Buying a rental property and taking it over with existing tenants is a little different to buying a property and then arranging to rent it out. The key considerations are not the same. You’ll also find that you must go about things a little differently too.
Here are four aspects to consider when buying a property that’s already rented out to tenants.
Checking & Updating the Energy Systems
The energy systems might use a combination of gas and electricity or just electricity alone. In either case, the meter confirms the current units that have been used. What you want to look for here according to Stay Energy Safe is whether the meter looks tampered with in any way?
Energy theft is a crime and it’s always possible that the seller or one of their tenants has played with the meter in an attempt to get it to not register full usage. As outlined by Stay Energy Safe, meddling with the meter in any way can be dangerous. It can cause a gas leak or an electrical charge if the wiring has been incorrectly connected. There have been fatal injuries due to these types of actions. It’s worth checking to ensure everything is set up as it should be going forward.
Look at the past electricity bills too. Consider what sort of usage makes sense for the size of property and number of occupants. Also, verify that the systems are in good working order and don’t need to be repaired, inspected, or fully replaced.
Get an Inspector to Verify the Property is in Good Condition
Getting a thorough property inspection is an essential step before submitting an offer for a rental property. Pay attention to what was spotted. Examine carefully whether there are tasks that should be completed to bring the property up to your standard as a landlord. Your personal standard may differ from the previous landlord, so don’t use their standard as your yardstick.
There should be fire alarms in the relevant parts of the property to immediately alert tenants when smoke is detected. If the kitchen or heating systems are powered with gas, a sensor that detects gas leaks and sounds the alarm is necessary. Gas is poisonous and disorientating, so when it is first detected, it’s often too late to exit the property. A warning system for potential gas leaks is a necessary step if it hasn’t been put in already.
Re-vetting the Existing Tenants & Getting Tenant Histories
While the landlord probably has performed some vetting of the tenants in the rental property when it was sold, it’s not possible to know what information was found or how reliable the research was. You should not depend on that. Get your own tenant check done with a credit check for their financial history first.
Then talk to the former landlord – if you haven’t done already – about their history in the property. Have they ever been late with their rent payment? How many times and how far behind did they get?
Also, see if there have been any disputes with them or other tenants. If there are references from former landlords that the previous owner is aware of and can pass on to you, use those to get in touch and double check their rental history at other property rentals too.
Verifying the Financial Status
With the property itself, check through the financial status with relevant bills. The utility bills need to be confirmed as paid up. Most likely, the property acquisition was in the middle of a billing cycle and there’s a residual balance that’s owed. The same goes for the telephone and cable or internet bill. Is money owed or are they paid up in advance to a certain date? Also, consider council property taxes and other related charges for other services. Using some mobile apps for energy providers is useful too.
What you need to do is verify that you’re not being left with hundreds or thousands of extra costs sitting on bills that will land on your doorstep. While these accounts will need to be changed over to the name or company used for your property investments, you don’t want to risk a disconnection because the former owner didn’t get their electricity bill paid off. Verify where the responsibility lies, the relevant amounts and ensure it is part of any buyer agreement to get them sorted as part of the property exchange process.
Once these matters are reviewed, then the property rental should run reasonably smoothly. There will certainly be a period of time where the existing tenants get used to you as the new landlord and pay their rent to a different bank account, but other than that, it shouldn’t be too difficult.