buying IP with tenant in placed

Hello everyone:

I am into my 6th weeks now of looking to buy my first IP and I feel I am getting nowhere.

My question is -- is it better to buy an IP with tenant already in placed ? Do you even consider this as a criteria in buying an IP?

Let assume it is an ordinary tenant -- ( not tenant from hell , neither from heaven )

Thanks for your views. Jocker 10
 
Dear Jocker,

I am into my 6th weeks now of looking to buy my first IP and I feel I am getting nowhere.

Hang in there. Rome wasn't built in one day.

What are your investing criteria? Are they realistic? Are you talking with enough real estate agents? Could you modify an existing IP to meet your criteria? Are you putting in offers? Are you physically getting out there and seeing the properties? (Internet only looking does not replace the touch and feel of actually being there.)



My question is -- is it better to buy an IP with tenant already in placed ? Do you even consider this as a criteria in buying an IP?

This has it's pro's and con's. Existing tenant means no vacancy but the rental may be below going market rates. My second last one had an existing tenant but he does have a TICA ban. Is this good or bad? The previous owner was a private landlord but incredibly there was "No written lease agreement or bond in place." (Despite the fact that the owner was a solicitor and was in fact breaking the law in QLD.) Pain in the ass to have a contract in place prior to settlement but now it is there are definite advantages without a vacancy. Sometimes you have to give credit to people being open when they directly say that they do have a TICA ban. (Better the devil you know and can keep a closer eye on...............)

Realistically I don't believe it makes that big a difference. If you know the market rents and the currency vacancy rate you will be able to find a tenant.

On the other hand if there is a very high vacancy rate then it may be more important.

(BTW maybe you could update your location in your profile. That can help others on the forum relate better to you.)

Anyway if you are persistent the properties are out there. The one I just put a contract from an 85 year old had been living there for 53 years. Was driving down the street just after they put up the sign. Nothing like being at the right place at the right time.

Let us know a bit of feedback on your criteria. A new set of glasses can sometimes do wonders for what we can see.............

Cheers,

Sunstone.
 
Hi Jocker10,

I have found it very difficult to inspect properties with an existing tennant in place. The tennant only tends to allow people through at odd hours.

I believe it may be easier (in some cases) to pick up a bargain in this senario because less people actually get to look at the place.

I personnaly take an IP on its merrits and treat an existing tennant as a bonus.

It helps doing the sums knowing exactly what rent you will be receiving from day 1 and you should be able to work out if the current rent is too low.
 
Hello,

Thanks for your views.

I think that is my main difficulty. Defining clearly my criteria. Are there any tips out there for formulating a criteria suitable for beginners?

My budget is around $150K for unit, townhouse or house, but a house seem to be a distant possibility for my price range. I made a previous post and from various replies, I decided holiday unit is definitely not for me, as a beginner anyway.

I am a bit familiar now with rent. I know how much the IP will rent for, but having known that, I do not know what yield is consider a good yield. Is 6% good enough? Or is 8% should be the minimum at least?

I am from Noosa but I am not looking here as properties here are way beyond my price range. So I am looking at the cheaper part of Sunshine Coast.

Another difficulty I am finding is that the market seems to be too hot at moment. I ring up an agent on Saturday and the property is sold even before the advert got printed. I got a chance to inspect a property before the advertisement got printed and it is more of a case of sign the contract now or it will be sold the next day. And they do get sold the next day.

I went to an open house and there were about 5 buyers there with their entourage of building inspector ready to sign the contract.

My dilemma is should I pull back a bit from this heated market? And miss out on lower price properties.? When I started 6 weeks ago, you can still get a two bedroom townhouse for $100K . Now there is nothing.

Thanks again for your views. Jocker.
 
On the topic of buying a property already 'containing' a tenant, I recently saw a property whereby the previous owner(occupier) was willing to stay in the property as a tenant, on a 1 year lease.

My thoughts were:
1) The property must be pretty good if he's willing to stay there, therefore i'd assume it'd be monetary reasons he's selling.
2) perhaps he's tried selling the property already and cant, so wants to add something to the bargain?
3) Perhaps theres some adverse thing about ownership in that area?

It was a 2 bedroom unit in a small complex in an area I believe has good CG potential, wanted $74k for it and was willing to rent for $130/w.

However, I rang up to enquire about it and it was already sold.

Should I be wary of the one's where the owner wants to stay? Just seems too good to be true, that's all.
 
Hi dtraeger2k,

I would be careful of buying a place that the current owner has suggested that they would be happy to rent back for an agreed amount...it is akin to a rent guarentee offered by developers to play to the insecurities of property investors.

For example, if you were to buy a house from someone and they agreed to rent it back from you for $300 per week when the market rent was say $200 per week, they would only need to allow $5200 ((300-200)*52) out of their sale price to cover the rent guarentee. However, say you paid $260k and quite rightly thought you were buying a property with a 6% yield, it would be quite possible for the previous owner to move out, you spend a couple of months trying to rent the property at $300 per week and finally settle for $200 per week, meaning your yield for the second year would be:

44 weeks rent (52 minus 2 months vacant) = $8800/$260,000 = 3.3% yield GROSS...before rates and taxes.

I guess what I am saying is.....BUYER BEWARE.....:)

Glenn
 
Thanks for your timely response Glenn. I understand where you are coming from: If he's willing to pay 130 a week for a year, thats $6760 that might be in the "price make up"

Btw, I just recalled that the ad included both the seller's landline and the agent's mobile, should this make one more wary?
 
Hi Jocker,

Firstly, don't let the market rush you into purchasing something out of your price range or with a yield below your criteria. This is one of the potentially biggest mistakes new investors make - buying because they feel they need to get in now.

Secondly, six weeks is not a long time to spend selecting a property that you will pay a substantial amount for and probably will keep for many years. We spent over six months researching different markets and selecting our first IP and while our process is much faster now this is because of what we learnt through this initial process and longer experience with selected markets we follow.

I would also suggest that you get down in writing what you want from the property. You mentioned you were looking for a unit, townhouse or house - decide which
...with units & townhouses you have to pay strata fees, sometimes fork out cash for strata decisions you may not agree with and have to consider vacancy and capital gains rates which may be quite different for houses depending on supply.

...with houses you're solely responsible for maintenance & water - no splitting the cost with other strata members....There may be greater opportunities to redevelop a property by extending or dual-occupancy.

We like a minimum of 7% yield - but this may not apply in the area you're looking at, but also look at the capital growth, amount of work likely on the property and future opportunities to increase the yield or property value.

The go see some real estate agents, tell them what you are looking for and that you're a bona fide buyer and have them ring you when property comes on the market - most agents like to have a few buyers ready on the sidelines as it means they can move product quicker & therefore sell more (more commission $$$ to them).

You need to set your peg, look at the market you have selected and see if you can achieve what you want - if you can't you can either look for another location (all those people missing out on the hot market - where do they eventually buy or rent), readjust your requirements, seek alternate investments...or wait.

All are valid decisions, just make sure that you're not pressured into a decision that is not comfortable.

Good luck finding your first IP, and remember, it will be worth the search!

Cheers,

Aceyducey
 
jocker 10 - don't take this the wrong way, but stop #@*&%#$ around and buy something.

with tenants - without tenants; iether way has pros + cons.

don't look for unimportant things to stop you from proceeding.

the first one is always the hardest.

he who hesitates is lost.
 
Becouse the first one is the hardest its important to make sure its the right one.My third property took 9 months to find and buy and it had tennants,this was good nor bad as l made a condation of sale vacant possession then let the tennants apply through my PM to rent. As long as that went OK they could stay and they did. Play it safe with the first one, if it goes well you will love it and wish you did this ten years ago. If it goes bad, all the exspurts (ex as in has been and spurt as in drip under pressure) will come out of the woodwork and tell you how it SHOULD have been done.Research your price range and just keep looking and the right one will come up and bite you on the bum and say "buy me". Good luck and when all goes right pat yourself on the back . MITCH
 
G'day Mate.
I think its probably better to have a tenant in place., and if they have a good history. I can remmember my first purchase of an ip and it was a big deal. The learning curve is basically straight up and anything to make the start easier has to be an advantage.
But dont sit on your hands too long.
Good Luck. elwyn.d

" 50% of something , is better than 100% of nothing"
 
I'd disagree with the 'never mind, just jump in & buy something now'. Biggest mistake I made when starting out was to fall for the "I have to buy something soon or I'll miss out".

Repeat after me: There's *always* another property.

6 weeks is not long, IMO. The first one is the hardest - it gets easier. I'd take a bit longer with the first. I could have done much better with mine (though at least it got me started).

Took me 3 months to find the right property to develop... Buy in haste, repent in leisure. No, it's not good to hold on too long... but 6 weeks is not very long.

Would I mind tenants in place? Fine with me, but I wouldn't use it as a buy criteria. You're looking for a place that's going to continue to attract tenants, which is more important than whether it's tenanted now.
 
The problem with a tenant in place is when it's a long term tenant- eg, Defence Housing Authority.

The benefits of a long term guaranteed tenant are good.

But it does limit the market- and therefore the valuation- when the property is limited to investors.

My DHA property, I've been told, would have been valued at between $10K and $30K higher if the house had been available for occupancy in the short term. But there's still four years of a nine year lease in place, and that limits the market to investors.

If it's a short term tenant, that should not be a problem.
 
Sometimes people sell their property and wish to rent it back for cash flow reasons. If this is the case then a simple check with the property managers in the area will tell you what the rent should be around.
 
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