Buy-to-let investment
Buying an occupied property: financing a home sold with its tenant
A let property is purchased with its tenancy: the rent the lender retains, the documents to require from the seller, and the timeline if you wish to occupy it.
An occupied property is purchased with its tenancy: the sale does not terminate the lease, and the buyer becomes the landlord of the existing tenant. The loan is assessed as a buy-to-let loan; the lender retains the current rent, weighted, if it is evidenced by a written tenancy agreement and rent receipts, even if it is below market rates. Occupying the property requires a notice to vacate governed by law, and a waiting period that can be measured in years.
By Sandy MASCART, mandataire d'intermédiaire en opérations de banque et en services de paiement ORIAS 26000541 sous le mandat de CDV PATRIMOINE & ASSURANCE (ORIAS 14005573)
Key points
- An occupied property is purchased with its tenancy: the sale does not terminate the lease, and you become the landlord of the existing tenant.
- The seller must transfer the tenant's deposit to you at the completion, as its return will be the responsibility of the new landlord.
- The lender retains the current rent as any rental income, weighted, if a written tenancy agreement and regular rent receipts evidence it.
- A rent below market rates remains the one the lender retains: your plan must work with it, not with the expected rent after re-letting.
- Occupying a let property requires a notice to vacate governed by law, and a waiting period that can be measured in years before the property is vacant.
A property sold as “tenanted” is purchased together with its lease. For the lender, this is generally favourable: a rent received is verifiable. A guide to the buy-to-let investment application.
What you are purchasing: the property and the lease
The sale does not terminate the tenancy: you become the landlord. A tenant whose lease has a fixed date cannot be evicted, unless the lease contains a specific clause (have the notary read it to you). Upon their departure, it is you who must return the security deposit.
Ensure the following are settled in the deed:
- the rent for the current period, apportioned between the seller and you;
- the security deposit, transferred via the deed;
- any arrears: who is responsible for recovering them. Do not include them in your budget.
The existing rent: evidence, not an estimate
The lender treats this as any other rental income, weighted according to its methodology.
Le loyer du locataire en place entre dans vos revenus après pondération, et la mensualité du nouveau prêt dans vos charges. La pondération n'est écrite dans aucun texte : elle relève de chaque établissement.
- En vigueur depuis le
- Source
- Décision D-HCSF-2021-7, art. 1er — Légifrance
- Written lease, receipts, bank transfers: the actual rent is taken into account.
- Rent below market value: this is the figure that counts.
- Verbal lease, tenant is a relative of the seller, no receipts: the rent may be counted as zero.
See rental income and debt-to-income ratio.
The documents to require from the seller before the offer
| Document | What it establishes |
|---|---|
| Signed tenancy agreement and its amendments | The rent, the effective date, the due date, the nature of the tenancy: unfurnished or furnished |
| Receipts or management statement for the last twelve months | The actual regularity of payments |
| Schedule of condition on entry | The condition in which the tenant must return the property |
| Amount of the deposit | The sum that the seller must transmit to you at the deed |
| Last rent review and service charge breakdown | What is recoverable, and what has never been recoverable |
| Property surveys, including the energy performance | The possibility of continuing to let without works |
| Current management mandate, if one exists | What binds you, or not, to the seller's manager |
Does the tenant have a right of first refusal to purchase? Ask the notary.
Living there one day: have the date confirmed in writing
A notice to vacate for owner-occupier is required, at the expiry of the tenancy, plus a legal period after the purchase of an occupied property: sometimes years. Ask the notary for the first possible date of vacating the property.
- The loan is assessed as a buy-to-let loan: your current outgoings remain, the rent of the property is included on a weighted basis.
- The PTZ does not follow: it requires an occupation that the tenancy generally prevents.
1 an suivant la déclaration d’achèvement des travaux ou l’acquisition si postérieure ; porté à 6 ans lorsque le logement est destiné à être occupé à compter du départ à la retraite, à condition qu’il soit loué dans l’intervalle sous conditions de ressources, de loyer et de déclaration
Un logement vendu loué, dont le bail s'achève après ce délai, ne remplit pas cette condition d'occupation, hors le cas particulier du logement destiné à être occupé au départ à la retraite, que le même texte prévoit.
- En vigueur depuis le
- Source
- Article D. 31-10-6 du code de la construction et de l’habitation — Légifrance
The rent discount: only worthwhile if the lease justifies it
- Remaining term: a lease ending soon brings the price closer to that of an unencumbered property.
- Rent level: a low rent explains the discount without compensating for it.
- Condition of the property: the works are discovered when the tenant vacates the property.
- Energy rating: if poorly rated, works are carried out in the tenant's presence or there is a waiting period (F or G-rated properties).
A rent discount does not create a down payment.
Before the loan offer: making the lease a financeable income
- Recalculate using only the proven rent, assessed against the local rules in Lyon and Villeurbanne (rental properties in Lyon).
- Measure your debt-to-income ratio with your current outgoings.
- State the project: a long-term lease, or a primary residence on a realistic date.
- Estimate the cost of the works, energy-related works first.
- Arrange the appropriate insurance.
I am a mortgage intermediary working under mandate; I do not draft leases or notices to vacate (fees, documents to gather). Have the existing lease read by telephone, along with the property listing and the rent receipts.
Create your file: the lease becomes an income that the bank reads.
Sources
Read next
- How much can I borrow? Mortgage capacity in Lyon
- Rental income: how the bank calculates your debt-to-income ratio as an investor Weighting of rents, classical or differential method, disposable income: why two banks calculate an investor's capacity differently.
- Financing a rental investment in Lyon: what the bank actually looks at Financing a rental investment in Lyon: the rent the bank takes into account, the expected down payment, the mode of operation and the structure that holds up.
- DPE F and G: how to finance an energy-inefficient property in Lyon, including renovation works A DPE F or G property can be financed: quotes before the offer, works in the loan, deferred repayment until completion. What the bank requires, in Lyon.
- Rent control in Lyon and Villeurbanne: the rent the lender will take into account Rent control in Lyon and Villeurbanne: where it applies, how to read the capped reference rent, and the rent the lender will take into account.
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