5 Essential tips when buying an investment property
If you have already bought an investment property, would you do things differently if you were buying today?
Alternatively, if you are thinking of selling an investment property, consider what the buyer may thinking and how you can ensure that property presents in the best possible way.
Here are 5 useful tips to help you on your path.
1. What is the rental income?
You should know this even before you view the property. If the property is advertised as a rental but no rental amount is stated the agent/vendor may be hiding something.
A low rental income in comparison to similar properties in the area may not be a big concern if the lease agreement is coming to an end or if there is a provision in the tenancy agreement to adjust the rent at some point.
Another upside to a lower rental yield is that it is likely to turn off other investors so your chances of buying the investment property for less is stronger.
However, if the rent is relatively high, investigate why this is the case. It could be because it is furnished, it is a short term lease or something else that inflates the rental yield.
2.How long has the tenant lived there and when does the existing lease expire?
If a tenant is on a fixed term agreement, they cannot be forced out just because the property is being sold.
Sometimes tenants are willing to vacate earlier if they know they will have to vacate when the lease expires but it is their choice. If you want the tenant to vacate earlier it is a good idea to offer something to the tenant.
If the lease is a periodic lease, the vendor can provide notice to the tenant that the periodic lease is being terminated. If the buyer wants vacant possession, the vendor should issue sufficient notice and the vendor and buyer should agree an appropriate settlement date.
When selling an investment property, the ideal time to list a property for sale is approximately 3 months prior to the lease expiring. This allows for approximately 4 weeks to find a buyer, and 4 weeks for the buyer to obtain finance and 4 weeks for settlement. An investment property with a long lease is harder to sell as owner/occupiers usually don’t want to wait too long before they can move in.
3. Keeping the existing property manager or not?
Though the lease conditions cannot be changed, the buyer has no obligation to use the same property manager and the buyer can change the property manager at settlement. If you have a property manager you trust, you should give them a heads up as soon as the deal is unconditional or at least a couple of weeks prior to settlement. They will then make contact to vendor’s property manager and organise for a transfer of file after settlement. The tenant will then be notified that the property is now under new management.
4. Should I worry if my new investment has no tenants?
If there is no tenant in the investment property when you made the offer or the existing tenant is about to vacate you need to find a good property manager fast. Get the property manager to give you an estimate of what the property will likely rent for and work on a price range. You should also include a condition in the sale contract allowing your property manager access to the property prior to settlement to show prospective tenants through. This way, the property manager has a better chance of securing a tenant so that you can receive rental income quickly.
5. When buying into a strata
If you are looking at buying an investment that is strata titled, there is a good chance that you need to pay strata fees. Before you write an offer you should therefore read and analyse the state of the strata. Ask for a copy of the latest AGM minutes and financial accounts as they will give you an overview of the state of the strata. Check to see if there is a sinking fund (reserve fund) for future maintenance. Ask the agent if there are any major capital works planned. Perhaps contact the strata management and have a talk to the strata manager. They are not usually very forthcoming but if you have signed a form 28 (ask the agent) it may help.
What is your experience buying an investment property?
What would you do differently if you were buying today?
Readers should always seek their own independent advice prior to making any decisions regarding property or finances.
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