buying a house with a tenant in it

johnnyredgate

We are considering purchasing a small 'investment' property which already has a tenant in it, with a view to moving into it in the longerterm. Am wondering whether having a tenant in a property makes any difference to value when considering offering price, as whilst it may suit us,subject to being a good tenant, it may put other potential buyers off?

GDB2222

What is the rental yield, ie how much rent is payable and what is the price you are paying?

The reason I ask is that, on the whole, owner occupiers generally pay the most. However, there are some high yield properties around that are best suited to investors.

HappyMJ

johnnyredgate wrote: »

We are considering purchasing a small 'investment' property which already has a tenant in it, with a view to moving into it in the longerterm. Am wondering whether having a tenant in a property makes any difference to value when considering offering price, as whilst it may suit us,subject to being a good tenant, it may put other potential buyers off?

A sitting tenant makes no difference. Houses are generally sold with vacant possession so that when you put your offer in you can also request vacant possession. The current owner would then have to get rid of the tenants for the sale to complete. If the tenants don't leave the sale doesn't complete until they have left.

Werdnal

HappyMJ wrote: »

A sitting tenant makes no difference. Houses are generally sold with vacant possession so that when you put your offer in you can also request vacant possession. The current owner would then have to get rid of the tenants for the sale to complete. If the tenants don't leave the sale doesn't complete until they have left.

Not quite true.

There are 2 options for the OP to consider:

1 - Buy property with a BTL mortgage (resi mortgage wouldn't apply unless property is vacant). However, OP MUST get a copy of the current tenancy agreement and go through it with a fine tooth comb, asking solicitors to check anything they are not sure of. On the completion of the purchase, the OP would inherit ALL terms and conditions of the existing tenancy, and cannot force the tenant to sign any new agreement with them. Therefore, they need to satisfy themselves they can comply and agree to the existing terms. They also need to verify exactly when the tenancy started and whether it is an AST. Other forms of tenancy exist, and OP may find tenant is almost impossible to evict if the terms of the existing tenancy prevent it!

2 - Ask the current owner/LL to evict their tenant and not complete on the purchase until confirmation that the property is vacant. Eviction process on a normal AST can take up to 6 months if tenants decide to play the legal game and not move out until court order and baillifs are arranged. Of course, the tenancy may prohibit the normal easy eviction route as mentioned in point 1 above.

OP, if you buy with a tenant or the intention to let it yourself, you have to take a BTL mortgage, meaning you will not be able to live in it yourself until you re-negotiate a resi mortgage at a later date.

If you wait until the property is empty, you may not complete on the purchase until next year - hope you are patient!

The choice is yours! Value wise, if buyers know the implications and pitfalls of getting tenants to leave, they may be wary of making an offer, so it can restrict the market to investors only, and price will be slightly lower as a result. TBH, I would be put off buying with tenants, even if I was looking for an investment property, as I would prefer to choose and vet my own tenants!

PS, if you do proceed to buy with the tenants in place, make sure you get their deposit released to you and re-protect it, giving the tenants the prescribed information from the protection scheme you use. Failure to do this will mean you cannot serve a valid Section 21 notice to seek possession of the property until you repay the whole deposit value, and leave yourself open to a claim for up to 3x the deposit value, for failing to observe the deposit regulations.

theartfullodger

Nothing to stop you buying with a tenant (I have..), but price is generally lower. BIG issue is when did tenant move in: Don't believe agent or date on tenancy agreement. If prior to 1997 they may have AT not AST & be more difficult to evict. If prior to 1989 they may (almost certainly will be,,) "Rent act" tenancies with very different rents and responsibilities & nigh on impossible to evict & with right for relatives to inherit same.. even if some dodgy agent/landlord got them to sign a shiny new AST...

However if, say,property was built 2007 and tenant has been in since then fine...

johnnyredgate

Thanks for the replies, interesting. The property is not a good rental investment due to low rental value to purchase price (apprx 3%), hence using the inverted commas on investment earlier! It is an old property so good advice regarding checking the tenancy agreement. Presumably the vendor is expecting to be able to evict the tenant relatively easily although they only told the tenant that the house would be marketed about a week before the property being marketed according to the agent. The house is being marketed at the same price as a similar house in the same terrace that has recently sold without a tenant in it (although this house is very slightly smaller), so I was really wondering what the adjustment would be/if any on a property with a tenant. If the tenant is to be evicted prior to exchange and completion then I guess the main inconvenience would be the delay that this could cause.

G_M

A property with a tenant in occupation is much harder to sell than an empty one. Most (residential) buyers are reluctant even to consider it due to the posssibility of the tenant refusing to vacate when asked which can delay the purchase a lot.

So price should reflect this and be lower.

At risk of annoying many tenants here, I suggest the condition may be questionable too - though not just because of tenant lifestyle. LLs often do the minimum in maintenance!

You MUST satisfy yourself that both the tenant, and the tenancy, are acceptable to you.Do NOT relay on the seller, or EA saying "He's a wonderful tenant" or "It's an AST". CHECK.

And as said above, of course, BTL mortgage.

More here.

johnnyredgate

Thanks G_M, good points to take into account. So taking into account that it is likely to be less saleable due to being occupied by a tenant does anyone know what % less would be reasonable to offer based on this?

GDB2222

johnnyredgate wrote: »

Thanks G_M, good points to take into account. So taking into account that it is likely to be less saleable due to being occupied by a tenant does anyone know what % less would be reasonable to offer based on this?

You are missing the point that for some properties the price is set by prospective BTL landlords. Others may be let precisely because they are not mortgageable by the average home owner for some reason.

However, if none of those points apply, I would think in terms of a few months rent, ie the LL could end the tenancy and put the property on the market vacant. If he did that, he would lose the rent for that period, plus have to pay Council Tax. By buying it tenanted, that's what you are saving him.

theartfullodger

johnnyredgate wrote: »

Thanks for the replies, interesting. ......... It is an old property so good advice regarding checking the tenancy agreement. ..... ....

Almost: The tenancy agreement is interesting but what is key is WHEN TENANT MOVED IN and quite possibly seller and/or agent will not know and/or will lie...

If you do not establish this fact then you may find you cannot realistically ever raise a mortgage on it or evict the tenant.


Just signing a new tenancy does not change some original, pre-1989, rights for it to be a "Rent Act" tenancy. Be careful, especially if nobody else seems interested..

theartfullodger

And this useful article on spotting Rent Act tenancies...
http://www.landlordlawblog.co.uk/2012/07/12/three-ways-to-recognise-a-protected-tenancy-under-the-rent-act/
.. in particular,

Here are three tips for recognising protected tenancies
1. The property is being sold for a low price

If a property is being sold at an unusually low price, this is normally a sign that there is some sort of problem. Often this means there is protected tenant.
This should alert you, and prompt you to do some careful checking
2. No tenancy agreement is available

If the vendors are unable to provide a copy of the tenancy agreement, warning lights should flash in your brain.
This may mean that the tenancy started so long ago that it has been lost in the mists of time!
3. Check the Valuation Office rent register

If the tenant has a ‘fair rent’ registered, then if this was reviewed in or after 2003, you should be able to find it in the electronic rent register maintained by the Valuation office (the government department which sets the fair rents).

Tessa is a solicitor specialising in landlord/tenant law btw....