Purchasing an investment property doesn’t always mean a new set of keys to a vacant home. Sometimes, investors inherit a property with tenants already living in it. There’s some advantages to having tenants in your newly acquired investment, and also some drawbacks, depending on what your end goal may be.
PROS:
- Immediate rental income - With tenants already in place, you'll start receiving rental income from the day you take ownership. This can help cover mortgage repayments and other expenses associated with the property.
- No vacancy period - Since the property is already occupied, you don't have to worry about finding new tenants or the costs associated with vacancy periods.
- Tenant history - When buying a property with existing tenants, you have access to the tenants' rental history, including their payment records and how they've maintained the property. This information can help you assess the quality of the tenants.
- Potential for long-term tenants - If the existing tenants are happy with the property and have been renting for an extended period, they may be more likely to renew their lease, providing you with a stable rental income.
CONS:
- Can't move in right away - When a property is sold, the lease generally carries over to the new owner, who then becomes the new landlord. As the new landlord, you are required to honor the lease agreement for its duration. If you plan to move into the property, you must wait until the lease term ends or negotiate with the tenant to end the lease early by mutual agreement. It's essential to review the existing lease terms and consider your needs and plans before purchasing a tenanted property.
- Limited control over tenant selection - When you inherit existing tenants, you have limited control over the tenant selection process, which could result in unsuitable tenants or those who do not meet your preferred criteria.
- Difficulty assessing the property's condition - Inspecting the property thoroughly can be more challenging when it's occupied, making it harder to identify potential issues or maintenance needs.
- Restrictive lease terms - The existing lease agreement may have terms that you find unfavourable, such as a lower-than-market rent or a long lease period. You'll need to wait until the lease expires to renegotiate or find new tenants.
- Potential for disputes - Inheriting existing tenants can sometimes lead to disputes or misunderstandings, especially if the previous landlord had a different approach to property management or if the tenants are unhappy with the change in ownership.
