It used to be the case that property investors would favour buying property without sitting tenants due to avoid the hassle of dealing taking on a property with rent already set. However, recent research from Countrywide suggests that landlords in London and the South East are now more likely to opt for property with a tenant in situ to avoid costly voids and generate an instant return on investment.
UK rents on average increased by 4.7% in the last 12 months according to research. This indicates that returns for landlords have increased in this time when taken at a national level. The one thing this headline figure hides is that when it comes to existing tenants, rents are rising at a much slower pace.
The average tenant renewing their contract this month will have seen a rise of just 1.8%. This shows that landlords are happy to keep rises in check to avoid possible losses if a tenant decides that the rent is too expensive and looks elsewhere for lower rent bills.
According to Coutrywide the modest increase in rents for sitting tenants is due to squeezed yields, particularly across London and the South East. According to their research the number of properties bought by landlords with sitting tenants now stands at its highest level for 10 years. This trend appears to be continuing from last year when 11% of all buy-to-let property was bought with a sitting tenant in place.
Buying a property with a tenant in place can bring other advantages. Properties bought with tenants already in place have usually been occupied for longer with a quarter of tenants signed up to long term rental agreements of two years or more.
This high proportion may be due to landlords reaching agreements with tenants that a property can be sold whilst they live in it. Long agreements bring extra security that the purchase of a property is unlikely to result in the tenant having to look for a new place to live at short notice. Landlords also gain from the extra security having a tenant in place provides, even if attempts to increase rents within the term of agreements may be restricted.
The research goes on to conclude that between 2008 and 2014, the North East saw the biggest increase in landlords buying with a tenant in place. This is explained by property prices rising slower in this region than elsewhere in the UK resulting in more reliance on yields to generate profits from property.
‘It seems that the secondary market of landlords selling investment properties to other landlords is growing. Landlords are increasingly recognising the long term value attached to keeping a reliable, high quality tenant,’ said
David Fell, research analyst, Countrywide plc said “Properties sold with a tenant in situ, which offer a readymade guaranteed income, can even trade at a premium. At Countrywide, we are able to assist landlords in their quest to find a landlord looking to purchase a property with tenants in situ, as we have access to thousands of landlords throughout the UK.
Buying a home with a sitting tenant makes sense for a lot of landlords. Having a good tenant already in place can be attractive to the purchasing landlord and means there is rent coming in from day one. It also allows the landlord to avoid the costs associated with finding a tenant straight after buying,’ he added.
Posted on: May 18, 2015