Buying for investment: Are tenanted properties the best buy?
First published 15th May 2017 on www.domain.com.au. Written by Nicola McDougall
Investors might think they’ve struck the rental jackpot when they pick up a tenanted property but sometimes they can be more trouble than they’re worth, according to experts.
Property Pursuit director Meighan Hetherington said there are pros and cons to inheriting tenants as part of a sale.
“We always assess the documentation if the tenant is in situ, so the lease agreement and the entry condition report, which is one of the most important pieces of paper that a potential buyer can look at,” she says.
“If that is good, thorough and has good photos, then the end of lease is a much smoother process than if it’s not there, doesn’t exist or it’s poor record-keeping.”
If the documentation is non-existent or poor, that could potentially lead to problems, especially if there weren’t actual records of any breaches, she says.
Hetherington says investors need to be have an understanding of the tenancy’s history because the vendor may be selling because of longstanding problems.
“The cons can be that the tenant may actually be a problem and it may be the reason that the landlord is selling, so those investigations into the tenant’s history are really important,” she says.
Bees Nees City Realty sales manager Rebecca Herbst says some landlords wait until the end of a lease to sell their properties believing that a vacant property is more attractive to potential buyers.
But this isn’t always the best strategy, she says.
“Unfortunately many agencies actually encourage landlords to move their tenants out before selling and, while there can be some benefits in easier access and presentation, we do think a great tenant is always worth hanging onto if investors are looking to sell,” Herbst says.
“A well-presented property with happy tenants and a good return is always attractive to investors – the sale has more opportunity to be a win/win situation for everyone involved.”
But she says incoming landlords needs to have their eyes wide open, including any outstanding maintenance requests, which can annoy tenants and potentially give them grounds to terminate.
Landlords should also consider whether they want to retain or change the property management appointment, Hetherington says.
She also suggests that if tenants appear problematic and are on a periodic lease then new landlords consider vacant possession.
“We would like for vacant possession and for the existing property manager to manage that exit process,” she says.
“We then have the opportunity to do a pre-settlement inspection once those tenants are out. Then we can identify other issues that we need the owner to address that weren’t addressed by the existing property manager.”