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BTL Investment With Tenant In Situ


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Hi Guys & Girls,

 

Looking for some tips.

 

I'm currently weighing up a BTL investment with a tenant already in situ on a rolling contract. The tenant has been there since 2013 and is happy to stay if the new owner is willing. 

 

I've requested the referencing done when the tenancy was agreed but can not get this due to data protection.......understandable I guess.

 

Apart from the usual checks when buying a BTL, is there any additional checks you would do to ensure a smooth transaction and no hidden surprises from the tenant?

 

I know there could be a million reasons for the current owner wanting to sell but i've always found it suspicious if it seems like a good buy.

 

Any advise would be appreciated 

 

Rob

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Hi Rob,

 

I am in the same boat!

I am currently buying a flat with a tenant in situ and I was told that they have been paying the rent etc. 

I would check if they are working, I just asked the tenant when I went for the second viewing. I also asked if they have any problems with the flat or the neighbours, just to try to judge character. I was Very friendly and casual and she told me quite a few things!

You can ask your solicitors to check everything when your offer has been accepted and if you are not happy with anything, you can do something about it. I know you would have paid valuation fee and solicitors deposit but I think buying with a tenant in situ could be a great thing. 

These are the questions I sent to my solicitors to check:

 

1 How long have the tenants been at the property?

2. Have the tenants ever been, or are they currently, in rent arrears?

3. What references and checks were taken for the tenants? Can I see them?

4. Do the tenants have rent guarantors? If so, what references and checks were taken for them?

5. Are there any ongoing disputes with neighbours regarding antisocial behaviour?

6. Does the current landlord expect to deduct costs from the tenants for damages to the property or its contents?

7. When was the boiler last serviced, and how old is it?

8. Has the owner ever made any insurance claims against the property?

9. Are there any outstanding repairs or tenant requests that require attention?

10. Has the property ever been treated for damp?

11. Is there a history of pest infestation at the property?

12. What type of tenancy agreement is in place?

13. How long is left on the current tenancy agreement?

14. Was the tenancy agreement drafted by a reputable law firm (and are there any associated copyright issues?)

 

I hope this helps!
 
keep us posted!
 
Kind Regards 
petya
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Rob hi

 

I bought a property with a tenant i situ last year and its great - you get rent from day 1, there are no search fees to pay, no void council tax to pay and you have a tenant with a track record and happy to pay rent for the foreseeable future.  When buying property like this you also have to remember that there is another individual who is intimately involved and has limited control of what is going on with their home - hopefully they will be keen to impress and work with the new landlord as they will not want the stress and upheaval of looking for a new property and then moving.

I think that some people can read too much into the sale with tenant in.  We regularly sell properties (at work) with tenants in place and are happy to assist the process as we work hard to keep the new landlord on board and will provide the necessary paperwork for the new landlord to scrutinise.

 

You should be asking copies of the following:

 

  • The contract they signed - as it is an AST on periodic you can take them on the existing contract and only the landlord's details change.  If the tenancy has been running for 4 years it is unlikely that there have been any significant problems but it might be prudent to ask for proof of last 6 months rent payment.  It is worth asking if there have been rent arrears but with a tenancy lasting 4 years it is unlikely as the landlord would have ditched them - asking about references is largely immaterial as life has moved on too far for them to be of use.  If there was a guarantor you will need to have copies of the contract they signed and their full contact details as you will need to inform them that you now are the legal landlord.
  • As Petya indicated above it is worth scrutinising the quality of the contract as some are not well written and these can be from self managing landlords, lower quality agents and solicitors who are not fully familiar with the requirements of current letting law.  Bear in mind that the contract, from what you say, is 4 years old and there have been several legal changes since then but the contract can still be more than adequate and cover all the major issues.  If you are not familiar with looking at ASTs then it is worth getting someone who is to have a look at it.  If you are not happy with the contract you can try and negotiate the tenant signing a new, up-to-date AST but don't lose a good tenant for it unless you feel you are significantly at risk - sell it to the tenant as making them safer and also it would add to their certainty as their tenure would be protected for another fixed term.
  • The inventory signed at the start of the tenancy together with photos
  • A copy of the deposit certificate - so that you can make arrangements for the transfer either to your deposit company or your agents if you are not managing it.  Remember the deposit is not your money and so you should not physically see it - if you are using the DPS custodial service you should make sure that the vendor has your registration number and arranges for the transfer into your account.  Once the deposit has been transferred you need to ensure that the tenant receives new copies of appropriate Prescribed Information and the terms & conditions of the scheme in use.  You must do this within 30 days or you will not be able to issue a section 21 notice.
  • Details of any rent rises as you will not be able to put in for a rent increase for 12 months from the previous rise - it is also worth remembering that you appear to have a long term tenant in place who are worth keeping so try not to scare them off - on month's void finding a new tenant can be more costly than 18 months £20 - £30 rent hike
  • Copy of the EPC and proof that it was also given to the tenant - if not give a copy to the tenant once you are the owner and get them to sign as having received a copy on a tick sheet.
  • Give your new tenant a copy of the Government's How To Rent leaflet - not technically required as tenancy precedes it but it is covering you in any future event.
  • Copy of the last 2 Gas Certs as tenants will have needed to have been given copies - copy these and give them to tenant &get them to sign for it.  If there are gas certs the boiler will have most likely been serviced at the same time.  If there is an oil-fired boiler there is no legal requirement for a safety certificate but it is worth asking for one to be carried out.  If there are solid fuel installations it is also worth asking for proof that the chimneys/flues have been swept by a qualified sweep - they issue safety certs too
  • Proof of smoke alarms & preferably age as smoke alarm sensors are only good for 10 years - battery or mains supplied
  • Proof of CO alarm - if required by law.
  • Your solicitors standard purchase process will include questions on boundary/ neighbour disputes, maintenance issues and requests for any guarantees/ warranties etc

Remember also that all of the paperwork for the tenancy belongs to the landlord not the agent currently managing the property and they have no legal right to claim your custom or charge for any services prior to or after the sale unless you choose them to manage for you and you will have to sign a new agency agreement with them.  The tenancy agreements etc are only retained by an agent who is managing the property for convenience but they do not own it, it belongs to the landlord. Any charges they make are for the seller to pay.  I have seen several instances of agents making all sorts of demands and blackmail to try and get your custom - if they do it is a good reason to give them the boot and if not self managing look for a better agent who wants te earn  your business.

 

I'm sure this is not exhaustive but hope it helps - good luck

 

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Hi Tim,

 

This is absolutely fantastic, such a detailed answer! I am so grateful that you took the time to reply.

I have been researching this exact topic for over 3 weeks now and I have never come across such a specific and detailed list.

I will be printing it off and going through it point by point with my solicitors :-)

 

One more question for you: 

 

The flat that I am buying needs some freshening up and the garden needs a bit of work too. The outbuildings are full with bin bags. I have seen pictures of the flat before it was rented to the current tenant and it looks a lot worse now.

Can I expect that current landlord will deduct costs from the tenants for damages to the property or its contents?

 

Thanks so much in advance! 

 

Best Regards

Petya

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Wow what a comprehensive reply from you both, certainly wasn't expecting that much information. Thank you Petya & Tim ill be making sure i save this post.

 

Do either of you or anyone else have any experience of working with lenders who will lend with a tenant in situ? Looking into things it seems most lenders require the property to be vacant upon completion and if they are a lender that accepts a tenant in situ their rates a fees tend to be a lot higher.

 

My thinking is would it be possible to ask the tenant to vacate for one day on completion then sign a new contract without actually removing all their possessions etc or would this be highly risky? 

 

Also would you carry out new referencing on the tenant once you are the new owner? 

 

PS I dont plan to self manage so if anyone has any experience with good letting agents in the Southern Manchester area please let me know.

 

Rob

 

 

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Hi Tim,

 

You are very welcome! 

 

My mortgage broker also struggled to find me a lender at first but finally Virgin Money agreed to look into it - I still haven't got a firm mortgage offer but it may be worth your try. My flat is also ex council and I am a first time BTL investor which made it very difficult. My mortgage deal is 25% deposit for a 60K mortgage (81K purchase price) - 2.45% rate + £995 fees + £500 cash back.

 

I don't think it will be very easy to trick the lender by asking the tenant to vacate for a day but you should speak to your mortgage broker. You will never know when the lender' surveyor will book with the vendor to go and inspect the property.

 

I (stupidly) wanted to reference the tenant before I complete the purchase but it is pretty impossible because they have to fill in all the forms and why would they do it for me, they already have an agreement to rent the flat!

 If the tenant has been a good, paying tenant there should be no reason to reference them again but Tim Wragby  will know better than me.

 

 

Good luck and keep us updated.

 

 

 

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Rob hi

Thank you for your kind words, I'm always happy to help Hub members if I can and hope that my responses point people is a possible solution.

With regards to your follow up questions:

Mortgage: My purchase was with a Natwest mortgage and we had no problem in getting the mortgage which was arranged with my IFA.  I think that we had to provide a copy of the AST to the mortgage company but I can't see what their problem should be.  From your lender's point of you you will be earning rent from day one not having to negotiate a void period while you try to find a new tenant.  With the best will in the world this would be 3 weeks and could be 6+ particularly as it has been lived in for 3 - 4 years and there will inevitably be refreshing redecoration required to make the property look its best.  You will have a tenant who is happy in situ and has clearly demonstrated that they are looking after your proposed investment and are paying the rent each month.

 

Referencing:  I personally think that this is nugatory effort and could be seen as insulting to your tenant.  If they have been in the property for that length of time and you have evidence of regular rent payment what are you really hoping to achieve.  Referencing is designed to give you an initial indication that your tenant is likely to be able to pay the rent regularly and look after the property - this tenant, by staying as long as they have & is willing to stay has demonstrated this - unless your viewing visit brings this into question.  Spooking your tenant, or indicating that you do not trust their integrity is not conducive to starting a contractual relationship which you hope is long lasting and mutually beneficial.  Remember that they are the one who is paying your mortgage.  I still have my original tenants in all my properties, 2 of which have been in 8+ years and it is they who will pay off the mortgage that is destined to be a part of my pension plan as all will be paid off by the time I retire.

 

Letting Agent:  i can't be specific but there are pointers that you can look to - I would recommend choosing a company that are transparent in the way that they operate and preferably members of an accredited professional body such as ARLA (Assoc of Residential Letting Agents) or RICS (Royal Institute of Chartered Surveyors) and check that they are members of an Ombudsman Scheme and also offer Client Money Protection to both landlords and tenants.  Make sure also that they clearly list all their fees to both landlords and tenants and check that tenant fees (which is a legal requirement) are not too punitive as within 12 months the agent will most likely be banned from charging the tenants most or all of these fees (won't matter which party wins on Jun 8th) and the agent will be looking to recover much or all the lost revenue from you the landlord!  One question that it may be worth asking the agent is what are their current plans for overcoming this change - the coy or the ignorant are likely to go to the wall as they are trying to avoid the inevitable.  

I personally think it is worth mystery shopping your target agents to see how they market properties, how they deal with potential tenants and then ask their advice as a landlord with a tenant in situ how they would absorb your business. I never mind having such a conversation with a potential landlord as it gives the enquirer confidence that we know what we are about.  We do not charge a landlord for the admin involved in a transfer like this as we see it as a golden hello - without giving them my list they should ask you for all of what I gave you - it would demonstrate how professional and knowledgeable they are - a useful filter.  

I would also avoid using the management fee as the final arbiter as a competent and tenant friendly agent is going to save you in the long run with fewer voids, happier tenants and hopefully a long relationship.  Cheap management fees usually mean corners are being cut.  If they are running a good business there will be a cost to fund it and it is worth paying a proper rate.  This varies area to area but 10 - 12.5% + VAT is not unreasonable if there is the service to justify this as you want your investment to be managed effectively.

I would expect the agent to inspect the property 3 -4 times in the first year of a tenancy and then bi-annually thereafter with you receiving condition reports on each occasion and I would also expect at least an annual rent revue so that you can judge the current market conditions of the rental market.  It is always worth the rent lagging the current rate as it has an effect of dissuading your tenant from moving on as it would cost them money to move and bigger rents for the same sized property each month.  Regular and continuous rent is worth far more than the highest possible rent in my view.

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Petya hi

Thank you too for your kind words I appear to have hit two birds with one stone!

 

With regard to you follow on question I think that the purchase needs to be viewed in the following way:

 

When you buy a property with a tenant in situ you take on the tenant as is with all their contracts, inventory and control of the deposit that was taken.  Therefore you do have to rely on the effectiveness of how the tenancy was set up as the tenant will be judged against the contract they signed and the condition of the property as laid out in the inventory they should have signed.  if this has all been done properly there will be no problem, however if not you need to take a view of whether you are willing to live with the tenancy as is as it is income generating.  I have taken on landlords with terrible ASTs and or poor to terrible inventories.  This has been done on the understanding that the landlord may be limited in what they can recover in dilapidations at the end of the tenancy as there is limited proof.

 

IF redecorating is required I would recommend having a plan of action and then going to the tenant with a "I'm planning to do this... but I need you to clear the rubbish & tidy the garden to a seasonal standard etc so that both of you benefit.  As long as a tenants lifestyle is not damaging the property you do have to be careful in how you go about dictating how they live.  Some live more cluttered lives than others but if the bags have household waste in then this is likely to attract vermin and you would have justifiable reason to insist on it being cleared.  You can only try and make deductions from a deposit at the end of a tenancy so as long as a tenant returns the property in a good and similar state to how it was at the start, minus fair wear and tear in accordance with the length of their tenancy.  You therefore have limited control while they are in the property - your only real sanction is to end the tenancy if they are not compliant and hope that they take remedial work prior to their departure.

 

I hope this helps

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Hi Tim,

 

Thank you so much for your clear and extensive replay!

 

I understand completely how the process works now and that I will be the new landlord and nothing else will change. 

The tenant is not as tidy or clean as I am personally at home but like you say, everyone is different and I have to accept that. 

 

I love asking and answering questions and I hope to get to your level of knowledge one day!

 

Thanks again so much!

Best regards

Petya

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  • 2 weeks later...
On 5/16/2017 at 0:15 PM, petya spencer said:

One more question for you: 

 

The flat that I am buying needs some freshening up and the garden needs a bit of work too. The outbuildings are full with bin bags. I have seen pictures of the flat before it was rented to the current tenant and it looks a lot worse now.

 

Can I expect that current landlord will deduct costs from the tenants for damages to the property or its contents?

Please be careful with this though as it may be incorrect.  When I used to let properties via an agency, whenever a tenant left, they would use the renovation photos that they took in 2008 for the first let.  They did this in 2009 and 2012.

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  • 2 months later...

Hi Tim,

Reading though this I understand that Natwest let you purchase a property with a tenant in situ, did they have a problem with this and what extra paper work did you have to supply as i'm having real problems getting them to agree, they are saying they need to property to be vacant on completion....

Many thanks

Amanda

 

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Apologies for late reply I've had a manic week!  If you are purchasing a rented property on a buy-to-let mortgage it is a no brainer that you buy with tenant in situ as you are earning rent from the day of purchase. 

We had no problem buying with tenants in situ as they had been referenced and we were able to see AST, inventory etc so we were able to see that all was well done by previous agents   

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  • 1 month later...

Hi Tim,

 

I have a few questions that I think only you can help me with:

I am buying a flat with a tenant in situ and we are due to complete on 29th September. The deposit has not been protected and the seller has advised that the deposit will be returned to the tenants and I can then ask them for it so I can protect it. My solicitors have told me that there is nothing they can do to make sure that the deposit is given to me as they are not trained in tenancy law!

 

Also, the tenant currently pays the rent in advance on 29th of every month, which means that by the time we complete they would have paid the October rent to the seller. I have asked my solicitors and estate agent selling the flat for help with this but they are not willing to help.

What is the best thing to do?

 

Any advice would be greatly appreciated!

 

Thanks in advance!

 

Kind Regards

Petya

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Petya hi

Thank you for your post - you have some interesting dilemmas that are needing to be sorted very quickly.

 

  • Rent - I am very surprised at your solicitor's lack of assistance - that is what you are paying them and I would not use them again.  There are two things that you can do.  Although you  technically do not own the property hopefully your new tenants are aware that you are completing.  The completion date is very useful as it is the same date as their rent day.  I would be tempted to ask them to withhold the next rent payment pending confirmation that the legal completion happened and then send them your bank details for the rent to be paiddiret to you once you have served them a Section 48 notice giving the tenants your contact details for their future information and also your account details where the rent is to be paid. This is a slightly grey area as technically you do not own the property until completion and therefore cannot direct the tenant's actions.  You could also ask the current owner to direct the tenants not to pay the rent until the completion has gone through  and then pay the new owner (you)
  • The other option is that you instruct your solicitor to withhold the Rent payment from the purchase price as the current owner has no right to it either and this can be an effective route also.
  • Deposit - There is no legal requirement to take a deposit and the current owner has broken the law by taking a deposit and not registering it with one of the recognised deposit organisations.  Paying it back to the tenant is a real option and the tenant could technically take that landlord to task.  Hopefully you will be starting a good relationship with your new tenants so it would not be unreasonable to ask them to pay the deposit on to you and you can offer them the sweetener that you will do it all properly for them and they will be better protected.  if they do pay up make sure that you provide them with all the correct Prescribed Information.  If they do not pay you the deposit there is not a lot you can do other than to either live with it and hope that they look after the property until they leave or to serve them a section 21 notice, get them out and start again. Many landlords now do not take deposits as they find the admin too burdensome but it is far from ideal.
  • I would recommend that you also give your new tenants all the correct paperwork that you would do at a start of a new tenancy so that you can be sure to cover yourself - so include gas cert (if applicable) How To Rent booklet & EPC.  If the purchase paperwork did not have all the correct Right to Rent paperwork ( and the start date required it) I would carry out a proper check and get this all up-to-date as well.  Once you own the property book a visit to the tenant asap and check all the smoke alarms etc for being in date
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Hi Tim,

 

Thank you so much for your help and advice!

I will ask the solicitors to withhold the rent and ask the tenant for the deposit once the flat is legally mine.

I have booked a gas safety check for next week and I will have all the correct paperwork ready to give to the tenant and get them to sign that they have received it.

 

Thanks again for your help!

 

Kind Regards

Petya

 

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Thanks Tim! 

I have now spoken to the seller and we have agreed everything regarding the deposit and the rent. She had already told the tenants to not pay her October's but give to me instead. I am meeting the tenants on Saturday too so hopefully it will be all ok. 

 

Kind regards

petya 

 

 

 

 

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  • 3 months later...

Hello guys,
I am in a similar position to Petya, a BTL flat with a tenant on situ.

The property was fully managed by the estate agent, however I do not wish to use their service, and they just sent me an invoice of 600£ for handing over the tenancy documentation.

What do you think about that? can they charge that money and shall I pay it or shall the vendor cover it? any advice? I find it unreasonable to pay that amount of money to taking over a tenant on situ.

 

Thanks.

Jac

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  • 2 weeks later...

Hallo,  Please could anyone advise me on a section 48 notice?

 

I have bought a property with a tenant in situ. The previous agent wanted me to advise what deposit scheme to transfer the money into. I advised that I would not be taking a deposit and to please release the money back to the tenant.

They have ignored this and are now saying that they need a copy of the legal notice served on tenant confirming me as landlord to be able to do anything. 

I was advised that this was done by the old landlord although I couldn't find any documentation.

The tenant has been paying the rent and everything has been fine for the last four months.

Can I just issue the tenant a section 48 notice and then send a copy of that to the agent?

Many Thanks in advance

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  • 1 year later...

Hi All

New to the forum so after a bit of advice. We are buying a BTL property with tenets in situ, they currently have paid no deposit and all rents are paid by cash on various days of the month when each room was let. Going forward how do we get them to pay all future rents via BACs and to pay a deposit. Any advice appreciated.

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On 5/16/2017 at 11:02 PM, tim wragby said:

Rob hi

Thank you for your kind words, I'm always happy to help Hub members if I can and hope that my responses point people is a possible solution.

With regards to your follow up questions:

Mortgage: My purchase was with a Natwest mortgage and we had no problem in getting the mortgage which was arranged with my IFA.  I think that we had to provide a copy of the AST to the mortgage company but I can't see what their problem should be.  From your lender's point of you you will be earning rent from day one not having to negotiate a void period while you try to find a new tenant.  With the best will in the world this would be 3 weeks and could be 6+ particularly as it has been lived in for 3 - 4 years and there will inevitably be refreshing redecoration required to make the property look its best.  You will have a tenant who is happy in situ and has clearly demonstrated that they are looking after your proposed investment and are paying the rent each month.

 

Referencing:  I personally think that this is nugatory effort and could be seen as insulting to your tenant.  If they have been in the property for that length of time and you have evidence of regular rent payment what are you really hoping to achieve.  Referencing is designed to give you an initial indication that your tenant is likely to be able to pay the rent regularly and look after the property - this tenant, by staying as long as they have & is willing to stay has demonstrated this - unless your viewing visit brings this into question.  Spooking your tenant, or indicating that you do not trust their integrity is not conducive to starting a contractual relationship which you hope is long lasting and mutually beneficial.  Remember that they are the one who is paying your mortgage.  I still have my original tenants in all my properties, 2 of which have been in 8+ years and it is they who will pay off the mortgage that is destined to be a part of my pension plan as all will be paid off by the time I retire.

 

Letting Agent:  i can't be specific but there are pointers that you can look to - I would recommend choosing a company that are transparent in the way that they operate and preferably members of an accredited professional body such as ARLA (Assoc of Residential Letting Agents) or RICS (Royal Institute of Chartered Surveyors) and check that they are members of an Ombudsman Scheme and also offer Client Money Protection to both landlords and tenants.  Make sure also that they clearly list all their fees to both landlords and tenants and check that tenant fees (which is a legal requirement) are not too punitive as within 12 months the agent will most likely be banned from charging the tenants most or all of these fees (won't matter which party wins on Jun 8th) and the agent will be looking to recover much or all the lost revenue from you the landlord!  One question that it may be worth asking the agent is what are their current plans for overcoming this change - the coy or the ignorant are likely to go to the wall as they are trying to avoid the inevitable.  

I personally think it is worth mystery shopping your target agents to see how they market properties, how they deal with potential tenants and then ask their advice as a landlord with a tenant in situ how they would absorb your business. I never mind having such a conversation with a potential landlord as it gives the enquirer confidence that we know what we are about.  We do not charge a landlord for the admin involved in a transfer like this as we see it as a golden hello - without giving them my list they should ask you for all of what I gave you - it would demonstrate how professional and knowledgeable they are - a useful filter.  

I would also avoid using the management fee as the final arbiter as a competent and tenant friendly agent is going to save you in the long run with fewer voids, happier tenants and hopefully a long relationship.  Cheap management fees usually mean corners are being cut.  If they are running a good business there will be a cost to fund it and it is worth paying a proper rate.  This varies area to area but 10 - 12.5% + VAT is not unreasonable if there is the service to justify this as you want your investment to be managed effectively.

I would expect the agent to inspect the property 3 -4 times in the first year of a tenancy and then bi-annually thereafter with you receiving condition reports on each occasion and I would also expect at least an annual rent revue so that you can judge the current market conditions of the rental market.  It is always worth the rent lagging the current rate as it has an effect of dissuading your tenant from moving on as it would cost them money to move and bigger rents for the same sized property each month.  Regular and continuous rent is worth far more than the highest possible rent in my view.

Hi All

New to the forum so after a bit of advice. We are buying a BTL property with tenets in situ, they currently have paid no deposit and all rents are paid by cash on various days of the month when each room was let. Going forward how do we get them to pay all future rents via BACs and to pay a deposit. Any advice appreciated.

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Hi tk,

What does their existing AST say about rent payments and deposits.

This is the rental contract the tenants have signed.

You need to serve them a section 48 notice for change of landlord.

You cannot force them to give a deposit or change payment method outside of the AST.

A new AST would solve these issues though.

Hope this helps

Conrad

Conrad Paton

+44 7957 959851

conradpaton@yahoo.co.uk

https://www.linkedin.com/in/conrad-paton-424446110

 

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Hi Conrad, thanks for the advice as we suspected, we may ask for vacant possesion. paying no deposit i can understand but why pay rents in cash. Had a read throught the AST does not say anything about how monthly rents are paid, so we maybe able to change this to BACs. Also says nothing about deposits, just that the current landlord decided not to take one for whatever reason.

Edited by tk
update
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