Are tenanted properties always a win-win situation?

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While some property investors consider tenanted properties to be highly lucrative and attractive investments, they can sometimes be more trouble than they’re worth, warn the experts.

Meighan Hetherington, director of Property Pursuit, said there are pros and cons to inheriting tenants as part of a sale. “We always assess the documentation if the tenant is in situ, [as well as] the lease agreement and the entry condition report, which is one of the most important pieces of paper that a potential buyer can look at,” she recently told the Domain Group. “If that is good, thorough and has good photos, then the end of lease is a much smoother process than if it’s not there, doesn’t exist or it’s poor record-keeping”.

If the documentation is non-existent or of poor quality, that could potentially lead to problems, especially if there aren’t any actual records of breaches, Hetherington said.

Property investors need to have a strong understanding of the tenancy’s history because the vendor may be selling because of longstanding problems, warns Hetherington. “The cons can be that the tenant may actually be a problem and it may be the reason that the landlord is selling, so those investigations into the tenant’s history are really important,” she said.

Rebecca Herbst, sales agent for Bees Nees City Realty, said some landlords wait until the end of a lease to sell their properties, as they believe a vacant property is more attractive to possible buyers.

According to Herbst, this isn’t always the best strategy.

“Unfortunately many agencies actually encourage landlords to move their tenants out before selling and, while there can be some benefits in easier access and presentation, we do think a great tenant is always worth hanging onto if investors are looking to sell,” she said. “A well-presented property with happy tenants and a good return is always attractive to investors – the sale has more opportunity to be a win/win situation for everyone involved.”
 

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