We get asked this very question all the time so I’ve written a few handy hints:
Firstly – don’t stress yourself too much on it, we can still go to the bank with the property as your own home, ultimately it’s tenanted now but if your aim is to have those tenants move out at the end of their lease or sooner, then this is still an owner occupied purchase.
Second thing to remember – is that a lease is a binding legal contract, and being signed before the contract you’re about to sign to purchase a property the lease is the overarching legal document here. In simple terms – if the property is rented till February, and the tenants want to stay till February, you should allow for the fact that you will need to allow that.
* Note this is the current legislation in Tasmania where we’re based, be sure to check in with your legal counsel if you’re outside of Tasmania to see what the legislation is in your state.
So – if the lease is this super important document, you want to make sure you look at it prior to signing a contract to buy the property. In fact here’s a list of the documents we’d recommend you look at:
– Condition report and photography taken at the time the tenants moved in (this is technically how they’re meant to return the property to you less fair wear and tear)
– Lease and any the current lease extension if the lease has been extended
– Tenant rental ledger (to make sure they have been paying on time)
– Bond confirmation
The next step is that you discuss these documents either with the existing property manager (if you wish to keep the property managed with them) or with your property manager of choice – let us know if you need some recommendations. And YES, we recommend you have a property – we would strongly NOT recommend you take on management of the property yourself even if the lease has only a short time to go (especially)! Proper legal notice needs to be given to the tenants so that they vacate, a bond refund inspection and liaising with the bond authority needs to all be done correctly. Check with your accountant but you’ll find that you will need to declare the rental income on your tax return, but you can also then deduct any professional management fees you pay – trust me, it’s worth it.
Now, once you and your property manager are happy with all that documentation, you can make your offer:
As always, make sure a conveyancer or solicitor checks it over for you before you sign and that they are aware that the property is tenanted.
If you are anticipating receiving any first home buyer’s rebates, please call State Revenue to see how purchasing a tenanted property may impact and when you will need to move into the property by.
An important thing to have your property manager do is to let the tenants at the property know that you’re unlikely to renew the lease at the end of the tenancy, this gives your tenants time to find something to go to. You may also want to give them the offer to vacate early without penalty if they find somewhere (which allows you in earlier), some people even offer their tenants an incentive to move earlier such as a few weeks rent free or a contribution towards removalist costs.