Buying an investment property with a tenant already in place can be a very attractive option \u2013 who wouldn\u2019t want to avoid the admin of finding, vetting and contracting a new tenant, and earn income from their investment from day one?<\/p>\n
However, Rawson Property Group’s Jacqui Savage cautions that tenanted properties aren\u2019t always a guaranteed win for purchasers, however.<\/p>\n
\u201cThere is no hard and fast rule about whether a tenanted property is a good investment or not,\u201d said Savage. \u201cIt all depends on the specific circumstances, and each purchase has to be weighed on its own merits.\u201d<\/p>\n
Savage said that because South African law states that \u201chuur gaat voor koop\u201d, or \u201clease comes before sale\u201d, the new owner of a tenanted property is required to honour any existing lease agreements to the letter, until such time as the lease expires.<\/p>\n
\u201cThat means the quality and terms of the existing lease \u2013 not to mention the quality and attitude of the existing tenant \u2013 play a huge role in the viability of the property as an investment \u2013 at least in the short term,\u201d she said.<\/p>\n
In light of this, Savage advised that prospective purchasers make inspecting the lease a top priority when assessing the potential of a tenanted property as an investment. \u201cOnce transfer has taken place, you will have to step directly into the shoes of the previous landlord, so understanding the rights and responsibilities, and any legacy issues that come with that are absolutely imperative,\u201d she said.<\/p>\n
\u201cIt\u2019s not just rent collection that you need to think about, either \u2013 you\u2019ll need to do things like manage the deposit and take responsibility for any maintenance or repairs that fall within your purview as well.\u201d<\/p>\n
If not properly considered beforehand, these aspects can cause some serious headaches when taking over a tenanted property. \u201cThe last thing you want is to inherit a deposit dispute, or a slew of expensive repairs,\u201d said Savage, \u201cso you do need to ensure that your rights in these matters are protected as far as possible in the sales contract you sign.\u201d<\/p>\n
The property lead said that meeting the existing tenant or the rental agent before signing a sale with an ongoing lease agreement is always a good idea if possible, not only to discuss the ins and outs of the property, but also to assess their reliability as a lessee.<\/p>\n
\u201cThe benefit of taking over a lease is that there\u2019s a proven tenant payment history, and visible evidence of how well they\u2019ve treated the property in the past,\u201d she noted, \u201cbut the risk is that they may change their behaviour if they feel they\u2019re being treated unfairly because of the sale.\u201d<\/p>\n
To decrease that likelihood, Savage advises having a discussion about future expectations with the tenant. \u201cFind out whether they hope to renew the lease when it expires, or if they would prefer to find new accommodation as early as possible. It could go a long way towards a happy future landlord-tenant relationship, and provide some useful insight into the property\u2019s potential as well,\u201d she said.<\/p>\n
With a fair lease in place and a responsible and satisfied tenant in residence, Savage acknowledged that a tenanted property can be the ideal investment.<\/p>\n
\u201cJust do your homework to avoid a few common pitfalls, and make sure all the contracts are completely above board,\u201d she said. \u201cIf you have any doubts, contact a qualified and respected real estate agent with sound rental experience.\u201d<\/p>\n
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