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16

March

2016

Buying a tenanted investment property

Is this a good idea? On the surface it sounds like it is however as always an astute investor will weigh up the pros and cons of such a move. Firstly and most importantly the obvious advantage of such a purchase is that the property is tax deductible and receiving rent from day one. A rental property cannot be claimed as a deduction until the first tenant is in place after sometimes many dollars having to be spent including the first clean to get the property ready to be tenanted. Lastly, knowing the history of the tenant and the condition of the property, one can make an informed decision if the current tenant is looking after the property.

The downside of course is if the property has not been looked after, how long will it take to evict the current tenant? Are their repairs or improvements that need to be done as these are much harder to organize if a tenant is in situ?  A lease that is soon to expire can also be a problem as the current tenant might move out leaving you short on expected cash flow and back at square one.

Therefore, as always due diligence is required not only on the purchase of your property but whether to purchase one tenanted.


Some points to keep in mind if your prospective purchase is currently tenanted.

  • Review the current lease and understand what is included for your tenant and what your responsibility is. Cash flow is dictated on incoming and outgoing expenditure.
  • It goes to say that you would inspect the property beforehand. This will give you a good idea of how the tenant looks after and maintains this property.
  • Talk to the managing agent and make sure the tenant is not in arrears and has not been a problem. Find out what sort of person they are as this might save you some grief later on.
  • Looking at the past maintenance history of a tenanted property can give you some idea of future expenditures.
  • Research the current neighbourhood about rental yields. Is your tenant paying too much or not enough?
  • Review the last routine inspection report to see if the current agent is looking after the property. This will also indicate if it is a true representation of what you observe.
  • Also review the Entry condition report. There can be large discrepancies if years have passed or not and therefore no surprises later on when the tenant vacates.
  • Make sure the full bond is in place.
  • Remember you don't have to except the current managing agent as your own.
  • Lastly don't be seduced into buying a property just because it has a tenant. Remember the golden rule Buyer Beware!
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