Buying a tenanted investment property can save time and money. How? The lease arranged by the previous owner simply goes on, so your new property isn’t sitting vacant requiring you to cover the full mortgage repayments as well as needing to spend more money finding a tenant for your new property. Being a smart investor is about mitigating as many of the risks associated with a specific investment as possible. We want to provide you with the knowledge to ensure that you are able to mitigate some of the risks involved with buying a tenanted investment property.
Before you purchase the tenanted investment property:
Before you purchase the tenanted investment property, check whether the tenants have a current lease. If the lease has expired, the tenants will generally be on a month-by-month rental payment arrangement with the real estate agency. A current lease provides you with the security that those tenants will stay in the property after the property has settled.
A current lease means you will be taking over the current lease, its conditions, the rental income, and the tenants as it was negotiated by the last investment property owner.
Determine if there are any conditions or concessions arranged with the tenants in the lease, or by the property manager or landlord. These conditions will become your responsibility. For instance, who pays for gas and water? Will you have to replace a stove, paint a wall, or lay carpet?
After checking the lease, have a look at the property condition report and compare it to your own inspection of the property. You cannot demand to meet the tenants, but go to the leasing agent and find out about the tenants and their payment history. Attend the open house to get a feel for how the tenants treat the property. If you can, have a look at their original rental application and their rental ledger.
Make sure rent payments are up-to-date. If there are any arrears or the landlord has made an arrangement for arrears to be taken from a bond payment, require that the amount be subtracted from the amount of your purchase settlement. Ensure the bond was properly lodged. And check the standard income for other rentals in the area and compare.
After you purchase the tenanted investment property:
Once you’ve settled, your agent will arrange transferral of the bond guarantee into your name.
You will have already checked the standard income for other rentals in the area. Now that you are the landlord for the property with a tenant who has a current lease you can’t change the rental income until the lease ends. But once the lease ends you can have the rent brought into alignment with other comparable rentals in the area.
From the tenants point of view increasing the rent may push the tenant to vacate.
If you are unhappy with the rental yield on the property, first work out whether increasing the rent will make back any money lost by losing your tenant, and how long the property is likely to be empty for before a new tenant is found.
At the end of the day, if you’ve found a good investment property but you’re unsatisfied with the tenants, lease, or property manager, you can change these. When you settle it’s easy to replace the manager. If you are unhappy with the tenants, you can make vacant possession a settlement requirement. You may not be able to settle until the current lease expires, but you then have an uninhabited property.
Are you ready to invest in a rental property? Pinpoint Finance are experts in investment finance. Call us and we’ll guide you through the process from start to finish.