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As a buyer, why it is important to have a vacant possession

empty living room in a loft

I wrote today’s post solely with buyers in mind. In other words, this post is for those that do not currently own a tenanted property.

If you are a seller and you happen to come across this post, you might be thinking now that there is a smaller pool of buyers for a property with an existing tenant.

Please refer to the BC Residential Tenancy Act for how to find an resolution towards your goal of marketing a property that you can guarantee vacant possession on.

You may have to pay a severance to a tenant, should they agree. It may mean not listing the property until the end of the current lease, or it may mean taking a lower price to do owner-occupied buyers being eliminated due to the mortgage financing guidelines around the purchase of a tenanted property.

If you are purchasing a RESIDENTIAL PROPERTY this spring, there are 2 words that matter the most for you, Vacant Possession

Especially if you are planning on putting less than 20% down, your contract had best contain a Vacant Possession clause.

Here is why:

Mortgage lenders will not give you the benefit of the doubt on this one, despite your best intentions, “I will move into the property once the current lease is up and the tenant has had a chance to make arrangements”.

It is not about what will be, it is about what is.

If, at the time of possession, the property is tenanted, then you are effectively applying for a mortgage on a rental property. The minimum down payment required for a rental property is 20%. In most cases, you will also be paying a higher interest rate, not to mention the lending criteria are far more stringent.

You only have 5% down, and you plan on giving notice and move in in 60 days after possession?

In today’s lending environment, there is virtually no lender that will approve this under any circumstances, and this has to do with the recent changes made by our federal government.

You may have a friend that purchased two years ago, and a lender had allowed them to do this exact same thing.

The lenders want to trust you, the lender wants to help you, the lender wants to approve you, after all that is what they are in business for, to give you a mortgage so you can buy a place. But the new government guidelines eliminate the lenders’ ability to be flexible. Lenders must answer to the government, and the government is very rigid on this guideline.

Lesson of the day, Vacant Possession – demand it

If you are buying a rental property, is it a good thing that the property already has a tenant?

Not necessarily. An existing tenant is rarely a good thing.

You have no control on how their lease was written

You have no idea if the lease has clauses to protect you as the owner

Are the rents reflective of the current market rents?

Is there a provision for an annual rent increase?

Your costs are going to be increasing every year, and if the rent does not, your investment that looks good today, may not look so hot down the road in the near future.

Do not risk inheriting the sellers errors or headaches.

Whether you are purchasing your new place to live in it, or if you are buying an investment property, it is vacant possession or you simply walk away.

 

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