Benefits of buying a property with tenants in situ
March 23, 2018
When purchasing an investment property, it is vital to understand that tenants are your clients and that they are the lifeblood of your business.
Therefore, one of the most important metrics any landlord must assess for any area they are
considering investing in is tenant demand.
Just like any other business, sustained and provable customer demand should be high up on your list of priorities when making investment decisions, in order to minimise voids and therefore mitigate risk.
Landlords should always find the demand before they go about creating the supply.
This involves a lengthy due diligence process, undertaking extensive research, and inexperienced or busy people may struggle with this.
A much simpler and lower risk way of getting going is to consider buying a property with a tenant already in situ.
This has a number of advantages:
1. You will be earning income from day one of ownership
When you invest in property, you take on the financial risk of the tenant not paying the rent on time or not paying the rent at all! The dreaded void is the No. 1 fear of landlords as it can financially cripple them.
Buying a tenanted property means you do not need to fear any void period at the time you take ownership. You will be earning income from the day of completing the sale with no need to go through the hassle of advertising, viewings, and referencing etc.
You will also know how long the tenancy has been running and be able to ask the tenant how long they wish to continue the tenancy for, going forwards. This can give you further peace of mind if the tenant indicates that they wish to remain long-term.
2. Know the exact rental income you will be receiving
Buying a tenanted property gives you certainty as to the exact rental income you will be receiving. No guesswork! This allows you to assess the deal, using actual figures, not what you think the property will achieve.
3. Check the payment history
Your solicitor can ask the vendor for a redacted bank statement or statements from the lettings agent to demonstrate if the tenant pays their rent on time, and if there have been any rental arrears during the life of the tenancy.
This gives you a good indication of the quality of the tenant and their track record of paying.
Vesta's approach is to provide full documentation, including RICS valuation, condition survey and rental history for absolute clarity.
4. Check how the tenant is keeping the property
The second thing, next to void periods, that landlords are most concerned about, is how a tenant treats their rental property. If you purchase a property with a tenant in situ, you will be able to see how the tenant is living in it. Under most tenancy agreement, tenants are obliged to keep a property reasonably clean and to report any maintenance, repair, or wear and tear issues.
When viewing the property, you will be able to see if the tenant is adhering to the terms and conditions of the tenancy agreement and if the property is being looked after.
5. Leverage existing relationships
Buying a tenanted property can be a seamless transition for all parties. If the property is fully managed by an existing lettings agent, you can simply carry over that arrangement into your ownership, meaning that you are working with an agent who has an existing relationship with your tenant.
Additionally, you can introduce yourself to your tenant, explain that you will be their new landlord, and start to build your own relationship with them before you have even taken ownership.
6. No need for capital outlay at the start
Buying a property with a tenant in situ means that you will not need to refurbish the property prior to letting it, as the tenant is already living there and, unless otherwise stated, is happy with the condition of the property.
As their landlord, you are legally obliged to maintain and repair the property, so it would be prudent to inspect the property and check that repairs and maintenance issues have been dealt with and that there is nothing outstanding that you could become liable for.
If you feel that the property could do with a cosmetic facelift, such as new carpets, decorating, and new kitchen and bathroom, then that can wait until the current tenancy expires.
Additionally, if you buy a vacant property, then, while waiting to get it tenanted, you will be liable for the mortgages (if not a cash buyer), council tax, standing utilities, and an increased insurance premium. So buying a tenanted property minimises capital outlay from the start. It therefore makes it easier for a landlord to forecast their cash flow as they know exactly where they stand.
7. Reduced stress and hassle
This is something that some landlords do not put a price on, but they should in our opinion.
Buying a tenanted property not only gives greater financial certainty but it reduces stress and hassle.
There is no need to get your property marketed, undertake viewings, find a lettings agent, undertake referencing, etc. - all at additional expense - as these are not necessary with a tenanted property. You simply take over the existing tenancy and the rental payment is transferred to your bank account on completion of the sale.
Thanks to the launch of Vesta, buying a tenanted property has never been easier.
It creates one of those rare “triple win” situations.
The tenant is happy because they do not have to leave their home, the landlord/seller is happy because they do not have to serve notice on the tenant and perhaps experience a long void period while the sale is going through, and the buyer is happy because they know the history of the property and tenancy before they buy it, as well as earning income from Day One of ownership.
All our listings comes with rental yields and documentation, so that you can assess whether it is the right deal for you. Log-in to our 24/7/365 market place, browse our properties, and either use the “Buy it Now” price or put in an offer. We’ve redesigned buy-to-let sales from the ground up – saving you time, money and hassle. Buying a tenanted property gives you certainty and peace of mind and gets your landlord life off to a flying start!