Pros and cons of buying a home with a tenant in place

Usually, when you buy a property it will come with ‘vacant possession’, which means the home is empty and ready for you to move in. However, some investment properties are sold with a tenant still in the home.

This presents some unique challenges and opportunities for astute buyers, depending on the circumstances. Here are the pros and cons of buying a property with a renter in situ.

Pros:

1. It could save you funds upfront

If you’re looking to buy an investment property, finding a tenant and renting it out after purchasing can be a costly exercise. There is usually always a period of one or two week’s vacancy as you advertise and organise the home to be rented, as well as re-letting fees, that could include the cost of photographs. This will save you time choosing a tenant and it will save you money in undertaking the marketing process. When you purchase a home that has a tenant already in place, you avoid all these costs. The lease is automatically transferred into your name when the property is sold and the rent money just comes to your account instead.

2. Provides a degree of certainty

When a tenant is already in the home, you know exactly how much rent you will be getting from day one. In areas that are going through slower periods in the rental market, or where there has been a significant amount of supply, the additional certainty of a long-term tenant can be substantial. Ensure to check how long is left on their lease so you know how long they are expected to stay – some tenants may be on a month-by-month lease. The fact a tenant is in the home also means the property comes with a built-in rental history, which allows you to speak to the property manager about the demand for this type of home and the costs involved. For homes that haven’t been rented before, this can be harder to ascertain.

3. You can choose your property manager

While the lease is in place already, the property manager is not a must-keep fixture. There’s nothing stopping you from switching to a property manager you prefer if you find they are not quite what you had in mind. Similarly, if you do keep the property manager, they may have already built a good relationship with the tenant and have a thorough knowledge of the property. This pre-existing knowledge can be worthwhile exploring.

Cons

1. You cannot pick the tenant yourself

In a situation where you take over the lease after the sale, you are required to honour the rental agreement with the renter involved. If you get a fantastic tenant who keeps the home in beautiful condition, then you have come out on top – but there’s a chance that you won’t be so lucky. In these circumstances, you’ve inherited another landlord’s problem tenant and you will have to deal with it through the formal channels with your property manager.

2. Home buyers will have to wait

For home buyers intending to move into their recent purchase, you will have to wait until the lease is over and the proper notice periods have been given to the tenant. If the purchaser is paying rent or other accommodation costs in the meantime, this can make the experience costly. Any renovations and improvements would also have to wait until the end of the lease. This could be a significant turn off for those ready to move into their new home straight away. However, if you’re not a home buyer, this point could be a positive. If it’s a turn off for purchasers, there’s every possibility you might be able to buy the property for a cheaper price.

3. You can’t set the rent

As you will be stuck with the lease terms provided by the former landlord, this will include the rent being charged and any additional terms and conditions. If the rental market has skyrocketed since the tenant moved in, you usually still won’t be able to hike the rent up until the end of their lease. This can be frustrating for investors who are familiar with the local market and have undertaken calculations based on today’s rent. If the previous landlord or property manager made a mistake or undervalued the rent to get a tenant in, this could be costing you money.

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