DO YOU WANT TO BUY THE RENTAL YOU LIVE IN?
Buying the rental property that you currently live in gives new meaning to the saying ‘try before you buy’. In an ever-changing market, the timing may be right for the landlord to get out when a relatively straightforward opportunity such as selling to their tenant presents itself to them. Similarly, you as the tenant may have a number of reasons you want to buy and striking a simple but fair deal on the place you already live in is a win-win for both of you. You get to skip a big chunk of the research phase, removalist costs, and you get to dodge the hard yards trudging the pavements looking for just the right property; the landlord avoids having to list the property and deal with open houses and multiple prospective buyers with offers that all might give them the same result.
The advantage of this situation for your landlord is that it can be less costly and a much easier process, if they were considering selling anyway. The idea of being able to skip all the uncertainty, waiting to see if they will get not only a buyer, but the right buyer, can be completely bypassed if the tenant wants to buy and has the right offer. Both you as the tenant, and the landlord are in good positions as you can both make gains from each other. As the tenant, you are already familiar with the property and its unique quirks. In fact, you probably know things about the property that the landlord might not even know – maybe the hot water service will need replacing soon, there’s that street light right outside that annoyingly shines right into the bedroom window through the crack in the blinds, or what about how the neighbours watch violent films with the volume right up until midnight every Sunday night.
You therefore are in a good bargaining position to offer what the property is really worth, rather than agreeing to a version that may not reflect the property’s true value in your view. The landlord is also a in a good bargaining position as they know that not only are you interested, you are also somewhat emotionally invested in the property because you’ve already made it your home.
Coordinating a property sale between a tenant and a landlord can be exciting, however it should still be approached with the same level of consideration and without bypassing necessary formalities that protect you both. If a landlord tries to discourage you from using a real estate agent or a property lawyer, be wary. It’s also a good idea to not approach the landlord until you have clarity and certainty about your plans and your finance.
If you are considering buying your rental, you should first get clear about financing and how much you can afford to spend. Calling the landlord and asking ‘how much do you want for it’ is a strategic miss-step you’re unlikely to recover from. Once you are clear on your own budget and have pre-approval for finance, you should also shop around a little. See what else is on the market at the time and do a bit of contrasting and comparing. Ask yourself and others whose opinions you value if the property you are renting is really going to be the best investment for you - don’t buy a whole house or apartment just because you’re too lazy to move! Think about all the things you want in an investment property and then make sure your current rental ticks all those boxes. When deciding to invest in property you should always do your research, you will just take a slightly different approach in this case. The questions you asked yourself as a prospective tenant are not the same as the ones you need to ask as a prospective buyer. One of the advantages of renting, after all, is being able to live somewhere you couldn’t normally afford (if you were buying), or choosing a neighbourhood that suits your lifestyle at the current time but wouldn’t over the long term as your needs change.
Ask yourself things like is the property in a high growth area? What are the demographics of the suburb? If you need to rent it out in the future, what kind of tenants are you likely to attract? Is there good access to transport, services and amenities such as schools and health care that would suit your needs in the future, or the needs of your ideal prospective tenants? Just because you live there now and ‘already know’ the property, doesn’t mean you should overlook the normal considerations you would make when buying into an investment.
If you are confident about securing finance and you feel sure the property will be a good investment then next stop is to find out if the landlord even wants to sell it! Knowing a little about them will help – do they own other properties? Is it a family property they are holding onto for personal reasons? They may be surprised when you first raise the idea so having a well thought out approach will reassure them that you are serious. If they are interested in selling, then rather than discussing pricing with each other, it’s a good idea to collaborate on getting one or two property appraisals so you can both get an objective and realistic estimate of a price point to start negotiating around. If the landlord ‘takes care of it’ you may end up a with figure that is much more than you bargained for. Similarly, if you both get individual appraisals and yours is much lower, the landlord may change his mind and decide not to sell after all.
Once you’ve agreed on a price, you can make a formal offer and this should ideally be done in writing to the landlord – this is the point where a real estate agent can step in to assist and finalise the sale as an objective facilitator. If you do all the prep work and then discover the landlord doesn’t want to sell at all, don’t despair. There are plenty of other properties out there and you can now quickly jump into prospective buyer mode to find a property even better than your current rental.