What You Need to Know When Buying a Tenanted Investment Property
- Jaeneen Cunningham
- 3 days ago
- 6 min read
Investing in property is one of the most popular wealth-building strategies in Australia, and for many buyers, purchasing a property that’s already tenanted can seem like a smart move. After all, you’ll have rental income from day one, you won’t need to advertise for tenants, and much of the groundwork has already been laid.
But while buying a tenanted property has its advantages, it also comes with unique legal, financial, and practical considerations that every buyer should understand. This guide will walk you through the key things you need to know before signing on the dotted line.
The Basics: What Is a Tenanted Investment Property?
A tenanted property is simply a residential or commercial property that already has an active lease in place. The existing tenants have rights under that lease, and when you buy the property, you’re effectively stepping into the shoes of the landlord.
That means you don’t just inherit the property—you inherit the tenancy agreement, too. The lease terms, rent amount, and tenant obligations remain binding until the lease ends or is lawfully terminated.
The Advantages of Buying a Tenanted Investment Property
1. Immediate Rental Income
The biggest drawcard is cash flow. From the day of settlement, you begin receiving rental income. This can help offset your mortgage repayments and reduce the financial pressure of property ownership.
2. No Vacancy Period
Vacancy is one of the main risks for landlords. A tenanted property eliminates that concern—at least in the short term. You don’t need to budget for weeks or months of lost rent while you advertise for new tenants.
3. Established Tenancy History
If the tenants have been in place for some time, you’ll have a rental history to assess. Payment records, maintenance requests, and inspection reports provide valuable insight into how reliable and responsible the tenants are.
4. Potential Tax Benefits
Rental income and property expenses are usually deductible against your taxable income. Buying a tenanted property allows you to claim these deductions immediately, without waiting until you find a tenant.
The Challenges You’ll Need to Consider
1. You’re Bound by the Existing Lease
When you buy a tenanted property, you don’t have free rein to change the rent, end the lease, or ask tenants to leave simply because you’re the new owner. The lease terms remain enforceable, and you must honour them until the lease expires or is legally terminated.
This could work in your favour if the rent is at market value and the tenants are excellent—but it can also be a disadvantage if the rent is below market or the tenants are difficult.
2. Limited Flexibility with Property Use
If you’re buying the property to live in, you’ll need to consider notice periods and tenant protections. In many states, you can’t just move in immediately—you must give tenants the required notice to vacate, and you may need to wait until the end of the fixed-term lease.
3. Inherited Issues with Tenants
While many tenants are responsible and reliable, you could inherit tenants who pay late, neglect the property, or cause disputes. Evicting tenants is not a simple process and must follow state-based tenancy laws.
4. Market Rent vs. Actual Rent
If the current rent is significantly below market value, you might face a shortfall in expected returns. You’ll need to assess whether and when you can adjust the rent under the terms of the lease and the Residential Tenancies Act in your state or territory.
Legal Considerations
Buying a tenanted property involves more than just conveyancing—it requires careful attention to tenancy laws. Here are the key legal aspects to be aware of:
Lease Documentation
Ensure the lease agreement is valid, current, and legally binding.
Check details such as rent amount, payment frequency, lease duration, bond arrangements, and tenant obligations.
State and Territory LawsEach state and territory in Australia has its own residential tenancy legislation. For example, the notice period required to terminate a lease or raise the rent differs between Queensland, New South Wales, and Victoria. You must comply with the rules that apply to your property’s location.
Bond TransferThe rental bond must be transferred into your name as the new landlord. This is usually handled during settlement, but it’s important to confirm it has been correctly lodged with the relevant state authority.
Disclosure RequirementsIn some jurisdictions, sellers are legally required to disclose tenancy details to buyers, including copies of the lease and tenant payment history. Always insist on reviewing these documents before settlement.
Financial Considerations
When crunching the numbers, it’s important to look beyond the appeal of immediate rental income.
1. Rental Yield
Calculate the gross rental yield by dividing the annual rent by the purchase price. Compare this with local market averages to ensure the property provides a competitive return.
2. Outgoings and Expenses
Remember that as a landlord, you’re responsible for council rates, water rates, insurance, maintenance, and potentially strata fees (if it’s a unit or townhouse). These expenses will affect your net yield.
3. Potential for Rent Increases
Review the lease to see when rent can next be increased and by how much. Some leases include capped increases or set timeframes. Factor this into your financial planning.
4. Property Management Fees
If you use a property manager, account for management fees (typically 7–10% of the rent in Australia). A good property manager can help minimise the risks of problem tenants and streamline compliance.
Due Diligence Checklist Before You Buy
Buying a tenanted property requires extra diligence. Here’s a checklist to guide you:
Obtain a copy of the lease agreement and review all terms.
Check tenant payment history to confirm rent is up to date.
Confirm the bond has been lodged with the correct authority.
Review condition reports and inspection records for evidence of property care.
Assess the rental yield compared to market rents.
Check for upcoming lease expiries and plan accordingly.
Verify compliance with smoke alarms, safety switches, and other legal requirements.
Engage a conveyancer or solicitor with experience in tenanted properties.
Buying a Tenanted Property for Personal Use
If your intention is to live in the property, you’ll need to carefully manage timing. You cannot simply “kick out” tenants. The notice period depends on your state or territory, but in most cases:
You must wait until the end of the fixed-term lease (unless the tenant agrees to leave earlier).
You must give written notice, usually ranging from 30 to 90 days, depending on the jurisdiction.
This means that if you plan to move in quickly, a tenanted property may not be the right choice unless the lease is close to expiring.
Practical Tips for a Smooth Transition
Introduce yourself to the tenants soon after settlement to establish a positive relationship.
Respect the existing lease—don’t make demands that breach tenant rights.
Use a property manager if you’re not confident managing tenancies yourself.
Plan for the long term—consider whether the tenancy aligns with your broader investment or personal goals.
The Bottom Line
Buying a tenanted property can be an excellent investment strategy, providing immediate rental income, reduced vacancy risk, and a ready-made tenancy structure. But it also comes with obligations—you inherit the lease, the tenants, and all the legal responsibilities of being a landlord.
The key is to do your homework. Review the lease carefully, check the tenant history, and make sure the rental return stacks up against market benchmarks. Understand your rights and obligations under state tenancy laws, and factor these into your broader financial plan.
Handled wisely, purchasing a tenanted property can give you a head start in your investment journey. But as with any property decision, it pays to seek professional guidance.
At Etairos Finance, we help property investors navigate the complexities of buying, financing, and managing investment properties—including tenanted ones. Whether you’re looking for the right loan structure, want to understand your cash flow position, or simply need guidance on what to look out for, we’re here to help.
General Advice Warning This article provides general information only and is not financial or legal advice. Tenancy laws differ between states and territories, and your personal circumstances will affect the right approach for you. Before making any decision, seek advice from a licensed financial adviser, solicitor, or property professional.
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