Is Investing in Tenanted Property Worth It? Pros, Cons, and Tips
Investing in real estate is a popular method for building wealth, and for many investors, buying tenanted properties seems like a smart choice. These properties come with an existing tenant, providing immediate rental income and provide seamless entry into property investment. But is it truly worth it? Understand the dynamics of tenanted properties to invest in them with confidence.
What is a tenanted property?
A tenanted property is simply a property that comes with an existing tenant under a legal rental agreement. Unlike vacant properties, tenanted properties provide an instant income stream from the day of purchase. For many investors, this seems ideal as it eliminates the initial hassle of finding tenants.
However, this also means inheriting the lease terms, tenant behaviour, and rental conditions. All these factors are well understood before deciding to purchase.
Why consider investing in tenanted property?
Tenanted properties offer several advantages. They offer immediate cash flow, reduce vacancy risks, and simplify entry into the property investment market. Moreover, the rental history can help forecast future income and assess demand for the property.
But these benefits come with complications. The current tenancy agreement may not meet your investment objectives, or the tenant’s behaviour may not be what you anticipated. This is where working with professionals can be incredibly helpful.
The pros of investing in tenanted properties
Immediate rental income
One of the significant benefits of investing in a tenanted property is the instant cash flow it provides. In a vacant property, it may take weeks or even months to find tenants and start income generation. A tenanted property, however, starts earning income from day one, providing immediate revenue that can offset mortgage payments, taxes, and other property expenses without delay, thus reducing the financial stress often associated with the early stages of property ownership.
Proven rental history
A tenanted property would have a history of rental payments, occupancy rates, and lease terms. This history provides the investor with information on the performance of the property, allowing them to judge its desirability and income potential. With a proven rental track record, investors can more accurately predict future earnings, making these properties a lower-risk option compared to speculative investments.
Reduced vacancy risk
Vacancies are one of the biggest risks for property investors, and this can be months of no income but still expenses. A tenanted property eliminates that risk at the beginning of ownership. With tenants already in place, investors can sleep at night knowing the property is generating revenue. Continuity makes tenanted properties a great choice for those who value stable, predictable cash flow.
Simplified property management
When buying an already tenanted property, most of the groundwork needed to obtain tenancy on the property will already be done. With an established relationship between the tenant and property manager, the owner will find the transition process greatly simplified. Other experienced tenants are also likely to pay without delay and always keep the place in order thus making a property manager very easy for this new owner to handle.
Start your investment journey with us
With $85,000 in savings or equity, you can begin or grow your investment portfolio with high-growth
properties in Australia's strongest property markets.
With $85,000 in savings or equity, you can begin or grow your investment portfolio with high-growth properties in Australia's strongest property markets.
The cons of investing in tenanted properties
Potential tenant issues
Impending maintenance costs
Compliance with tenancy laws
Every state in Australia has its tenancy laws, which define the rights of tenants and landlords. Therefore, as a new owner, you have to learn all this and ensure that the inherited lease complies with all the laws. For instance, evictions or changing a lease must be done legally, which makes the property management process complicated.
Tenant turnover risks
Even if the property is tenanted at the date of purchase, there is never a guarantee the tenant will renew the lease. If this tenant leaves you, all the costs related to marketing the property and its onboarding must be absorbed. Any changes disrupting their living situations may also be delayed to the date that the lease agreement expires, making it pointless to alter things in light of raising its value and appeal.
Tips for Investing in Tenanted Properties
Property inspection is a must
A professional property inspection is necessary to find any hidden issues, especially deferred maintenance or structural problems. Tenanted properties have wear and tear that tenants have overlooked or failed to report. Finding those problems before you purchase will enable you to budget for the repairs and to negotiate a better price for the property.
Evaluate tenant reliability
Request the tenant’s payment history and references from the previous landlord. Consistent, on-time payments and a good rental history indicate a reliable tenant. If possible, meet the tenant to establish a relationship and discuss their experiences with the property. A trustworthy tenant reduces risks and ensures a smoother ownership transition.
Understand what the lease terms entail
Review the existing lease agreement in the tenanted property you plan to purchase. Carefully go through such critical details as rent amount, lease duration, notice periods, and tenant responsibilities so that you know what you are committing yourself to. Plan your investment strategy for this accordingly, like for instance a long-term below-market lease would impact short-term returns but might have stability over a longer term.
Know about the rental market
Compare the rental income of your property to other similar properties in the area. If you find that the current rent is below market value, you need to know when you can raise it. Researching market trends will also give you an understanding of demand, occupancy rates, and growth potential to ensure your investment aligns with your financial goals.
Seek assistance from professionals
Investing in tenanted properties can be complex, but working with professionals can make it easier. Our property investment advisors can provide detailed tenant and lease analyses, conduct property inspections, and offer strategies tailored to your goals. We ensure that your investment is sound and minimise the risks involved.
What's in it for the long run?
Consider looking beyond immediate cash flow to the long-term potential of the property. Factors such as location, market trends, and infrastructure development can have a great impact on the appreciation and rental demand of the property over time. Tenanted properties in growth areas can provide consistent income and capital gains.
How we can help?
Navigating the world of tenanted property investment requires expertise and meticulous planning. This is where we excel. As a leading property advisory service in Australia, we provide tailored solutions, evaluating tenant payment history, lease terms, and potential risks to provide insightful suggestions regarding your investment.
Our team identifies hidden maintenance issues and ensures the property’s rental income aligns with current market rates. We work with you to create a personalised plan that meets your financial goals, so you can confidently invest in tenanted properties with minimum risk.
Is investing in tenanted property worth it?
The answer depends on your financial goals, risk tolerance, and ability to manage the complexities of tenanted properties. For investors seeking immediate rental income and reduced vacancy risks, tenanted properties can be highly advantageous. However, they require careful consideration of lease terms, tenant reliability, and potential maintenance issues.
With the right approach and support from experienced professionals, the benefits of investing in tenanted properties often outweigh the challenges, making your investment journey smooth and rewarding.
Conclusion
Investing in tenanted properties offers a unique combination of immediate cash flow and reduced vacancy risks, making it an attractive option for property investors. However, it comes with complexities that require careful evaluation and strategic planning. Whether you’re new to the property market or looking to expand your portfolio, working with The Investors Agency gives you the confidence to make informed decisions.
Frequently Asked Questions
What is a tenanted property, and how does it differ from a vacant property?
A tenanted property comes with an existing tenant under a lease agreement, providing immediate rental income. A vacant property, however, requires finding tenants before generating income.
What should I consider before buying a tenanted property?
Key considerations include reviewing the lease terms, assessing tenant reliability, inspecting the property for maintenance issues.
How can your agency assist with tenanted property investments?
Can I increase rent on a tenanted property immediately?
In most cases, rent adjustments must comply with the existing lease agreement. You may need to wait until the lease expires to make changes.
At The Investors Agency, we find you...
The best returning properties that your portfolio needs.
At The Investors Agency,
we find you...
portfolio needs.
