What is a good tenant worth?
Buying an investment property without knowing the tenancy status can be a recipe for disaster. It is important that you have a solid understanding of the existing tenancy agreement and that you are happy with the tenant currently renting the property.
Firstly, what makes a good tenant is someone who pays their rent on time and maintains the property to a standard that you would like.
Another desirable trait is a long term tenant, assuring income and zero vacancy.
Your role in this is to communicate with them openly and regularly to ensure that they stay on as good tenants.
On the flipside a bad tenant is someone who rarely pays rent or pays late and/or leaves the property in a general state of disrepair.
This is where you need an experienced and dedicated property manager for your investment or if self-managed, a regular schedule to review the property and tenant.
The trade off in the amount of rent comes down to what you are willing to reduce the rent by to secure a good quality long term tenant and as someone is living in your investment, (often worth hundreds of thousands of dollars) understanding this trade-off is essential.
Using a simple example, if a property being rented for $350 per week on an ad hoc basis is left vacant for two weeks then that is a loss of income of $700.
A $15 discount bringing the weekly rent back to $335 per week for a regular tenant provides a shortfall of $780 for the year – close to the same if you had it vacant however, your long term tenant is far more likely to keep a higher level of maintenance on the property.
If you are purchasing a property where there is an existing tenant then you need to be aware of the remaining length of the lease, what the rent is relative to your expectations, the tenant's payment history and any historical issues with the property.
It is extremely difficult for you to break the lease once you have purchased the property so this information is vital to be known and understood beforehand.
It also has an impact on what your plans are for the property depending on the length of the remaining lease.