What Does Everyone Forget When They Buy A Property With A Tenant?

Many who invest in property want to buy an established property with a tenant in place because they see it as the easiest way to enter the market.   Everything is already set up with a tenant and Property Manager humming away nicely … or so they think.

They will check out the house but not the tenancy or the Property Manager.

Many investors will be wooed into signing up with the same real estate office that sold the property to them who also manages the rental without ever making the most superficial enquiries.   They know when the last termite inspection was done but not when the last inspection was done by the Property Manager they have now signed up with.

Look under the hood

Legally the selling agent is only required to supply the barest details about a tenancy as appears in a copy of the lease.   This is next to useless; it’s like buying a car, sight unseen, based purely upon the first entry in a service log book.

But even the first entry in a log book would at least tell you that the car received one good service whereas a copy of a lease only tells you that on a given day the person named on the lease met with a person from the real estate office to sign a document and the tenant hasn’t left yet!   No mention of the intervening harmony or chaos.

Most people when looking for an investment property with a tenant in place would feel that all they need do is look for a house that is relatively neat and tidy as evidence the tenants are ok.   The presentation of a house at an open inspection should be the very best possible but would you judge a person based on how they look in their Sunday best?   If there are any questions about the house keeping of the occupants then realise that it will only get worse after the open inspection.

It is common for vendors to have the yards in their rental properties tidied up before putting them on the market and to pay for regular lawn mowing for their tenants during the sale process.   I also know of vendors who have paid for cleaning of the house immediately before every open inspection.

So beware.

What to watch out for

At the very least any prospective buyer should ask for a copy of the following;

  • A full copy of the ‘Tenant Trust Ledger Report’. This will show three things;
    1. The amount of the bond paid.
    2. How regular or late rent is paid.
    3. How regular water invoices are paid, if ever.
  • A copy of all regular inspection reports by the Property Manager (usually every 3 or 4 months). These will highlight problems of maintenance and problems with the tenant.   And if these reports are not regular or deficient then it might show a problem with the Property Manager.
  • The First Inspection Report should clearly state the condition of the property when the tenancy started. It is important for you to get a copy. This may well include notes from the tenant commenting on the agents report and their opinions about the condition of the property. A very brief report might highlight a Property Manager who is not very thorough. Excessive comments from the tenant might show they are combative. There might also be an opportunity to get photos taken at the time the property was handed over to the tenant.

Getting all of this might sound like a big ask but if the Sale Agent refuses to supply any of this information for any reason, you should probably not buy from them or definitely not use them as Property Managers.

If you are interested to find the best areas in which to invest and types of properties to buy, ring Mark on 0414 969 490 or email mark@adelaidesouth.com.au.