With the shift in tax, stamp duty and mortgage interest relief all changing at the moment landlords are moving property on as they may not be geared up right or they may have other avenues that fit their money circumstances better. But for new investor, who know and are geared up for the current rules are buying them and looking to buy more.
One question I am getting asked a lot at the moment because we have a number of these BTL sales on the market:
”Should we buy with a tenant in situ, or should they buy a property with vacant possession?”
To me, it seems a straight forward answer if you simplify it; If the property is tenanted, and you trust the agent currently managing it to tell you the truth about the management of the property, and the rent currently being paid is market rent then of course buy it with the tenants in situ. But only if they are good tenants.
Once you have established they are a good tenant, at this stage, it is about numbers. With all things equal you will make more money by buying a tenanted property because you are being paid from day 1. Costs going out are going to hurt less because you see money coming in instantly and you have no new / set up costs to pay the new managing agent as the tenant is already found and they should just continue as normal with whatever commission rate is agreed. And especially if they were the sales agency as they will want to keep you and the management of the property.
One extra thing to think about, if the property is already in a good condition and acceptable to the current tenant then there is little that will be required to be done to the property and the costs of this can be deferred to a later date when they vacate which gives you chance to build of the buffer for the works to be done.
When should you not buy it with tenants in situ? Well to me, this is where trust comes into play with the agent you are buying from. You need to find out who the tenants are, what rent are they paying, do they pay it every month, are the safety checks up to do, how long are they fixed in for, will they renew… these sorts of questions will help you to build trust with the agent but also to get the information you need to decide if the tenants are good or not and if they are likely to stay. You really don’t want to be inheriting bad tenants with the purchase.
If the property is already empty then it’s not a choice but given the choice, and if the ground work can be done to check the tenants of the property then every time, YES, buy with tenants in situ. Even pay a little more for that given there will be no immediate void, instant start of the return on the money, and tenants are already used to the property which should equate to easier management and less costs.
I am always happy to look over a possible option you’re thinking of buying so feel free to ask me – aaron@gordonbarker.