{"id":4764,"date":"2015-06-16T01:00:46","date_gmt":"2015-06-15T15:00:46","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=4764"},"modified":"2015-06-16T01:00:46","modified_gmt":"2015-06-15T15:00:46","slug":"buying-a-property-with-a-tenant-in-place","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/buying-a-property-with-a-tenant-in-place\/","title":{"rendered":"Buying a property with a tenant in place – Michael Yardney"},"content":{"rendered":"

 
\nThe success or failure of an investment property can be heavily influenced by the quality of the tenant. In today’s show\u00a0Michael Yardney<\/a><\/b>,\u00a0\u00a0from Metropole Property Strategists, will talk about whether to buy a property with a tenant in place or not.
\n <\/p>\n

Transcript:<\/h4>\n

Kevin:\u00a0 <\/b>No doubt when you\u2019re buying an investment property, one of the major considerations is the tenant, of course, because without a tenant, there\u2019s no cash flow. But is it best to buy a property with a tenant or one that\u2019s vacant? Let\u2019s get a view on this.
\nMichael Yardney is from Metropole Property Strategists. That\u2019s a question I\u2019ll put to you, Michael. Would you buy a property with a tenant in it?
\nMichael:\u00a0 <\/b>Hi, Kevin. The answer is yes, I would. I like them, but I\u2019m also very cautious about them.
\nKevin:\u00a0 <\/b>Why do you like them particularly?
\nMichael:\u00a0 <\/b>We\u2019ve found that a lot of the off-market properties we get offered at Metropole have got tenants in place, because the agents can\u2019t always run a normal marketing campaign. They don\u2019t usually run [0:37 inaudible]<\/b> campaigns with a tenant in place because a tenant doesn\u2019t make it very easy to get access, and sometimes they\u2019re in such poorly kept conditions that they\u2019re not even prepared to run a normal campaign. If you can see past that, Kevin, you can see the opportunities, there are some good buys out there.
\nKevin:\u00a0 <\/b>What are the things you would look for that would indicate it\u2019s a good buy?
\nMichael:\u00a0 <\/b>First of all, tenant or no tenant isn\u2019t the main question. It really is is it the right property in the right location with the right sort of floor plan? All the things we\u2019ve talked about in many of our other conversations have to come into play. But if everything else is right, then I look for the details of the tenant\u2019s lease. Remember, the lease stays on. Even though the ownership changes, you take on any written obligation that the previous owner had, so you have to look at that pretty carefully.
\nKevin:\u00a0 <\/b>Apart from that, do you look at things like how long the tenant\u2019s been there? That\u2019s obviously going to be an indication, maybe, about how long they\u2019re going to stay.
\nMichael:\u00a0 <\/b>That\u2019s a really good point, Kevin, because you want them in there long enough to make it feel like home and they\u2019re going to stay. On the other hand, you don\u2019t want them to be in there that long that the previous owners have let the rent slip back and haven\u2019t caught up to date.
\nI\u2019ve found there are a number of properties where the rent is substantially below market. On the one hand, that\u2019s an advantage, because it may put off other potential investors, but on the other hand, if the tenant isn\u2019t paying the right rent and you increase it, it\u2019s possible you could lose them.
\nKevin:\u00a0 <\/b>Michael, if a property ticks all the boxes and the tenant actually looks good but is simply underpaying, would you still go ahead and maybe look at some sort of a step payment to bring it up to market?
\nMichael:\u00a0 <\/b>Kevin, rather than pushing it up in one big lump and losing the tenant, and having a couple of weeks\u2019 vacancy, and having to pay the property manager their normal fee for renting the property, yes, it makes sense to maybe do it over a period of time.
\nYou can come to an arrangement where you increase the rent now, and maybe again in six months, and again in a year\u2019s time, giving them evidence that, \u201cYou\u2019re paying below-market rent, but I recognize that you\u2019ve been a good tenant, so I don\u2019t want to disadvantage you.\u201d Definitely make it a win-win for both.
\nKevin:\u00a0 <\/b>If a property is under-performing in that way, is that a poor reflection on the property manager? Should that be an indicator, Michael?
\nMichael:\u00a0 <\/b>You don\u2019t know the story. Was it the previous landlord who was scared to push up the rent? Was it the property manager? But remember, you don\u2019t inherit the property manager with the property. Check them out. Make sure they\u2019re going to do a good job for you. If not, you can always swap property managers to somebody you\u2019ve already been working with.
\nKevin:\u00a0 <\/b>When the property does actually change ownership, the agreement with the property manager becomes null and void?
\nMichael:\u00a0 <\/b>It depends upon which state you\u2019re in. The property manager has an agreement with the owner, the landlord, and that then gets transferred to the new owner, but it actually isn\u2019t in their name, so you really do have to sign a new agreement.
\nKevin:\u00a0 <\/b>Are there any other additional agreements that you should be aware of that could get you in hot water?
\nMichael:\u00a0 <\/b>You should ask about them. You should look for them, because sometimes there has been an agreement by the previous owner to improve the property, to repaint it, to put in new carpets, to do things that if they\u2019re in writing, you may be obliged to follow them up. It\u2019s best to ask those sorts of questions.
\nKevin:\u00a0 <\/b>The bottom line, Michael. What is it?
\nMichael:\u00a0 <\/b>Having a tenant in place is nice. It gives you that shorter vacancy upfront. You don\u2019t have to have a vacancy or pay realtor letting fees. But it should not be enough to sway you, but of course, it shouldn\u2019t dissuade you either. The most important thing is to own the right property, because that\u2019s what\u2019s going to be there in the long term. The tenant won\u2019t, Kevin.
\nKevin:\u00a0 <\/b>Michael Yardney is from Metropole Property Strategists. Follow Michael, too, on his very popular blog site, PropertyUpdate.com.au.
\nMichael, thanks for your time.
\nMichael:\u00a0 <\/b>My pleasure, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":"

  The success or failure of an investment property can be heavily influenced by the quality of the tenant. 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