Should we buy an already rented property?
Summary
- What are the advantages of buying a rented property?
- Who could be interested in buying a rented property?
- What are the consequences for the tenant?
- What are the elements to consider before buying a rented apartment?
- How do I terminate the current tenant's rental agreement?
Typically, when you purchase a property in France, there's no one currently there. But it is actually possible to buy real estate that's currently occupied. It's even common for others to invest in properties that are currently being rented in cities like Paris. And in fact, such purchases come with a few benefits of their own.
What are the advantages of buying a rented property?
As a buyer, purchasing a currently rented property comes with several advantages. They include:
- Avail of a real estate discount
- The discount rate refers to the percentage of reduction applied to the selling price of a property. It varies between 15% and 50% depending on the location of the property and the margin of negotiation.
- The discount is between 15% and 20% If the leases are subject to the ALUR Law of 1989, and can go up to 40% or even 50% if the leases are governed by the 1948 Law.
- The real estate discount can also be influenced by the level of rent, the duration of the current lease, the type and quality of the property, the geographical location, and the seniority of the current tenant.
- It's often a profitable investment
- If the buyer intends to lease out the property they plan to purchase, they don't have to look for a new tenant. And upon completing the purchase, they can also start collecting the rent and use it to repay the mortgage they took out to purchase the real estate.
- It's easy to obtain a mortgage
- You can reassure banks that you can repay the mortgage with the collected rent payments. Especially if the tenant has signed on for a long-term lease.
- You can buy it cheaper
- If the rent is undervalued, it is possible to buy the property at a cheaper price and increase the rent with the next tenant. Buying a property with an undervalued rent makes it possible to sort out potential buyers because it is synonymous with a low yield, which then limits competition.
What are the elements to consider before buying a rented apartment?
- Consult the rental management file
- Check the regularity of the contract, the terms of revision, and the performance of the tenant's obligations (i.e. peaceful enjoyment, subscription to home insurance, etc.)
- Find out about the tenant's history
- Ask the seller/owner/landlord for rent receipts to see how efficient the tenant is (i.e. unpaid rent). This will help you see if you have to take out unpaid rent insurance or not. Also, ask if there is a rental dispute. The tenant must have sufficient income or have a guarantor.
- Learn about the condition of the property
- Conduct an inventory and inspect every corner of the property. Check the condition of the floor, windows, and doors as well as wall coverings. See the level of energy performance set by the energy performance diagnosis (DPE) too. And ask the seller if renovation work is to be expected!
- Know the buyer's obligations
- As the buyer, you have to respect the terms of the lease. It is impossible to modify or change even one element of the contract. However, before finalizing the real estate transaction, you can ask the seller to modify the lease themselves and inform the tenant about it. At the same time, you must also assess the level of rent.
- Look for what needs work
- Check if there's a need for restoration in case of obsolescence, compliance with electricity and gas standards, regularization of rental charges, etc.
- Security Deposit
- After you've purchased the rented property, you can collect a security deposit from the tenant. You'll also have to return it after the end of the lease if their stay did not have any problem.
- When you need the property vacated
- After you've purchased the rented property, you'll also need to set a deadline on which the current tenant must vacate so you can make use of the real estate for other purposes. In this situation, the tenant has a right of pre-emption.
Important Note: The owner/landlord must also hand over the deposit paid to the new buyer. At the end of the rental contract, it will be up to you to return it to the tenant.
How do I terminate the current tenant's rental agreement?
- Terminate the lease to live there
- Either you intend to use the property for your main residence or to house a relative.
- As provided for by the Law of July 6, 1989, amended by the ALUR law, it will be necessary to respect a period of 2 years from the date of signature of the deed of sale at the notary (even if the expiry date of the lease is less than 2 years).
- You need to send a request for leave to the tenant within 6 months (or 3 months for furnished rentals) before the period of 2 years. If the duration of the remaining lease is more than 2 years, it will not be possible to move into the property before the end of the lease unless the tenant terminates the agreement themselves.
- Terminate the lease as part of a resale
- Initially, the owner/landlord will have to offer the property to the tenant first (they have the right of pre-emption).
- However, if the lease ends less than 3 years after the purchase and the tenant does not wish to buy the property, the landlord will have to wait until the end of the first lease renewal to get the tenant to leave.
- Takeover for a legitimate reason
- When the tenant does not meet their obligations (i.e. unpaid rent, neighborhood nuisances, etc.). The property will be recoverable on the expiry date of the lease at the latest.
Important Note: If the tenant is over 65 years old and has a modest income, the termination of the lease is possible only if the landlord offers a relocation solution.
Who could be interested in buying a rented property?
The types of buyers who can benefit from buying rented property include:
Useful link : Is it possible to sell a Pinel home?
- Owners looking for instant income supplementation (i.e. retirees or close to retirement).
- Homeowners who need to reduce their taxes.
- There are tax exemption schemes (in new real estate) such as the Pinel Law investment ( up to 12%, 18%, or 21% depending on the duration of the rental commitment) or Censi-Bouvard Law.
Useful link : Is it possible to sell a Pinel home?
What are the consequences for the tenant?
Buying a rented property does not pose any legal constraint for the tenant. The lease contract is linked to the lease, and not to the owner/landlord. However, the tenant is not a priority for the purchase.
In case of a sale, the lease continues with the new owner/landlord under the same conditions (unless the property is sold for free, and the seller sent a leave to sell with an offer to purchase to the tenant).
As a buyer, it's better to be accompanied by a notary office that will advise you on all aspects of the purchase of an old or new property. They can help you with the reservation contract, financing of a real estate project by manual donation, and more.
Ce qu’il faut retenir :
- Investing in a rented property allows you to benefit from a lot of advantages, such as a discount on its selling price, the profitability of the project, and the possibility of obtaining a mortgage more easily.
- This type of real estate project is mainly suitable for owners looking for an instant income supplement (i.e. retired or close to retirement) or owners who need to reduce their taxes in the short term.
- Find out about the rental management file, the history of the tenant, the general condition of the property, the obligations of the buyer, and potential work needed on the property.
- It is possible to terminate the rental agreement of the current tenant for various purposes.
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Posted on 23/05/2023 by
Andy LECUYER
