Pros
There are several advantages of buying an investment property that is currently occupied by tenants.
- Instant cash flow
The entire premise of having an investment property is renting out, so you can start collecting rent and paying off your mortgage. The rental payments are paid to the new owner as soon as the property is settled.
- No need to spend time and money finding tenants
There is no need to advertise, deal with applicants, conduct viewings, run background checks. This saves you time and money. There is no need to wait to get a tenant in, no need to pay for an advertising service or pay for an agent. Things are just easier. You're one step ahead before you even started.
- Predictability
When buying an empty property, there are no guarantees, especially when it comes to the yields quoted. You can also never be sure if the property can actually be rented out for the amount quoted by the seller. When buying a property with tenants, you get more predictable and accurate cash flow.
Cons
- You inherit tenants
Unfortunately, with a tenanted property, you don't get to do the choosing. You have no control over the type of tenants you are taking over. You don't know if they actually are good tenants. You inherit their ability to look after the place and their track record of paying rent on time.
- You inherit a tenancy agreement
A property sale does not change the terms of the leases. The tenancy agreement in place remains in effect even after you take over the property. You cannot legally raise the rent, make changes to the terms, re-sign contracts or kick a tenant out just because you're the new owner.
Before committing to buy, ask the seller and check:
- the type of tenancy (fixed or periodic)
- the terms of the agreement
- verify the amount of bond held (and whether it was lodged correctly)
- how much the tenant pays in rent each week
- check if the tenant missed rental payments in the past
- if there have been any breaches to the current agreement
- if there are any maintenance issues outstanding
No written tenancy agreement?
When purchasing a property with existing long-term tenants and no written tenancy agreement in place, it's essential to understand your rights. Here is what should do
- You're not able to make any immediate changes to the property
Unfortunately, you are unlikely to make significant changes to the property if you want to bring it up to standard and renovate. You don't get immediate access to the property after you settle and your tenants have a right to quiet enjoyment of their home. So any big projects need to be run by them and negotiated.
The idea of finding a property that already has tenants who are paying rent sounds like a great deal, but it does come with some drawbacks. At the end of the day, it's up to you, your individual preferences and circumstances. So, do what you think is best for you.
The information contained in this article is exclusively for promotional purposes. It does not in any way constitute legal advice and should not be relied upon as the basis for any legal action or contractual dealings. The information is not and does not attempt to be, a comprehensive account of the relevant law in New Zealand. If you require legal advice, you should seek independent legal counsel. myRent.co.nz does not accept any liability that may arise from the use of this information.
