Owner-change properties that do not require the time and effort of choosing a location, constructing a building, and recruiting tenants like new properties are attractive properties for those who are just starting real estate investment for the first time to those who want to increase the number of properties after the second one.Since you can see past operating conditions such as monthly rent income and occupancy rate, it will be easier to make a business plan, and it will be easier to pass the examination for loans for the second and subsequent buildings.
On the other hand, as an investment, there are also disadvantages.There are also restrictions such as overlooking defects and not being able to raise the rent for current tenants.
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What is an owner change property?
It is a property where the ownership can be taken over while the tenant is still in the property, and the lease agreement between the former owner and the tenant will be taken over as it is.Since it is not possible to change the existing lease agreement between the former owner and the tenant, it is important to check carefully before purchasing whether there are any problems with this condition.
Advantages of ownership change properties
Owner change property has a big merit.
You can learn the basics of real estate investment by seeing how the former owner managed it
If you compare it to store management, it's like a vacant property, and it's like taking over the equipment and employees as assets.In order to get the rental business on track from a clean state, there are various difficulties such as land selection, construction company selection, tenant collection, management company selection, repairs, and residents' troubles. .I think it's not hard to imagine that there are considerable difficulties waiting for beginners to start from scratch.
Acquiring a property that has been successfully stabilized after various management decisions in the past can be said to be the best property purchase for beginners in real estate investment to acquire know-how in rental management.
Ready to monetize
In the case of a new property, it takes several months or more from the construction of the property to the collection of tenants, the actual payment of rent, and the construction of a series of mechanisms. It will take an even longer period of time to come to fruition.
In the case of an owner-changed property, you can receive rent income from the month you sign the contract, so loan payments are smooth.Financial institutions can also check past performance, so there is an advantage that financing is easy to pass.
No need for major repairs
If the property maintains a stable occupancy rate for a long time, there should probably be no major defects.However, it is a part that can be a disadvantage because it is difficult to assess this.
Let's actually go to the property and check the appearance.Check for chalking on the outer wall (if you rub the dry outer wall with your hand and find marks that look like white chalk powder, it's a sign that it's time to repaint the outer wall), check for severe cracks, and rust on the stairs and handrails. There are many points that can be checked from the outside, such as whether it is in a dangerous situation or whether there is a water leak from the bottom of the veranda.
Also, check the situation of garbage dumps and bicycle storage areas to see if there are any problems with residents.
It is easy to get a loan because it is easy to make a plan until repayment
You can make a plan of how much you can pay back when you apply it to yourself based on the performance of the former owner who has been operating in the past.
Since the bank comprehensively evaluates whether it is possible to repay according to the plan based on the past performance and the assets of the new owner, it is also advantageous for the borrower to take over the property that has been earned so far.
Related article:Before you start investing in real estate, what you should know about loan screening criteria and how long is the screening period?
Disadvantages of owner change property
There are not only advantages, but also disadvantages.
The lessee cannot be selected and the conditions cannot be changed
Even if a tenant who has already moved in is causing trouble, you cannot suddenly request an eviction.Also, we cannot force you to take out insurance such as rent increase or renter's liability insurance.
The terms and conditions of the lease contract signed by the previous owner will be passed on to the new owner.Before purchasing, it is necessary to check the quality of the tenants and check whether the lease agreement is acceptable.
can't look inside
Even if you're an owner, you can't force yourself to check the condition of the room.There is a possibility that you are using it badly, and you can see the aspect of investment that you can not understand unless you open the lid.However, such residents should be able to see traces on the veranda and common areas.Be sure to check the exterior and common areas to see if the tenants are in good condition.
No risk of vacancies
Even if you get a property that is fully occupied, you do not know the situation of the tenants.In fact, there are many invisible risks such as a job transfer or a decision to return to a rural area.Even though it was fully occupied, there are times when people move out in spring or autumn when there are many moving places.
These risks cannot be reduced to zero as long as you invest in real estate, so recovery is the key to success.It is also thought that the fact that there are many moves in spring and autumn increases the possibility of moving in as a replacement.Regarding vacancy risk reduction, it is all about choosing a management company that can firmly attract customers.Management companies that are good at attracting customers have been running for a long time and have many veterans, so they are often good at property management.
Related article:The most scary vacancy risk in real estate investment.What are the measures and characteristics of properties that tend to be vacant?
Choosing a management company is an element that requires as much consideration as buying a property.
Defects can be overlooked
There may be a description of the seller's defect liability exemption in the property overview document.This is similar to the no-claims and no-returns that are often seen in auctions.
Please do not ask for warranty against defects after purchase.”
When we say defects, we tend to imagine visible things that hinder our lives, but the situation of underground utilities such as gas and water (if the land is subdivided on the way and lifeline pipes are installed, it is necessary) (Caution. Check if you can pipe directly into the house), the wooden frame is invaded by termites, and there is a dispute over the boundary with the neighboring land (be careful if the brokerage company tells you that the boundary will not be specified) Are the elevators properly inspected? (Legal inspections by qualified personnel are done once a year, and periodic inspections such as control panels, machine rooms, lubrication and confirmation of motors, and brake adjustments are done once a month. There may be defects hidden in hard-to-reach places such as (required degree).
There is also a risk that you will not notice these parts and purchase them, which will cost you a lot of money later.If you find it difficult to check yourself, consult a professional.The best way to avoid overlooking defects is to choose a real estate company that will be empathetic and willing to consult with you.
Summary
As an owner, you cannot postpone repairs just because they are costly.It is your responsibility to maintain and manage it safely.If you do not notice the corrosion inside due to water leakage due to lack of confirmation, and if the veranda or ceiling falls down and an accident occurs, it is no longer an investment.Doing everything you can to avoid risk is the key to successful real estate investment.
At Rich Road Co., Ltd., we will consistently support all aspects of investment real estate, from complete beginners to experienced people, from a wide range of real estate selection, loan consultations, post-purchase management, and renovations.
