How to purchase with tenants in situ?

by Readers Question

10:14 AM, 7th January 2021
About 3 weeks ago

How to purchase with tenants in situ?

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How to purchase with tenants in situ?

As a novice, I was wondering what steps do you take to secure a property at Below Market Value (BMV) when the property is being sold with the tenants in situ?

I’m sure lenders prefer the security of houses to be bought with vacant possession?

How can this be resolved without the professionals getting involved and legally?

Many thanks

Angela


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Comments

TrevL

20:39 PM, 7th January 2021
About 3 weeks ago

No such thing as below market value (BMV). If the property is being offered cheaper than it would sensibly sell without the tennant, then you have to question what liability is coming with the tennant....and if you don't want to involve proffessionals then you will need to be sharp yourself or take an unknown risk.

BMV is the wild west....be careful what agreements you enter into.

Graham Bowcock

9:02 AM, 8th January 2021
About 3 weeks ago

TrevL is right. After 30 years in the business I've yet to see a proper BMV deal - there's always something in the background meaning a higehr price can't be achieved.

I wonder if you mean that the property is being sold below the VP price to reflect the fact that tenants are in place - that's not BMV, you're just paying for what you're getting.

Nothing wrong with a deal where tenants are in place and lenders will do these, but you must do detailed due diligence on the agreements that are in situ. Get a good property lawyer and surveyor who understands this market to advise you.

Derek t

9:22 AM, 8th January 2021
About 3 weeks ago

I’ve sold many properties with tenants in ,over 20 in the last three years while downsizing my portfolio there is no reason to sell below the property’s value in fact a decent property with a decent tenant will command a decent figure. Most properties advertised cheap come with issues either tenant based or maintenance problems. Make sure you are aware of any current issues as evicting the tenant will be a struggle in these uncertain times

Seething Landlord

11:07 AM, 8th January 2021
About 3 weeks ago

Interesting to see the comments so far. I have never understood how so many property gurus seem to get away with claiming that properties can be bought below market value when the obvious definition of market value is the price that somebody is prepared to pay in the circumstances prevailing at the time.

reader

11:53 AM, 8th January 2021
About 3 weeks ago

BMV is generally just headline grabbing, you need to calculate the actual market rental value and speak the your surveyor to ascertain at what percentage return they normally value at for the type of property in the condition it is in and area it is in.

An occupied property sold as an investment may include an addition cost that of buying the goodwill of the business.

Find yourself a very experienced commericial property solicitor to act for you there are many further steps required than undertaken in domestic conveyancing. Many of the big city firms have such qualified persons. Cheap conveyancing is always a risk.

Puzzler

12:13 PM, 8th January 2021
About 3 weeks ago

Why does a vacant property offer more security? I have bought with sitting tenants and also remortgaged and the lender has provided a form for the tenant to sign away their rights such that they will not hinder a repossession. Hopefully academic but their security is protected. Of course when there is a purchase and not yet a tenant this cannot be done so I do question its real value.

David

12:53 PM, 8th January 2021
About 3 weeks ago

A vacant property will:
- have a wider market as it will also appeal to owner occupiers.
- will be mortgageable by a wider range of lenders.
- will not have the costs associated with removing a bad tenant or the legal liabilities incurred by a bad landlord

All of these things have a financial value, but realising them may not be straightforward, particularly in an area where demand outstrips supply.

reader

15:26 PM, 8th January 2021
About 3 weeks ago

I can understand the concerns surrounding future sales of the property. But quality conveyancing identifies the problems before the purchase. The only restriction on obtaining future vacant possession is government restrictions that apply to all tenants. You can of course obtain tenants you prefer not to have but a thorough investigation of the trading accounts should be able to identify any financial problems.

John Mac

15:30 PM, 8th January 2021
About 3 weeks ago

Reply to the comment left by Puzzler at 08/01/2021 - 12:13
You can get the Tenants to sign whatever you like but its worthless as Tenants are covered under law which cannot be superseeded by bits of paper 🙂

Graham Bowcock

15:36 PM, 8th January 2021
About 3 weeks ago

Reply to the comment left by Puzzler at 08/01/2021 - 12:13
I too have bought and sold investment properties for myself and also acted as a valuer for secured lending. An ocupation per se does not devalue property and if well let could be quite an asset - it really does depend on the area and type of property. In an area where there is much letting, sales of tenanted proeprty are quite common. Lending is not an issue. Value will hinge on what we call the quality of the covenant (i.e. how good is the tenant and the tenancy?).

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