Should You Buy Tenanted Property?: An Experts Opinion

When buying an investment property, you usually do so in the hope of renting out to tenants so that you can both realise capital gains on the property and rental yields. Whilst some landlords will want to find their own tenants for the property, it can sometimes be possible to buy rental property with tenants already in situ. So, which one is the best option?

In this article we look at the pros and cons of buying a tenanted property to help you decide whether this is the most effective route for you to take in your next investment.

Guaranteed income

One of the biggest fears of any landlord and the mortgage company behind them is that the property could be left vacant for any period of time. This means you will not be able to benefit from any rental yield and therefore costs such as mortgage payments and insurance will all come out of your own pocket. It can take time to track down a good tenant for your property, which means there can be weeks or even months where there is no one in it.

Buying a property that already has a tenant in place means that you can start reaping the benefits in the very first month. There will be a tenancy agreement already in place that ensures you have guaranteed income for a set period of time so you will not need to worry about how long it will be before you can start covering your bills.

Tenancy difficulties

Every landlord will have their own idea of what their ideal tenant is likely to be. You will obviously want one who pays their rent on time and looks after the property, but you could also be aiming at young couples, bustling families or the elderly. When you buy a property with a tenant already in place, you get no say over who that is likely to be. Whilst the property might seem like a great investment opportunity, the person who is living in it may be less than desirable. If they have a tenancy agreement in place, then it can be very difficult to get rid of them if they do not meet your criteria.

When buying a property, it is important to try and establish a good relationship with the existing landlord to try and understand more about who your tenants are as you are not likely to know until after you have signed on the dotted line. You will not get the opportunity to vet them in the way that you would if you were putting the property on the rental market for the first time and you therefore need to trust the instincts of the existing landlord and the agreement that they have already put in place.

Landlord responsibilities

As a landlord, you have a number of responsibilities. This includes ensuring that electricity and gas safety is up to date, that there are inspection documents in place and that there are HMO licences if applicable. It can take huge amounts of time and money to get these in place, so if you are buying a property that already has a tenant within it, it is likely that this has been done for you.

However, it is also worth remembering that you will become immediately responsible for the tenants living there once you buy the property. That means you will need to take into account any maintenance requests that they have, as well as handling their deposit and any licensing concerns that might need updating.

It is therefore important to do your homework and find out what has been done already before you buy the property. You should take careful note of the condition of the property to see if there are any big expenses that you are likely to be hit with immediately after the transaction goes through. It is also wise to check the expiry dates on any certificates and licences as well as the tenancy agreement so that you can plan for any additional expenses.

Lower purchasing price

It may come as a surprise, but properties which already have tenants within them tend to be much harder to sell and so the price can be lower. This is because lenders consider sitting tenants to be a higher risk and so it can be more difficult to get finance in place. If you are a cash buyer, you can benefit from this kind of situation as you might find there are more properties within your price range.

Delays in refurbishments

Many property investors want to take on a property that they then need to refurbish to make it a more profitable option. When a property is vacant, this can be very easy to do, and you can spend as long as you want ripping out fixtures and fittings and starting from scratch. However, when you have a tenant already in place, this is much more difficult to achieve. Instead, you may have to stagger any alterations or decorating that you aim to do in order to minimise the disruption that they are put through.

Evicting tenants

Any landlord will know that it can be very difficult to evict a tenant who is already in the property. It is therefore very important that you check the tenancy agreement thoroughly before you commit to buying the property, so that you understand exactly what the terms are. This will help you to know whether the tenant is someone that you want in the property and can also make it easier to understand the terms by which you and the tenant are bound. This can help to prepare you for any situations that you might need to deal with once you have purchased the property.

Buying a tenanted property can be a great investment opportunity if you understand everything that you are dealing with. It can ensure that you are not left with a vacant property that is not earning any money, but it can present complications in terms of the licences that you need, the maintenance burdens and the difficulty of undesirable tenants.