Buying a Tenanted Property: How it Works

May 20, 2022
How to Transfer a Property to a Family Member

Ideally, buying a tenanted property can be an entire headache, especially for those who are looking to purchase their forever home. Luckily, you’ve got options. 

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How to know if you are buying a tenanted property  

buying a tenanted property

When looking for your dream home, it may come as a huge shock that you will actually be buying a house with tenants. Therefore, figuring out if you are buying a tenanted property before it’s too late should be a priority.

If the property that you are looking into has been marketed toward investors, there’s a huge chance that an existing tenancy would be mentioned in the advertisement. 

Another way to deduce the presence of previous tenants is by attending open inspections. The seller’s agent will most likely make prospective purchasers aware of the living situation. 

This is when you can ask follow-up questions about the type of lease, rent, the expiry date, and other special conditions of the lease. 

Find out what lease is in place

There are two possible types of leases that may be in place when buying a tenanted property – periodic (month by month) and a fixed-term lease agreement. This is when the tenant has a specified time to lease the property. 

When it comes to fixed-term tenancy agreements, they can sometimes roll over into periodic agreements. Before purchasing, a buyer is entitled to know the type of lease in place, which can be found in the vendor’s statement

With periodic leases, the landlord can give the tenant up to 60 days’ notice to vacate. This can come during the settlement period or before the property is officially sold. 

With a fixed-term agreement, the landlord is not allowed to break the tenant’s lease. In this case, the lease follows with the property. 

Knowing which type of lease is in place can save you a whole lot of trouble or prepare you for what’s to come. 

Buying a Tenanted Property: How it Works

How does it work? 

Once a new owner has settled, they are officially in charge of covering the rent. There needs to be an agreement between the tenant and the new owner when buying a tenanted property. 

The existing property manager is responsible for notifying the relevant state bond authority about the changes in ownership. The tenant’s rent is paid to the new property owner along with an updated lease agreement. 

The new owners can change property managers or decide to manage the property themselves, but the tenant and updated lease details need to be privy to this decision. The landlord can also raise the rent but only at the end of the term of a fixed lease with 60 days’ notice given.

The upside is that a tenant and landlord can make mutually beneficial agreements when it comes to moving fees, final rent payments, and more.  

Buying a Tenanted Property: How it Works

Can you pull out of a house sale before settlement? 

Because buying a tenanted property is a risk, you should know how and when to pull out of a house sale before it’s too late. Being able to do this, though, depends on preparation.

It is possible to pull out a house sale before settlement only if it is done during the cooling-off period. This period is the few days between the day of the exchange and the official settlement when you can withdraw from the sale.

First, you must understand your state’s cooling-off period guidelines. Some only allow three days while others grant you five to make a decision.

Next, you should consider what kind of contract you signed. If it is an unconditional contract of sale, it may be a bit trickier to find a way around it since you’ve put no conditions on the contract. 

Finally, if all has fallen into place and you can pull out of the house sale without much consequence, you should write a letter expressing your intention to give to the seller’s agent. 

How to prepare for buying a tenanted property

Buying a Tenanted Property: How it Works

If you are set to buy property with tenants, preparation is key. Many landlords turn to professional property managers to take them through the process of managing property. 

If you want to self-manage, you’ll need to consult whoever is currently managing the property in order to receive copies of the tenancy agreement, inspections, lease extensions, tenant ledgers, manuals, and the keys for settlement. 

You also need to have access to the tenants’ contact information as well as give your contact details to them. There is also the option to keep the same property manager to maintain the consistency of the property. 

Are there any extra costs?

If you choose to go with another property manager instead, you must consider the extra costs involved. Property management fees are dependant on who you hire and the work you expect them to do.   

Buying a property with tenants involves immense coordination, but it can sometimes be a lot cheaper than investing in property to lease the home immediately. 

Pros and cons

Buying a Tenanted Property: How it Works

Whether your end goal is buying a tenanted property or you’ve just happened on the chance, you should be aware of the pros and cons that can come along with it. 

If the tenants in place are good tenants who pay their rent on time and take care of the property, this can save vacancy time and you can generate an income immediately. 

On the other hand, if the tenants are not fulfilling their obligations, you may find yourself in a difficult situation where you would need to take care of that sooner rather than later. 

It is important to take note of if the rental value on the lease is considered market value. If the property was leased at a less ideal value, you have to find a way to increase it. 

Looking for your dream home? 

We can also help you out in that department. Browse our search page to cheque out some amazing listings available right now. But don’t just stop there, download our app to get the full Soho experience. Just remember to shortlist or swipe left on our listings so we can send you others that better match what you’re looking for.

Soho is your expert team in Australian real estate, offering an innovative platform for effortless property searches. With deep insights into buying, renting, and market trends, we guide you to make informed decisions, whether it's your first home or exploring new suburbs.
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