WHAT DOES EVERYONE FORGET WHEN THEY BUY A PROPERTY WITH A TENANT?
Many who invest in property make a conscious decision to buy an established property with a tenant in place 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.
They will probably get a building and pest inspection done and if the reports look fine they will quickly proceed to settlement and simply take over the position of landlord from day one. The money rolls in immediately. What could be easier?
Many investors will be wooed into signing up with the same real estate office that has sold the property to them and 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.
Legally the selling agent is only required to supply the barest details about a tenancy but they will usually provide a copy of the lease.
But this is just about useless; it’s like buying a car, sight unseen, based purely upon the last entry in a service log book!
But maybe the last 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. But the presentation of a house at an open inspection should be the very best possible. Should 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 but I also know of vendors who have paid for cleaning of the house immediately before every open inspection.
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;
The amount of the bond paid.
How regular or late rent is paid.
How regular water invoices are paid, if ever.
A copy of all regular inspection reports by the Property Manager (usually every 3 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 is supposed to clearly state the condition of the property when the tenancy started so 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 a bit ‘slap dash’ and excessive comments from the tenant might show a combative tenant. There might 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, then you should probably not buy.
And don’t be lured into buying a property purely because the rent return is high. Typically many accountants and investment advisors encourage first time investors to buy property where the numbers ‘stack up’. They say, “Don’t worry if you would never want to live there yourself.” And they put little value on every other consideration essential to a sound investment such as, a good tenant or a desirable property in a top, new or ‘as new’ condition and located in a good area where it is anticipated there will be future capital growth.
Instead the bean counters seem to encourage investors into questionable areas because it is in these questionable areas, where house prices are low, that the rent returns are highest.
If you are really interested to find the best areas in which to invest and the quality properties to buy then ring Mark Nielsen at Lin Andrews Real Estate Morphett Vale on (08) 8186 2777.