Buying a rental property is a popular way to invest. But where do you stand if the property you're eyeing off already has a tenant? We'll fill you in on what you need to know.
So you're primed to expand your financial horizons and want to buy an investment property?
2023 may provide promise, with double-digit percentage gains for rental returns predicted in 11 out of the 14 major Australian residential markets.
But what happens if the property you want to buy already has tenants?
Depending on your plans, this could be a major boon. With tenants in place, the rental income can roll in from day dot!
But if you want to make changes to the property or the tenancy agreement ... things get more complex.
So without further ado, here are the ins and outs of buying a tenanted investment property.
Know your tenants
When you're buying an occupied property, it's wise to learn about the tenants.
If the rental history shows you've got stellar tenants, that's super!
You can have rent coming in straight off the bat - all without the need to advertise or wade through applications.
But if the rental history is a grim read, you can't just switch tenants on a whim.
As the landlord, you're obligated to honour the existing lease. There is state and territory government legislation you'll need to adhere to as an owner, with certain processes and procedures to follow if you want to go down the road of ending a tenancy.
What's the property's condition?
Be thorough in investigating the condition of the property and ask if there are outstanding maintenance requests. This can help you avoid unexpected costs.
As the owner, you're responsible for ponying up for most repairs. You need to ensure the property is maintained in a timely fashion as per the tenancy agreement.
So if there's a laundry list of things to be fixed, you'll want to budget for it.
What if I want to make changes?
You're obligated to honour the term of the existing lease. That means if you want to make changes to the tenancy agreement (like increasing the rent amount), you'll need to wait.
Say you want to make non-routine renos to your property during the lease period - that's possible, but you'll have to negotiate with your tenants.
Extensive renos could affect their enjoyment of the property, which may mean they reject your request to carry out the works and you have to wait until their lease expires.
Ultimately, the only way you can make changes while the lease is in place is through mutual agreement with your tenants.
Property management
A good property manager will fill you in on your obligations and maintain the smooth running of the tenancy.
If you like the way things have been handled, you can choose to stick with the existing manager.
But if you want to change, you can. You'll most likely have to provide a period of notice to the property manager. The duration depends on which state or territory your property is located in.
Alternatively, you can manage the tenancy yourself. Just be sure you're across all the legislation.
Property management can be a demanding job, so make sure you know what you're getting yourself into before taking it on!
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