A study recently released by large letting agency chain Countrywide has highlighted an interesting rental trend: more and more landlords are buying properties with ‘sitting tenants’.
Reasonably straight-forward, this is when a landlord buys a property from another landlord with long-term tenants already in place. Often, landlords are doing this for enhanced security as well as trying to boost or preserve their rental returns as, in some locations, particularly the capital; yields are being squeezed while property prices continue to increase.
We take a look at this trend and Countrywide’s report – which analysed over 65,000 rental properties – to see if it is here to stay…
- Over 25% of properties bought by landlords in London last year had a sitting tenant
- This is the highest level recorded since 2005
- In 2014, 11% of all rental properties bought came with a sitting tenant, four times more than in 2008
- A quarter of tenants in properties sold as occupied have signed contracts of two years or longer – compared to just 5% of all tenants
What are the pros and cons for landlords?
It seems high numbers of landlords are seeing the value of adding occupied properties to their portfolio, housing long-term tenants on longer term contracts. The data goes some way to suggest that landlords are targeting a growing group of renters who are renting for the long-term, as home ownership levels continue to decrease.
The key reason that a landlord would buy a property with a sitting tenant is to ensure their rental income immediately – which, as mentioned before, is becoming increasingly vital in areas with lower rental yields.
Landlords taking advantage of this trend will also benefit from a quicker route to portfolio expansion; namely they won’t have to undertake the tenant finding process. What’s more, the chance of an initial void period is alleviated when buying an occupied property. It can also costs less as certain admin fees no longer apply.
Of course, as with anything, there are risks and downsides to this approach. Firstly, you can’t choose your own tenants. Purchasers have to go on the selling landlords’ word when it comes to the quality of the tenants, bearing in mind that they are likely to be keen to sell quickly.
Landlords who carry out their own tenant referencing process may also not be able to vet their tenants to the detail they would prefer. Moreover, the new landlord may not be able to charge the monthly rent they desire if the sitting tenants were getting favourable or reduced rents from the previous landlord.
Targeting occupied properties certainly presents some food for thought for ambitious landlords. It has to be said that the majority of long-term tenants are just that for a reason. However, as with any rental purchase, detailed and thorough research will be the key to making it a successful and ultimately profitable investment.