Buying property with an existing tenant in place
Not everybody who buys property does so with the intention of living in it. As you would have discovered through several of our topics here on our blog and/or on the podcast, we often explore the perspective of property-buying when the approach pertains to an investment opportunity.
Just like almost everybody who joins us here on our podcast and/or blogging journey, Angela Ngano went from being interested in property for sale to being a homeowner. It’s a big step, but one she knows starts only when you take that first step. And because we know that valuable, relevant, contextual insight is the most empowering vantage point, we thought it the perfect opportunity to speak to someone who has walked the walk and can duly talk the talk — from her own first-hand experience!
Our latest PodAcademy podcast is titled “What to look out for when purchasing a tenanted unit.” Click here to listen to our informative chat with Angela directly, and for those of you who prefer to take it in via written format, we’ve put together this informative blog for you.
Looking for apartments for sale as an investment opportunity is an empowering position to be in with positive prospects in terms of long-term return on investment. But there’s a difference between buying from new developments versus a unit, apartment or house that already has a tenant in it; i.e. buying as a landlord from another landlord.
A common South African phrasing that describes this dynamic is “huur gaat voor koop” meaning that lease comes before sale. This means that the current landlord has a tenant in place (with a contract determining the specifics of the lease), and when you buy that property with the intention of using it as a rental, the tenant effectively comes with the purchase — until the lease term has run its course. Considering you are required to honour the terms of the lease as the new owner, it is in your best interests to be as particular about the existing arrangement with the current tenant as you are about the property specs.
Preparation is key, so you want the person selling to be as transparent with you as possible so that you are as informed and ready to continue a fruitful relationship with the tenant that keeps you both happy (and your investment solid!).
Ask to see the current lease agreement and if by some reason there isn’t one, coordinate a meeting with the tenant where you respectfully propose that putting one in place is for the benefit and protection of you both. Either way, the sections you should be aware of / draw up should pertain to:
- Lease period
- Deposit amount
- Rental amount
- Cancellation policy
- Special conditions
Buying from a property development is a great investment opportunity — but not one that is without its own set of challenges. You may consider an existing tenant the better approach because you won’t have to focus on the hassle of screening and vetting them. The importance of vetting their viability as a trusty tenant is as important with an existing tenant as it is when they are new; you would want to know if the tenant that is living there has a bad record when it comes to paying their rent on time, respecting the property from an upkeep perspective (cleanliness, chips to paint, broken windows etc.), and even their decorum and reputation within the community of the complex.
It’s one thing to have a tenant that pays their rent every month, but if they have no respect for the property itself then your investment is going to depreciate which is contrary to your ideals on all fronts. And if they are the kind of neighbour that causes conflict with other tenants and eventually the body corporate, you are going to be the one who faces the repercussions of the general rules of the complex as and when your tenant is not adhering to them. Similarly, a tenant who is quiet, unimposing and doesn’t have any impact on their neighbours but who isn’t meeting the monthly rental payments is going to become a financial burden on you.
It’s not all doom and gloom however. Remember that looking for apartments for sale as an investment opportunity is a responsible, optimistic way of nurturing your property investment — and possibly even growing your portfolio in time. There are plenty of great tenants out there who are as invested in having a good relationship with their landlord as you are. They want to be able to trust that they have a place to call home with a landlord that looks after their interests by looking after his / her investment.
You may have been a renter before, so you will know what a deposit is all about and why it is put in place. As a landlord, you will understand its importance, albeit from the other end of the relationship dynamic. As tempting as it is to enjoy that money (when a tenant pays you their deposit and first month’s rent at the same time), remember that it is standard practice to be transparent about keeping that in an interest bearing account so that the interest-earned total is refunded to the tenant upon their departure of the property (provided no deductions were incurred based on shortcomings that would be trackable against the lease agreement between you and them).
Our Reeflords Academy platform is growing and allows us to share information with you that you can refer back to at any time during your home buying journey. On this topic, you might want to recap from our blog “Renting Out Your Property: The Tenant Journey” or catch up on that related podcast: “How to screen your tenants.”
It’s with pride that we celebrate this our tenth PodAcademy podcast and partner blog post too. We’ve come a long way in providing information that we always hope you benefit from, and to hear from you when there’s something you would like to know.
A great question we received after our last podcast and blog “Your Role in the Body Corporate” was about security and why there is a difference between access granted to visitors who have to have a code that has been requested by the owner / tenant living within the property development, compared to suppliers like builders and general workers.
It stands to reason that anyone gaining access to the complex would have to have been granted that by their contact. So just as your visitors and/or a service provider who comes to your unit would have to be granted access via your permissions (however those work at your development), a service provider or general worker who is working on general, common property areas would have had to be given access by the estate manager, maintenance manager, governing body corporate member or the likes.
While security is understandably a huge concern, be sure you liaise with your complex representative, your body corporate or your own landlord (if you are a tenant) about concerns you have with regards to the access anyone is granted and how secure the points of access are.
Remember: it’s all about your investment
Buying a house is a lot of hard work, so it is important that your investment remains your true focus long before and after you’ve found a tenant and have successfully established their rental agreement.
If you have any questions related to this topic or anything within the realm of property (as a homeowner or investor), feel free to drop us an email on firstname.lastname@example.org or post them to our Facebook page.
Think home. Think Reeflords.