No one likes to receive a gift which has already been unwrapped — same with buying a house. There are some instances when buyers receive not just the keys to the house but also its existing tenants. If you’re not looking to buy a tenanted property, there are things you need to know before you call the deal off.
What you need to know if you are occupying the tenanted property
If you are planning to occupy the property, the most important thing you have to know is the tenancy agreement between the tenant and the current owner.
Tenancy agreements can either be periodic or fixed-term. A house is under a periodic tenancy agreement when the tenant rents it for an indefinite period. If the deal is fixed-term, on the other hand, the tenant agrees to rent the property for a certain amount of time.
When a fixed term is completed, it often rolls over into a periodic agreement. However, there are also instances when the landlord and the tenant agree to have another fixed-term deal.
You have the right to know the type of lease the house is under. If it is in a periodic lease, you can request that the landlord have the property vacated. They will give the tenant a notice period which complies to the rules of each state (usually around 60 days).
It’s a different story when the house is on a fixed-term agreement. If, for instance, the tenancy agreement will last for another seven months after you purchase it, you and the landlord are not entitled to force the tenant to move out of the property — you will have to acknowledge and respect the tenancy contract.
One workaround to this is privately negotiating with the tenant to see if they can end the lease early. There are no assurances, however, that the tenant will agree to your terms. You can offer to help the tenant with moving costs and provide other incentives, but the decision to terminate the lease early ultimately falls in their hands.
Once the property is vacated, you have to make sure that the property is properly maintained. Check out this guide to know how you can properly inspect the house.
Things to consider when you are taking over the tenanted property as the landlord
If your goal is to take over the property as the landlord, then you should know that the minute you finish the settlement, all lease money will be paid to you. During settlement, the bond, tenancy, and rent details should be transferred to your name. Buying a tenanted property is also a good way to start your investment portfolio — you will save time since you do not need to advertise and look for new tenants.
However, there are also things that you need to consider to avoid any risks. Here are some of the things you have to know about if you are planning to take over the property as an investor:
1. The tenant profile
Ask your seller about the background of the tenant, including their career, how long they have been on the property, and their track record of paying rent on time.
2. The lease agreement
As mentioned earlier, it is important for you to know the lease agreement the property is currently under. Aside from the term of the lease, look at the amount of bond held and how much the tenant pays in rent each week.
Regarding the bond, ensure that the tenants have already settled it with the current owners. Should there be damages or lease-break fees, you can deduct these from the bond.
3. Immediate maintenance requests
You also have to be wary of concerns about the property which the tenants might take advantage of. Ask your seller to check if there are any potential damages or existing issues that could be a cause of concern in the near term. This is to avoid unexpected costs once the transfer of ownership is completed.