Buying an investment property with a tenant already in place might seem like a good option. After all, it means you won’t have to find new tenants, verify their details and draw up a contract. Instead, you will be able to earn income from your investment immediately.
Unfortunately, tenanted properties aren’t always a guaranteed benefit for buyers. Each purchase has its own advantages and disadvantages, so it’s important to weigh these up carefully before becoming a landlord.
Owning a rental property is not just a question of collecting the rent and sitting back to enjoy your extra income. You will need to manage the tenant deposit and carry out maintenance or repairs that you are responsible for.
Once the property has been transferred, you will take over from the previous landlord. You need a clear understanding of your rights and responsibilities as well as those of your tenants and any previous issues that arose in the past.
Lease
In South African law, ‘huur gaat voor koop’ - lease comes before sale. So, if you buy a property with sitting tenants, you are obliged to honour the existing lease agreements until the lease expires. This means that the terms of the lease agreement and the quality of the tenants will significantly impact whether or not you will be happy with your investment property.
Before putting in an offer on a tenanted property as an investment, you need to evaluate the lease. It’s always wise to ask an attorney to read through it and advise on whether or not you should proceed with the purchase.
Make sure the existing lease is clear on the following:
Deposit – The amount must be clearly stated, along with how the deposit will be safeguarded during the lease period and under what circumstances you are entitled to withhold the deposit at the end of the lease.
Maintenance and repairs – Usually, the landlord is responsible for ensuring that the rental property is habitable and will take care of repairs such as the geyser and electrical and plumbing installations. The tenants will attend to minor maintenance tasks like changing light bulbs and generally keep the property neat and clean.
Tenants
One of the advantages of taking over an existing lease is that there’s a proven tenant payment history. If possible, arrange to meet the existing tenants or the rental agent before signing an offer to purchase on a property with an ongoing lease agreement. You will be able to assess how reliable the tenants are and see how they've treated the property in the past.
You should also be able to judge whether the tenants feel they’re being treated unfairly because of the sale. It helps to discuss their future expectations and find out whether they hope to renew the lease when it expires or if they would prefer to find new accommodation as soon as possible. This will also give you a good idea of whether the property will be a good investment.
Prospects
If not properly considered beforehand, the abovementioned issues could cause serious problems when taking over a tenanted property.
However, a tenanted property can be an excellent investment with a fair lease in place and responsible and satisfied tenants in residence.
If you have any doubts, contact a reputable estate agent with sound rental experience.
Writer: Kerry Dimmer
