26 Feb 2024

Thinking of buying a tenanted property?

Thinking of buying a tenanted property?

There are several advantages when it comes to buying a property still occupied by tenants.

Some landlords elect to try and sell a tenanted property.  They believe it may appear more appealing to investor landlords if there is a tenant already in place.   Landlords selling a tenanted property sometimes accept a below-market valuation because it may be harder to sell whilst tenanted.  If they decided to serve notice on the tenants to vacate the property, potentially the amount of lost rent may end up being more than if they’d accepted a below-market offer. 

The pros and cons of buying a tenanted property:

As with anything, there are pros and cons to buying property while tenanted.  In this section we’ll explore what those are.

Pros of sitting tenants:
  • Tenanted properties can be less expensive because the competition to buy may be less.  Cash buyers are generally account for a lower percentage of purchases.  If they do not have cash available to buy and require a mortgage, some lenders consider tenanted properties to be a higher risk. Therefore, it can be difficult to secure finance.  As a result of this, the property may be purchased for a lower price.   
  • Immediate income. If there is already a tenant in place, then the rent is paid from the first day the new landlord takes ownership, which can be an attractive proposition.
  • No need to look for a tenant. Looking for a tenant takes time; if there is one already in place it saves the time and expense a new landlord would usually go through to find a tenant.
  • It is unlikely the property will need any immediate refurbishment because of the requirement in Scotland to ensure they are maintained to the ‘Repairing Standard’. 
Cons of sitting tenants:
  • Lenders are sometimes reluctant to finance a property with a tenancy in place as they are considered a higher risk, therefore, the purchaser may need to find a specialist lender.   Aberdein Considine’s mortgage advisers can access products many other brokers can’t, so they can assist buy-to-let purchasers find the best possible deal.
  • Landlords who sell with a tenant in place usually do so for a fast sale. This may be because there are issues with the property or the tenant, which could result in unexpected bills when a new landlord takes ownership.
  • The tenant in place might not be a good fit. One of the cons is that a new landlord will not have chosen the tenant, so they may not be a good fit for a new landlord and their operating model.
  • It can be difficult and expensive to evict a tenant; a new landlord should always check the status of the tenancy agreement, before committing to buying the property.

Things to be aware of when buying a tenanted property:

Buying a tenanted property is not as straightforward as buying a property with vacant possession. It is best to use one of Aberdein Considine’s conveyancing lawyers for this type of transaction, so you can be alerted to anything untoward. 

There are several key details that must be verified before a new landlord purchases a tenanted property. These include:

  • Is the property licenced? Some rental properties must be licenced, specifically HMOs. Not all landlords licence their property. Some do not know it is necessary. Landlords must check whether the property needs to be licenced, and if it does, ask for the details of the licence. If the landlord hasn’t applied for a licence, a new landlord might ask themselves, what else they have neglected to do?
  • Does the property meet the ‘Repairing Standard’ for private residential tenancies in Scotland?  If not, a new landlord will have to immediately carry out the required work to bring it up to standard.  However, in these circumstances, it’s probably best not to buy the property.
  • At the start of the tenancy, was a property inventory undertaken? Ask for an inventory to be carried out if there isn’t one, before buying a property with existing tenants. Insist that all contents are insured before contracts are exchanged. 
  • Has the tenant’s deposit been registered and placed in a government-approved scheme? When a new landlord buys a property with a tenant in place, they’ll need to come to an arrangement with the seller about the transfer of the deposit. 
  • What is the status of current tenancy agreement? Is it a Private Residential Tenancy (PRT), Assured or Short Assured?  If the agreement is either of the latter two, a new landlord should check how long is left on the tenancy agreement. If the tenancy is due to expire in the next few months, it might be worth holding off on the purchase, and waiting for vacant possession. 
  • How much rent does the tenant pay, and have they ever been late with their rent? This is crucial when buying a house with tenants in situ. Taking on a tenant with a history of rent arrears could cause problems.

It’s up to a new landlord and their solicitor to do due diligence checks before buying a house with tenants.  However, a new landlord can minimise the risk by buying a property currently managed by Aberdein Considine Property Management.

Are you interested in buying a tenanted property?

Aberdein Considine’s unique ‘all under one roof’ solution for landlords means that our mortgage advisers can source the best buy-to-let deals, our lawyers can handle the legals and our letting & property management team can manage the rest; rental payments, all maintenance, inspections and ensure you are aware of their (your?) contractual obligations.  

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Aberdein Considine is authorised and regulated by the Financial Conduct Authority. Our Financial Services Register number is 142693. The FCA does not regulate tax planning, Wills or Trusts. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage. The information on this site is intended to be of general interest only and should not be considered as an offer, investment recommendation or solicitation, to deal in the shares of any securities or financial instruments. Information on this website is intended for UK audiences only, and there is a risk for consumer harm if relied upon by consumers outside the region.”

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