Recently I have been reading about what seems to be a growing trend. It appears that the recession or recovery- depending on your viewpoint is causing some landlords to sell up parts of their portfolios with tenants still in at the point of sale. I can see some good and bad points to this so I thought we would tackle it here for all to share and learn from.
Firstly, if you are a newer investor and are marketed these types of property, then you should beware. Regardless of who you buy from, proper due diligence must be done on the property. Just because a landlord owns it does not always mean it’s a good bet. They may be trying to offload something in a poor rental area, it may be making less profit than desired, or the building itself may have problems that need urgent attention. Equally they could just be attempting to streamline their own portfolios. So, as always, it is a case of buyer beware.
Whilst looking at the figures, be aware that any bank already lending on it may not extend the same criteria to you and hence any profit could be substantially different to any that is currently being achieved. Be VERY careful if you are considering buying with a tenant in situ. Just because a tenant is there now, does not necessarily mean they are not planning a move. Here are a few tips to look out for;
- Get it legally checked out.
- Does the tenant pay on time?
- What are their references?
- How long have they been in situ?
- How long have they been employed and what’s the local economy like?
- Can you speak to the tenant personally- and do they know their home is on the market?
- Check the type of tenancy contract the tenant has.
From an investor point of view selling to another investor has obvious merit. You would save on agent fees and marketing etc. You can keep making rental money right up until completion, no time spent evicting and having to update the property for sale, and you can offload a property with minimum disruption.
Don’t Forget Negative Equity
All buyers of property, and particularly BTL, need to be aware that since 2006 more than 3.5 million properties are now worth less than was originally paid. Buying a ready tenanted property does not always represent a good buy. The true value can only be determined by what others have paid for similar properties in recent months. Whilst doing due diligence, don’t forget to check Hometrack for the current sales to asking price ratio for a picture of what is going on now. Unless the property was bought at a massive discount originally, then it could well be worth less now.
Lastly, if you were to consider this type of arrangement then it is very important to still get a survey for the condition of the property. I would also get a boiler check and electrical safety check as these things will cause a big expense if they go wrong after the sale. Whilst there may well be genuine reasons for a landlord to want to offload property this way, it should still be with the same caution as any other sale/ buying of property, with care and proper diligence.