25 May SOLD WITH TENANTS: YOUR LANDLORD CHECKLIST FOR BUYING A TENANTED PROPERTY
As a fast and chain-free way to start or add to your lettings portfolio, buying a tenanted property can be an attractive proposition.
Usually, when you buy a property to rent out, you’ll need to have it cleaned, fix any repairs, get it on the market, show people around, take up references and create a tenancy agreement before seeing any income. But that’s all taken care of when the property you buy already has a tenant.
However, you’ll also inherit every outstanding responsibility of the previous landlord, and you need to be sure that the property and tenancy are all they seem. Do the figures stack up? Are you happy with the tenant? Will you be taking on unresolved problems or disputes?
Before you make an offer and start incurring legal fees, use our checklist here to ask the right questions and get the story straight. If you’ve already got somewhere in mind and you’re wondering whether it’s a good deal, call us on 0333 0880 264 or drop us an email at lettings@kelwaylaw.co.uk for a confidential chat – we’ll help you decide if a property is right for you.
RESEARCH FUNDING OPTIONS
Even if you’re considering buying with cash, it’s worth checking to see if your money can perform better elsewhere, particularly with low interest rates for borrowing.
You’ll find plenty of lenders with buy-to-let products, but mortgages for rental homes are not the same as residential loans. They tend to come with additional fees, and some lenders won’t lend on certain types of property, so speak to a financial adviser with experience in the lettings market to find the mortgage that’s right for you and the property.
Lenders typically require the rental income to be at least 125% of the monthly mortgage payments on a buy-to-let loan, and they usually calculate the loan based on the rental value at the time rather than the rent being paid.
You almost certainly won’t get a mortgage on a home with a sitting tenant because lenders see those as far too risky. If you want to borrow for that sort of purchase, you’ll need to remortgage another property.
CRUNCH THE NUMBERS
Doing a bit of homework around the suitability and sustainability of a potential rental investment will help you make a confident and savvy purchase.
Check current rents and demand
Talk to local letting agents about rental prices, ongoing demand, the reputation of the area and the types of people who want to live there. You need to know that you’re buying in a location where homes are easy to rent, particularly if you’re unfamiliar with the neighbourhood.
See it for yourself
It might sound blindingly
obvious, but it’s essential to visit the property you’re buying, even if it’s purely for investment.
Mortgage valuations don’t include testing the heating, hot water or appliances,
so you need to know whether everything is working correctly or if repairs,
replacements and bills are on the horizon.
Walk around the neighbourhood
Spend some time exploring the area to get a good feel for it. Check for yourself how long it takes to get to the supermarket, station, somewhere for coffee, schools and whatever else a tenant would expect from the type of property you are considering.
TALK TO THE TENANTS
There’s nothing like living in a home to know what it’s like, so ask if you can speak with the tenants direct: this could be in person, over the phone or by email. As well as giving you an idea of their character, you’ll learn about their experience of living in the property and whether they plan to stay.
If the tenants are thinking of leaving, find out why. Perhaps they simply need more space, or they’re moving further away, but if it’s down to issues with the property, you might be able to salvage the tenancy by addressing any concerns.
Good tenants are worth holding onto, so it’s worth discussing whether they’d stay if the property was better cared for or more up-to-date. Talk about any repairs or improvements they’d like to see to save losing them unnecessarily. A simple paint job, installing a decent shower, or replacing a dated fridge can make all the difference to someone’s daily life and are benefits your tenants will happily pay extra rent for.
EXPLORE THE HISTORY
As you’ll be taking over a property as the new landlord, you’ll want to know the calibre and performance of the tenants you’re getting.
Request a schedule of rent payments to see if they’ve always been on time. For any that were late, check if there’s a good reason. Anyone can hit a bump in the road now and then, but it’s good to know if it’s a one-off or a regular thing.
Ask the current landlord or their managing agent for written details of any maintenance issues during the tenancy and whether all repairs are complete. For any that are still pending, find out whether they’ll be finished before you complete, or if you can negotiate the cost of them off the price you agree.
As a final bit of research, ask if the tenants report problems promptly and politely, and whether they are responsible and reliable renters. Ultimately, is the property in good hands with them living there?
CHECK THE PAPERWORK
While everything will be revealed in the conveyancing process, we recommend getting as much information as possible before instructing a solicitor to proceed.
Review the tenancy agreement for the terms of the rental. Standard contracts usually follow a form, but it’s always worth reading the small print. Check that an inventory was created and signed at check-in, and whether a security deposit was taken and where it’s held.
Tenants aren’t obliged to sign new agreements or inventories when the property they live in changes ownership, so it’s important to know how accurate and comprehensive the paperwork is at an early stage.
Finally, ask to see copies of valid gas, electricity and fire safety certificates to ensure that everything is up to date and complies with current regulations. Do the same for any furniture that’s included to see if you need to replace any items.
What’s your next step?
If you’re thinking about buying a tenanted property in Hindhead, Haslemere or Liphook, or you’ve recently bought one and you’re looking for a managing agent, why not get in touch? Speak to our friendly team of experts on 0333 0880 264 or email us at lettings@kelwaylaw.co.uk– we’re here to help you make the most of being a landlord.
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