Hi I’m Peter Jones, chartered surveyor, author and property investor.
I often get asked ‘Peter, why don’t you buy properties, or why don’t you want to buy properties, which already have tenants in place?’. As a general rule of thumb, I don’t usually buy properties which have tenants in place. I say usually because there could be some occasions when I might consider it but generally speaking I don’t consider buying properties which already have tenants in place.
Why not? Because my business model is to find cheaper properties which need work doing to them, ideally which need a refurb. A refurb for me would be kitchen, bathroom, maybe windows, redecorating, carpets, somewhere where I can add value so I can add the value, and then if I bought the property at the right price which tends to be a cheaper price then I can push the value to a point where when I refinance I can get all, or most, of my money back out. The thing which I think is the case if there are tenants in the property there are a number of things which I would be thinking about.
The first is if somebody is selling a property with a tenant in place, why are they selling it? It is not always the case, and it might not be the case, but it could sometimes be the case that they are selling it because the problem isn’t the property, the problem is the tenant. It may just be that I am buying a problem tenant so I would want to be checking that very, very carefully before I bought a property with a tenant in.
The second thing I’d be thinking is that in most instances, hopefully, the tenant is looking after the property and if they’ve been there for any length of time hopefully the property is actually in quite decent condition, which probably means it doesn’t require the in depth refurb which I would like to do. It might not require a kitchen and bathroom, and it may not require the windows. Until I’ve seen it I wouldn’t know, but the chances are that if there is a tenant in place it’s probably a half decent property that isn’t crying out for a refurb, which is the type of property I would normally like to buy.
The other problem with buying a property with a tenant in is that there is a tenant in. So, if I wanted to do a refurb I’ve either got to move the tenant out and then move them back in again, or I’ve got to evict the tenant. I wouldn’t really want to do that as it is somebody’s home.
So, it becomes a little more problematic. I want to be able to buy a property, ideally which is vacant, which is run down and I can just go in and do the refurb and then refinance it. It’s much harder to do that if there is a tenant in place. I did say earlier that there may be circumstances under which I might consider buying a property with a tenant in, and it all comes down to price.
Assuming that my due diligence suggests that the tenant isn’t a problem tenant then I may buy a property with a tenant in place if I can buy it sufficiently cheap that it compensates me for not being able to add value for the refurb. If I can buy it sufficiently cheap and then wait a length of time before I refinance it, if I wait long enough, and it may have to be longer than the usual 6 months, I might have to wait a year or 2 years, but if at that point if I can then refinance it and get all or most of my money back out because I bought it cheap enough in the first place then I may do that.
But it all depends on the property and why I want it. If its such a fantastic property that I couldn’t possibly not buy it, then obviously that’s a different matter altogether. In the general course of things I’d much prefer to buy a vacant property.
Well I hope you found that informative and inspirational. Until next time here’s to successful property investing.
Peter
Peter Jones
(ex) Chartered Surveyor, author and property investor
https://thepropertyteacher.co.uk
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