Should I Buy A House With A Tenant In Situ?
Quite simply, having a tenant in situ means that you purchase a house with a tenant already living there. It really depends on the type of tenancy agreement they have in place, but they are often entitled to stay put, as stipulated by their tenancy agreement and terms of sale.
This is actually not that an unusual and more and more people are realising the advantages might outweigh the disadvantages for them, as a buyer or a seller. The idea of buying an investment property that offers you steady cash flow from day one certainly sounds appealing. Like all ideas, there are pros and cons to weigh up.
Take a look at our suggested considerations below:
. Cash from Day One – Buying a property with tenant in situ means you do not have to wait to find a new tenant. They are already living in the property and the Landlord immediately starts reaping the benefit of having the tenant in the house.
. Requirements already met – The vendor should have legally already prepared the house to meet specific legal requirements for the current tenant. This means, there should be little left for you to do in this area. This includes health and safety requirements such a fire alarm system, fire doors etc. Electricity and Gas safety tests should have been carried out with valid paperwork and certificates available to be passed onto you. You can see how this might sound very appealing to a buyer.
. No refurbishment needed… kind of – This one depends. As landlords and property investors, we know people’s standards really vary on what they think is acceptable or not. Style varies a lot and even though there is a tenant living in the house happily, you might really not like the colour scheme or the layout and want to change that yourself. More often than not, if the property is being sold with a tenant in situ, you probably wont need to worry about a big refurbishment, It might need a tidy up and a lick of paint, or nothing at all. Typically – it won’t need a full rip out and this is very appealing for some investors who want something done and ready to go.
. A Loyal Tenant – It is quite common for the vendor and the current tenant to have a good relationship; they like the house and the Landlord likes them hence maybe why they have asked to stay. This might also be why the Landlord is keen to sell with the tenant there because they have worked well together, had few issues and they are a good loyal tenant. Think about it – if the tenant has caused issue after issue and not looked after the house, would a landlord still want them in the house and be willing to pass them onto someone else? You would hope not. It is usually indicative of the type of tenant and usually it is a positive sign.
. Lending – Many financial lenders won’t lend with a tenant in situ as it is seen as risky. There are many lenders who will, you will just need a specialist broker to help you access those products.
. Extra paperwork - If you wish to buy a property with tenants in situ, you need to instruct a conveyancer with commercial experience. Extra care is needed as, in addition to the standard enquiries that need to be made in all conveyancing transactions, it is critical to make enquiries about the tenants. This makes it a little different from other kinds of conveyancing transactions.
For example, the seller must provide all the details relating to the tenancies, including the Tenancy Agreement to establish when the tenancy was created, the status of the tenants and how they may be regulated by legislation, as different forms of security of tenure apply. There's also a whole range of other legal and safety issues to attend to, such as:
· Checking the original deposit has been registered and transferring it to your name
· Checking the property meets safety regulations
· Checking all the necessary certificates are in place, such as energy performance, gas, boiler and electrical
· Checking all electrical appliances have had a Portable Appliance Test in the past year
· Checking (if furnished) that the furniture is in an acceptable condition and meets safety standards
· Organising the payment of rent
· Organising new Tenancy Agreements, as and when required
· Taking an inventory
Things to be Aware of
Buying a property with a tenant in situ is not as straightforward as buying a property with vacant possession. It is best to use an experienced conveyancing solicitor for this type of transaction, so you are not caught out by anything untoward.
Landlord Vision list these several key things that must be verified before you buy the property. These include:
. Is the property licenced? Some rental properties must be licenced, specifically HMOs. Not all landlords bother to licence their property. Some have no clue it’s necessary and others hope they will fly under the radar. Do check whether the property needs to be licenced. And if it does, ask for the details of the licence. If the landlord hasn’t bothered applying for a licence, ask yourself what else they have neglected to do?
. Are there any restrictions on who you can let the property to? For example, in some areas, new HMOs might be banned in an area of high-density HMOs. This prevents you from converting a single-family dwelling into a shared house.
. Does the property have a valid EPC? An EPC tells you how energy efficient the property is. The seller should have given one to the tenant; one is also needed before the property is sold.
. Has a gas safety check been carried out in the last 12 months? Gas appliances must be tested annually. If the seller can’t produce a recent gas safety certificate for the property, they may have neglected other safety measures.
. Are fire safety measures in place and when were they last checked? There should be a working smoke alarm/CO detector, among other things.
. Does the property have a current Electrical Installation Condition Report (EICR) and is it satisfactory? Dodgy wiring is a major fire risk.
. Have portable appliances been tested? This is relevant if small appliances are included in the sale.
. Has a Legionnaires’ Disease risk assessment been carried out?
. Was the tenant given a copy of the ‘How to Rent’ guide from the Department for Communities and Local Government?