When you purchase a property with an existing tenant, the arrangement is naturally advantageous to you. The reason being, you don’t have to worry about owning a vacant property, and you can start earning rental income from day one. However, it is important to keep in mind that there are some things you should consider when buying a property in this situation. These include:
1. Having all the necessary documentation. Prior to your purchase, it is important you request and review all the relevant documentation from the current owner. This will let you know, for one, the type of arrangement the owner has with the tenants. Meanwhile, the Property Condition Report (PCR) will inform you of the property’s condition before it was rented out. This will help you identify any future cases where the tenants have caused damage to the property.
2. You have to honour the lease. Another thing to keep in mind is that you must honour the lease the tenants have with the previous owner. This means you cannot ask them to leave the property arbitrarily. You have to refer to the lease to determine what conditions would allow you to ask the tenants to leave, such as the time required to give them fair notice prior to you being able to make such a move. You also have to honour the fixed term lease, as well as the rules which govern when and how you can end this term early. All of these factors are important to keep in mind, especially if you are planning on moving into the property after purchasing it.
3. Knowing how much the rent is. There are instances where property owners take in tenants just before selling the property, offering them a rental rate below the standard rates in the area. With this in mind, it is important to speak to the owner and the tenants candidly about arrangements. Otherwise, you might end up losing money not only in terms of your rental income, but also due to the false impression you were given of the property being a viable investment just because it had tenants living in it.
4. Working with a property manager. When you own a rental property, having a property manager will be necessary. In most cases, there will already be one working with the current owner. This can save you a lot of time since you no longer have to shop around for one. However, you can always change managers if you choose to do so for any reason, including if you’re uncomfortable working with them, or you know someone better.
All in all, there are certain risks and rewards to buying a property with existing tenants. It is however important for the rewards to outweigh the risks, and you can determine this by performing due diligence before making the purchase decision. This will help prevent potential problems arising in the future, and help ensure you purchase a property that is truly profitable.