Buying tenanted property at a discount
A tenanted property sells for less because the buyer pool is smaller. Whether that discount is worth taking depends on the tenancy.
A property with a tenant in occupation sells for 5% to 15% less than the same property with vacant possession, because the buyer pool is restricted to investors and because investors price in the risk of a tenant who may not leave, may not pay, or may not maintain the property.
That discount is the opportunity. It is worth taking when the tenancy is sound, the rent is at or below market, and the buyer is content to hold the property as an investment.
What to establish
The tenancy agreement and the compliance history determine whether the discount is compensation or a trap.
- The tenancy type, its start date and whether it is in a fixed term or periodic
- The rent, the last review date, and whether it is at, above or below market
- Whether the deposit was protected within the required period and the prescribed information served
- Whether the gas safety certificate, EICR and EPC are current, because these determine whether a section 21 notice could be served
- Arrears history, evidenced from bank statements rather than described
- Any complaints, disputes or damage, and the condition of the property
When the discount is worth taking
The best case is a tenant paying market rent, in a well-maintained property, under a valid tenancy with all compliance in order. The buyer inherits income from day one, no void, and a property already proven to let.
The discount in that case is compensation for the reduced buyer pool alone, and it is genuine value. The buyer's exit is to sell with the tenant in place, or to obtain possession and sell vacant — and both options remain available.
When it is not
The discount becomes inadequate where the tenancy creates a problem the buyer cannot control. A tenant in arrears, a tenancy with compliance failures that prevent a section 21 notice, a rent above market that will fall at review, or a property in poor condition all change the arithmetic.
The most serious case is a tenancy that cannot be ended, because compliance was not maintained. That converts a temporary restriction into a permanent one, and it is worth establishing before exchange rather than after.
Common questions
- Why is a tenanted property cheaper to buy?
- Because the buyer pool is restricted to investors, and investors price in the risk of a tenant who may not pay, may not leave or may not maintain the property. The discount is typically 5% to 15% against vacant possession. It is genuine value where the tenancy is sound and the rent is at market.
- What should I check before buying a tenanted property?
- The tenancy agreement, the rent and its last review date, the deposit protection and prescribed information, the gas safety certificate, EICR and EPC, and the arrears history evidenced from bank statements. The compliance documents matter because without them a section 21 notice cannot be served, which restricts your ability to obtain possession.