10 questions to ask when buying a tenanted property | Vesta Blog

10 questions to ask when buying a tenanted property

October 3, 2019

What type of tenancy agreement does the tenant have?

Whether the tenant has a written agreement or not, a tenancy will have been formed as far as the legal position is concerned, and the default position is the Assured Shorthold Tenancy (AST).

However, there are other types of tenancies such as regulated tenancies and tenancies formed prior to the introduction of the AST, and these pose additional risks to investors.

You should therefore be very clear from the vendor as to the type of tenancy the tenant has and ask to see a copy of it.

Does the tenant pay the rent on time?

If you are buying with a tenant, you need to know if the tenant pays the rent on time.

This can be ascertained by asking to see a redacted bank statement from the vendor showing the rental payment going into their account over the previous six months, or asking the vendor’s solicitor to provide a schedule of payments showing the date and amount for each payment made of the past 6 months.

If there are any rental arrears, you need to be aware of these as it may affect your decision to buy the property.

Was an inventory undertaken when the tenant moved in?

This is important to know for when the tenancy ends, as you will need to be able to evidence any deductions you might take from the tenant’s deposit.Ask for a copy of the check-in inventory.

Was the tenancy set up correctly and the deposit protected?

You need to know if the tenant was served the prescribed information, details of the tenancy deposit scheme used to protect their deposit and also the “How to rent” guide and Right to Rent checks.

If the tenancy was not set up correctly from the beginning, it means you may not be able to serve a Section 21 notice and you would want to regularise the tenancy once you have taken it over.

How is the tenant treating the property?

This question is easily answered by visiting the property for a viewing.It is highly inadvisable to ever buy a property without viewing it.

Some tenanted property sales state “no viewings” which should be investigated, although there are legitimate reasons such as the tenant has a new baby, or works night shifts and sleeps during the day - so it is important to understand the reason why viewings are not allowed to see if there is any kind of red flag. There is nothing to stop you visiting the property and offering the tenant a financial incentive to allow you to look round.

It is also important to ascertain if the tenant has ever been difficult to contact or refused access for such issues as compliance checks.

It would be prudent to pop next door to the neighbours and ask if they know of any issues with the tenants, such as anti-social behaviour.

How long has the tenant been at the property and how long do they intend to stay?

The vendor’s solicitor should be able to provide you with this information and/or it can be discussed informally with the tenant when you are viewing the property.

Ideally, you want to know that the tenant has intentions to stay long term and, in turn, you can reassure them that you are happy for the tenancy to continue if you are intended to hold the property long term.

Is the rental payment at market levels?

If the tenant has been at the property for a long time and is a good tenant, then the current landlord may not have made any rental increases over time.

From your perspective, you want a good return from your investment, so you may wish to raise the rent to be more in line with the current market, if indeed rents have risen in the area. You have to consider whether a rental increase might prompt the tenant to hand in their notice though, so its recommended that, if you are going to increase the rent, you increase to just below the market rate, so it still represents fair value for the tenant. That said, the risk of a void and the costs of having to find a new tenant might not be worth it – so think carefully before doing this!

Remember, when buying a tenanted property you must adhere to the terms of the existing tenancy agreement; so make sure you check the contract to find out when you can or can’t review the rent (it’s usually on the anniversary of the contract but not always).

What day does the tenant pay the rent on?

This is important for you to find out, as, if you are taking out a mortgage on the property, you want the rental payment to come in before your mortgage payment goes out, in order to manage your cash flow each month.

When setting up your mortgage, you can nominate the day that the direct debit comes out of your bank account. So, for example, if the tenant’s rental payment comes in around the 5th of the month, it might be prudent to set your mortgage up to be taken out of your account on the 15th of the month.

Are there any repair or maintenance issues?

These can be determined during a viewing and by chatting to the tenant.

Some tenants do not always report these issues, but as a landlord, you are legally obligated to undertake them, so you need to be aware of them. The tenant not reporting them is not an excuse in the eyes of the law.

You also need to factor these costs into your calculations when stacking the deal and you may offer less for the property to take these into account.

What is included in the sale?

Does the furniture and appliances come with the property or belong to the tenant?You need to know this so that you understand what you are liable for in terms of repairs, maintenance and replacement of worn-out items.

Documents you should ask for copies of

These are the documents you should ask for copies of:

 

  • A copy of the full tenancy agreement
  • The most recent electrical safety certificate
  • The energy performance certificate (EPC)
  • The most recent gas safety certificate
  • The HMO (house in multiple occupation) license, if applicable
  • Any insurance documentation relating to the property or contents provided with it
  • The inventory form, if one was taken
  • A copy of any guarantor’s agreement
  • A copy of any guarantees such as for the boiler or appliances
  • A copy of any documentation such as damp proofing course
  • Any builder’s guarantees or warranties
  • The tenant’s contact details
  • The management company’s contact details

Asking the above questions will help you ensure that you purchase a property with a good quality tenant!

Buying a tenanted property can be a very low risk way of buy to letting, as you earn income from day one of completion and you can undertake due diligence on your tenant and ascertain their track record for paying the rent and how they treat the property.

At Vesta, the majority of the properties we market are tenanted and we also provide information to help you with your initial due diligence (including the tenancy agreement, the rental level, proof of tenancy deposit and EPCs) and we can also work with you and your solicitor to help you complete any other checks.

Important Note

All information contained in this website is provided as a guideline only, is based on estimates and assumptions, may not be accurate or complete, and is subject to change. We make no representations or warranties with regards to this information, expressed or otherwise. A buyer who relies on such information does so at their own risk. Buyers are advised to seek independent financial advice and should undertake their own due diligence.

Your capital is at risk. Property values may decline and the property might not be able to be rented at amounts sufficient to cover debt interest costs, operating expenses and liabilities, and might not result in a positive cash flow. Property is an illiquid asset and should not be viewed as a short-term investment.

In no event will we be liable for any loss or damage, including without limitation any loss or damage arising directly or indirectly out of or in connection with the use of this website and the information contained therein.

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