
If you wish to manage the property by yourself, you will need to talk to the current property manager. Ask for all relevant documents such as lease agreements, routine building inspections, tenant ledger, and keys to the property.
Talk to the tenants and ask for their contact details. Provide updates of any ongoing maintenance or if you have plans to renovate or expand.
It might also be a good idea to take out insurance to protect yourself, whether you prefer to self-manage or hire a property manager.
Can the new property owner hire a different property manager?
You are not required to employ the current property manager. While this can be beneficial for consistency purposes, you are free to hire your preferred manager if you wish to do so.
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