We are big fans of buying (and selling) tenanted property, but like all things in life there can be upsides and downsides.
Investing in property isn’t something you do on a whim, and this is especially true when you’re taking on not only a property but a tenant as well.
In this article, we’ll draw on our years of experience in buying and selling properties with tenants in situ, to highlight and help you avoid mistakes when buying tenanted property.
So, without further ado, let’s get into it!
not to get it wrong
Getting it right isn’t rocket science, but it does require care and attention to details. Getting it wrong is easy! So, how do you avoid mistakes when buying tenanted property?
1: Not properly understanding what you’re buying
This sounds really obvious but getting this wrong can lead to a world of problems.
Take time to fully understand what you’re thinking of taking on. Understand the property, its condition and value.
Do not buy a property without doing your due diligence. If it helps, remind yourself that while an established rental, it is new to you, and treat it accordingly. Find out more about due diligence in our blog.
When was it last refurbished? What state are the white goods in? What is the current and potential EPC rating? Is the central heating relatively new or a headache waiting to surprise you? How long has the current tenant been resident?
Is the property furnished or unfurnished and does the price include all of the inventory items? What outdoor space, if any, belongs to the property? Are there any nearby developments that might affect the desirability of the property to tenants?
2: Failing to understand the importance of regulation
Regulation in the buy-to-let sector is increasing, so make sure you understand how this will affect you as a landlord.
Do you need to be registered as a landlord? In Scotland you do, and in England and Wales you might, depending on the region and the type of property.
Make sure that all legal requirements are in place and up to date, there are many safety conditions that you have to meet. If you’re new to buy-to-let and you’re not feeling entirely confident, get advice from an experienced professional.
That could be a solicitor who specialises in buy-to-let and understands buying property with a sitting tenant. It could be a business like ours with experience of the market. Don’t feel pressured into making a decision until you are happy.
3: Assuming the tenancy agreement is fine
Remember that you are also buying the existing tenancy agreement, so make sure that you fully understand it and that it was properly drafted before committing to buying. In all likelihood it will be fine, but if you’re not sure, check with a professional.
Another key factor: what is the current rental paid for the property? This could differ from what is stated in the original tenancy agreement.
4: Thinking that there aren’t any issues with the current tenant
This is an easy mistake to slip into, especially if the tenant has been in the property for several years. However we strongly recommend that you don’t make any assumptions regarding tenants.
Skipping checks on the current tenant and assuming that all is, and will be, well, would be a major mistake. While most landlords wouldn’t try and sell you a problem tenant, don’t make the mistake of assuming that none would.
So, check the tenant’s payment history. Find out if there are any ongoing disputes, or indeed if there are any historical issues which might be relevant. Ask for sight of the reference checks carried out at the start of this tenancy.
All of this lets you build a picture of the relationship you might have with the tenant.
You don’t need to be paranoid about this, you are entitled to ensure that you’re not about to spend money on an ongoing problem. Failing to do this is one of the easier mistakes to avoid when buying tenanted property.
Arranging a physical viewing of the property can furnish an ideal opportunity to meet the tenant and discuss the property with them. What do they like, what don’t they like. You can also see how they’re looking after it.
5: Ignoring the importance of dealing with the deposit!
This would be a major mistake.. It’s a legal obligation on the landlord to protect their tenant’s deposit in a registered Deposit Protection Scheme (DPS).
Transferring the deposit from one scheme to another at the point of sale is not a big deal but if there is any suggestion that something might be amiss with the way the deposit is currently handled, investigate or walk away.
If all is well, you will have to provide the tenant with the required documentation from your preferred DPS once the sale completes and the deposit has been transferred.
Advice from the property pros
There are some very clear benefits to buying a tenanted property. Often they are cheaper than a vacant property, as there is less market competition. They should be fully up to spec.
The prospect of earning rent from day one is persuasive as is the fact that you don’t need to hunt for (or pay someone else to find) a tenant.
You can physically feel the ‘but’ coming, can’t you?! But… Buying a property with a tenant in place can potentially be risky, and if you decide to go that route, it is critical that you do all your diligence fully.
Unlike buying a vacant property, there are a great many more variables that you have to consider and it is vital that you do. We’ve outlined the most crucial ones in this piece, however you have to assure yourself that this is the right choice for you.
It’s a truism that many purchasers of tenanted property are existing landlords who have experience of the sector. If you are new to buy to let, make sure that you have access to experienced advisors, they’ll know things that you won’t.
Common sense and good information will make the process straightforward and hopefully profitable. Haste can leave you in a very difficult position with no simple solution.
As a business we are proponents of buying tenanted property, and we have extensive experience of helping landlords do so.
However, we would be disingenuous if we suggested that it is right for everyone wanting to invest in property, or that there aren’t potential pitfalls when doing so.
Nearly all of those can be managed and dealt with by taking a firmly businesslike approach and ensuring you have the experienced support you need to make the right decisions.
If you’d like to know more, or you’re ready to start your journey into property investment, get in touch. We’d be delighted to discuss your situation and goals and to guide you towards a satisfactory and profitable future.
Thanks for reading, we hope you found this useful and thought provoking.
Written by Ross MacDonald, Director of Sales & Cofounder of Portolio
Get in touch on 07388 361 564 or email to firstname.lastname@example.org