Buying an investment property with a tenant already in location can be an extremely attractive choice who wouldn’t wish to prevent the admin of finding, vetting and contracting a brand-new tenant, and make earnings from their investment from day one?
Rawson Property Group’s Jacqui Savage cautions that tenanted properties aren’t always an ensured win for purchasers.
There is no set rule about whether a tenanted property is a great investment or not, stated Savage. All of it depends upon the certain circumstances, and each purchase has to be weighed on its own merits.
Savage said that because South African law states that huurgaatvoorkoop, or lease comes prior to sale, the new owner of a tenanted property is required to honor any existing lease arrangements to the letter, till such time as the lease ends.
That indicates the quality and terms of the existing lease not to mention the quality and attitude of the existing tenant play a big role in the practicality of the property as an investment a minimum of in the short term, she said.
Because of this, Savage advised that prospective buyers make checking the lease a top priority when assessing the potential of a tenanted property as an investment. Once transfer has occurred, you will have to step straight into the shoes of the previous property manager, so understanding the rights and obligations, and any heritage concerns that include that are absolutely vital, she stated.
It’s not simply lease collection that you have to think about, either you’ll have to do things like manage the deposit and take obligation for any upkeep or repairs that fall within your province also.
If not correctly thought about ahead of time, these aspects can trigger some serious headaches when taking over a tenanted property. The last thing you want is to inherit a deposit disagreement, or a slew of pricey repairs, stated Savage, so you do need to guarantee that your rights in these matters are protected as far as possible in the sales contract you sign.
The property lead stated that fulfilling the existing tenant or the rental agent before signing a sale with a continuous lease agreement is constantly a good idea if possible, not only to talk about the ins and outs of the property, however also to evaluate their reliability as a lessee.
The advantage of taking control of a lease is that there’s a proven tenant payment history, and noticeable proof of how well they’ve treated the property in the past, she kept in mind, however the risk is that they might change their behavior if they feel they’re being treated unjustly because of the sale.
To reduce that likelihood, Savage advises having a discussion about future expectations with the tenant. Discover whether they hope to renew the lease when it ends, or if they would prefer to discover new accommodation as early as possible. It might go a long way to a pleased future landlord-tenant relationship, and supply some beneficial insight into the property’s possible also, she stated.
With a reasonable lease in place and a responsible and satisfied tenant in residence, Savage acknowledged that a tenanted property can be the perfect investment.
Simply do your homework to avoid a few common risks, and ensure all the contracts are completely above board, she said. If you have any doubts, contact a qualified and appreciated real estate agent with sound rental experience.