When you decide to buy a home that already has tenants renting it, you essentially inherit them and the lease agreement that they’re on. It can also mean you can’t move into the property straight away, so you’ll need to take that into account in your purchase decision.

Each state and territory has its own laws surrounding this scenario but here’s a general rundown.

Can I inspect a tenanted property?

It will be up to the seller to arrange inspection times with their tenants according to the laws surrounding property access that apply in each state and territory. Generally, the seller will need to have given their tenants formal notification that the property is being placed on the market.

Once a specified notice period has passed, inspections and property viewings can occur according to the rules that apply in each jurisdiction. Generally, the tenant will need to be given advance notice of a proposed open house or inspection schedule for providing access to prospective buyers. Tenants also need to agree to inspections before they can go ahead.

It should be noted inspections by third parties, such as prospective buyers, are treated differently under tenancy laws to routine property inspections carried out by property managers or landlords.

Under laws in most states and territories, tenants have a right to “quiet enjoyment of the property” which also encompasses their privacy. Understandably, this can be compromised while the property is for sale.

Each state and territory will have its own procedures to follow if the tenant doesn’t agree to inspections but, as a buyer, you will not be involved in this process. The best you can do is keep in touch with the real estate agent or owner until matters of access are resolved.

Can I get a building inspection of a tenanted property?

As a prospective buyer, you can certainly request a building and pest inspection of a tenanted property that you’re interested in buying. It is up to the seller, their property agent, and the tenant to arrive at an approved and suitable time for this to take place.

Again, this is up to other parties to negotiate. Your chosen building and pest inspector should liaise directly with the real estate agent or owner to arrange access at an agreed time. There are provisions in the laws of most jurisdictions for these inspections to take place without the tenant’s consent.

Difficulties in getting access for building inspections may pose some stress, particularly in fast-moving property markets or with forthcoming auctions where sales are generally unconditional.

Here are some things to take note of in your inspection of the property which could alert you to potential issues: Crucial things to check when buying a house.

What happens when you want to buy a tenanted property?

The first step is finding out what type of lease the tenants have in place. There are basically two types:

  • a fixed-term lease where the tenant has signed up to rent the property for a specified period with a start and end date

  • a periodic, or month-by-month, lease

What type of lease the tenants are on should be made clear to you before you sign up to buy the property. This may be a vital part of your decision to purchase it if you’re not entitled to move in upon settlement.

If you wish to move in straight away, you may need to specify what’s called ‘vacant possession’ as a condition of the sale. This will require negotiation between the seller and the tenants to end their current lease early and there’s no guarantee this will happen. If the tenants remain when you’ve stipulated vacant possession on your contract, you can choose not to proceed with the sale.

But if you decide to purchase the property regardless, it should be declared on the contract of sale if tenants come with the property along with details of the tenancy, including the term, end date, tenants' names, and the property manager if applicable.

If you go ahead with the purchase, it is up to your solicitor or conveyancer to contact the property manager or owner to ensure rent and costs are apportioned fairly upon settlement.

Becoming a landlord by buying a property with tenants in it

Even if you didn’t particularly plan to be a landlord, you will be anyway.

You will inherit the rights and responsibilities attached to the current rental agreement and any bond held for the property will be transferred to your name through the relevant state or territory tenancy bond authority.

Be aware that buying a property with tenants in it might also affect your eligibility for stamp duty exemptions or concessions in your state or territory although most jurisdictions make allowances for intending owner occupiers who are purchasing properties with existing tenants. Be sure to seek legal advice as to what the laws are surrounding claiming any concessions and when the tenants must vacate the property for them to apply.

After the sale has taken place, the tenants need to be officially informed the property has changed hands, supplied with the new owner’s details, and where and how they can pay their rent.

What if I want to live in the property I buy and there are tenants?

Tenancies can only be ended in accordance with the laws that apply in each state and territory. Generally, written notice must be given, and a specified notice period must be observed. This differs between the states and territories but generally landlords must give between 30 to 90 days’ notice. Notice periods for periodic leases are typically less in most jurisdictions.

Depending on the state or territory, tenants on fixed-term leases may be entitled to stay until the end of their term but more commonly, the end of the required notice period. Those on month-to-month agreements will generally have to vacate after the notice period.

Sometimes, you may be able to negotiate early termination of the lease with the tenants. This may involve you agreeing to cover some of their moving costs or being flexible with their end date according to their success in securing another rental property.

If you come to a mutual agreement, usually both parties have to sign a written document outlining the termination date and any associated financial arrangements that will apply.

What if the tenants don’t want to end their lease?

If the tenants don’t want to terminate their lease agreement and are within their legal rights to do so then, as the new landlord, you must honour that.

But if they refuse to leave after the legally prescribed period has expired, that is a matter that will need to be resolved through appropriate channels in your state or territory.

Can I increase the rent after I buy a tenanted property?

In a word, no. The existing lease agreement comes with the property, and you inherit all its terms as well as the agreed rent.

If you choose to keep the tenants in the property or put in other tenants after the original lease has expired, you are free to negotiate new terms or new rent amount according to the laws of the state or territory where the property is located.

Be aware, some states and territories only allow rental increases every 12 months for fixed-term leases, regardless of whether there are new tenants or new lease agreements put in place during that time.

Generally, periodic lease agreements allow for rent increases every six months as long as required written notice periods are observed. It’s important you familiarise yourself with the relevant tenancy laws of your state or territory or rely on a property manager to handle rental matters for you.

What are the risks of buying a tenanted property?

Buying a home with tenants essentially means you take over the lease agreement and tenants that come with the property.

This means you have no say in who the tenants are, how much rent they are paying, and any legal agreements that may have been in place with the previous owner. Unfortunately, it also means you can inherit any property maintenance issue or disputes related to the tenancy.

This is where it’s important for your conveyancer or solicitor to do their homework in making it clear to you where you stand before the sale proceeds.

If you were planning to move into the property as an owner occupier, you will need to allow for the time remaining on the lease agreement, or for the end of the notice period in your state or territory, as a possible move-in date. If this is going to cause difficulty for you, you may need to reconsider buying the property or make other plans.

How will buying a tenanted property affect my home loan?

Some home lenders may have specific requirements for tenanted properties. Most will allow you to take out owner-occupier home loans if you intend the property to be your primary residence, but you’ll likely need to ensure the tenants vacate within a certain timeframe.

This generally ranges from 90 up to 180 days after settlement but you should check what your lender’s policy is. There may be some flexibility depending on your circumstances.

If you’re looking for an owner-occupier home loan, the table below features loans with some of the most competitive interest rates on the market:

Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees Max LVR Lump Sum Repayment Extra Repayments Split Loan Option TagsFeaturesLinkComparePromoted ProductDisclosure
5.29% p.a.
5.33% p.a.
$2,773
Principal & Interest
Variable
$0
$530
90%
  • Owner Occupier
  • Variable
  • Principal & Interest
  • 10% Min Deposit
  • Redraw
  • Extra Repayments
  • More details
  • Available for purchase or refinance, min 10% deposit needed to qualify.
  • No application, ongoing monthly or annual fees.
  • Quick and easy online application process.
Disclosure
5.24% p.a.
5.15% p.a.
$2,758
Principal & Interest
Variable
$0
$0
80%
  • Built and funded by CommBank
  • Owner Occupier
  • Variable
  • Principal & Interest
  • 20% Min Deposit
  • Redraw
  • More details
  • No application or ongoing fees. Annual rate discount
  • Unlimited redraws & additional repayments. LVR <80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Disclosure
5.29% p.a.
5.30% p.a.
$2,773
Principal & Interest
Variable
$0
$0
60%
  • Up to $2k cashback (T&Cs apply)
  • Owner Occupier
  • Variable
  • Principal & Interest
  • 40% Min Deposit
  • Redraw
  • More details
  • Up to $2k cashback when you take a loan with us (Terms and Conditions apply)
  • Quick and Easy online application, with no upfront or annual fees.
  • Unlimited additional repayments free of charge.
Important Information and Comparison Rate Warning
Important Information and Comparison Rate Warning

Will buying a tenanted property affect eligibility for government home buyer programs?

Homebuyers can still be eligible for the federal government’s home guarantee scheme and other homebuyer grants when a property is tenanted.

For those accessing the home guarantee, you’ll need to demonstrate that you will occupy the property as your primary residence and live there for at least six months within the first year after settlement. This means the existing tenants must move out within six months of settlement or when their lease ends, whichever is earlier.

Generally, for most state and territory home buyer grants, you will need to ensure the property becomes your main residence within 12 months of settlement. This also generally applies to stamp duty exemptions and concessions, but you need to ensure what specific rules apply in your state and territory.

As you can see, there are different requirements and timeframes that apply for different purposes. It’s best to seek legal advice to ensure you are ticking the boxes to obtain the optimum financial deal you can for your circumstances.

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First published in March 2023