Buying a house with a tenant is an option if you want to invest in housing, but it can be a drawback if you buy the property to live in.
Before you jump into buying a rented home, it's important to know the legal implications, advantages, and disadvantages of this type of transaction.
Legal issues when buying a house with a tenant
- You must respect the duration of the contract: This means you cannot ask the tenant to leave before the end of the contract, unless you both reach an agreement. If the contract is long-term, you must also respect this and will not be able to use the property until it ends. Don't forget to carefully review the terms and conditions before purchasing.
- Also, the terms (price, etc.): In addition to the length of the contract, you'll need to know the rent, payment frequency, and other terms agreed upon between the previous landlord and the tenant. You won't be able to change these terms without the tenant's consent, unless the contract is up for renewal. Keep in mind that some clauses may restrict you from adjusting or setting the rent , carrying out work on the property, or changing the rules.
- The tenant has the right of first refusal: According to the Urban Leasing Law (LAU), if you decide to sell the property in the future, the tenant has priority to purchase it before you put it up for sale to others. To exercise this right, the tenant must be notified of the purchase offer. If they do not accept it, you can sell it to other interested parties. It is key to verify this right when purchasing, as it may impact your future sales plans.
- There is one exception to this right when the tenant expressly waives it when signing the rental agreement, something common in leases by specialized companies and investment funds.
Aspects to consider before buying a rented house
- Review the tenant profile: Before making a purchase, it's essential to know the profile of the tenant occupying the property. Their behavior can directly influence the profitability of the investment. If they pay on time and haven't had any legal issues, the property could be a good investment. Otherwise, you may have to deal with late payments or disputes.
- Ask about the terms of the contract: It's key to thoroughly understand the rental agreement: how much you pay, how long it's for, whether it can be renewed, and whether there are any clauses that could be detrimental to you as the new owner. Also, check that no changes have been made that would allow you to pay rent that's significantly below market value, for example.
- Review the apartment inventory: This review includes appliances, furniture, and any other items that are part of the rental property. Make sure the tenant hasn't caused any damage to the property or any other fixtures in the home. A detailed inspection will prevent future disputes or costly surprises after the purchase.
- Check that the property is free of liens: Make sure there are any outstanding debts from the previous owner. You can request a certificate of debt or liens to verify that the property is free of legal or financial problems.
- Check the condition of the house: Make sure there are no major issues that could affect your investment, such as dampness, cracks, or missed repairs, as these will have to be paid for by you as the new owner. This can be tricky, as the tenant doesn't necessarily have to let you into the property.
- Remember that the tenant has the final say: It's important not to rely on the seller's promises, as they might tell you the tenant will leave the house soon. Remember that the tenant has the final say in this matter and is protected by law until the end of their contract or a termination agreement is reached.
Advantages of buying a house with a tenant
- Immediate Income: Buying a property with a tenant can provide you with a steady source of income from day one, without having to find a tenant.
- Guaranteed profitability: If the tenant has a good track record, you can ensure stable profitability throughout the term of the contract.
- Attractive to investors: If your goal is real estate investment, homes with tenants who are already generating income are an attractive option, since you can start receiving rental payments immediately.
Disadvantages of buying a house with a tenant
- Limitation of use: If you intend to live in the property, the tenant will prevent you from occupying it until their lease ends, which could be frustrating if you have immediate plans to move.
- Potential conflicts: If the tenant has trouble paying the rent or doesn't comply with the terms of the contract, you could face legal complications or late payments.
- Less flexibility: Buying with a tenant means you can't sell the property or make significant changes while the contract is in place, limiting your ability to make quick decisions.
Remember that the right of first refusal—which we've already seen—can also be a disadvantage if you plan to sell the property in the future.
Is it profitable to buy a house with a tenant?
Buying a house with a tenant can be an attractive option if you're looking for an investment that will generate income from the outset. Even so, there are legal and practical aspects to consider to avoid future problems. Review all the terms of the rental agreement, understand the tenant's profile, and verify that the property is in good condition.
If you're thinking about taking this step, don't hesitate to explore the options UCI offers, from mortgages for home purchases and renovations to specialized options such as green mortgages or mortgages for second homes.
