What are owner-change properties?

Owner-change properties are real estate that is bought and sold with tenants in place, regardless of the type of rental property, such as condominiums or apartments for sale.
In other words, only the owner of the property changes.
In the case of a multi-room property, such as a single building, if even one room has tenants, it is called an owner-change property.
This owner-change property has various advantages and disadvantages because the lease contract between the former owner and the tenant is taken over at the same time the property is purchased.

Rights and obligations of owner-change properties

Owner change is specifically stipulated in Article 31 of the Land and House Lease Law.

A lease of a building shall become effective against a person who subsequently acquires physical rights to the building when the building is delivered, even if the lease is not registered.
In other words, even if the owner of the building changes, the lease contract concluded between the old owner and the tenant will be taken over by the new owner as is.
This means that after purchasing an owner-change property, not only the right to receive rent, etc., but also obligations such as the obligation to return the security deposit at the end of the contract are transferred from the seller to the buyer.

＜Rights of succession＞

●Right to have the tenant pay rent
●Right to have the property returned at the end of the contract
●Right to have the tenant restore the property to its original condition at the end of the contract.

Taking ownership of a building, even an owner-occupied property, is no different from any other real estate transaction.
The difference, however, is that you purchase the property with a lease agreement with the tenant.
This continues to be a valid contract even after the change of ownership.
Therefore, it is possible to take over the rights as the lessor regarding the building.

＜Obligations to be taken over＞

●Obligation to allow tenants to use the building
●Obligation to make repairs to the building(property)
●Obligation to return security deposits when tenants move out

When the lease contract between the former owner and the tenant is taken over, the tenant is still obligated to abide by the terms of the contract signed by the former owner.
This contract cannot be changed or terminated because of an "owner change," and a valid reason must be provided.
Of course, the security deposit from the tenant must be returned when the tenant moves out, minus expenses.

Purpose of selling owner-occupied properties

Why do sellers sell owner-occupied properties?
Reasons vary, but it is common for sellers to sell when they find the rental operation troublesome or when they temporarily need cash to purchase other property or pay off debt.
In other cases, they sell when the sublease contract is up for renewal and the property is no longer suitable as an investment asset.

The merits of owner-change properties

Owner-change properties are popular as investment properties because they are easy to purchase even for beginners in real estate investment.
Here are some of the advantages of purchasing owner-change properties, and why they are so popular with beginners.

Rental income immediately upon purchase

The biggest advantage of owner-occupied properties is that they are already occupied and can provide immediate rental income.
There is no need to search for new tenants, create and commission advertisements to solicit tenants, set appropriate rents, draw up contracts, and screen tenants.
Furthermore, since you can take over the old owner's rental management as is, it takes relatively little time and effort, making it an easy way for even beginners to start investing in real estate!

Easier to be approved for loans by financial institutions

Another major advantage is the ease with which financial institutions can approve loans.
Real estate that is already under rental management is easily evaluated by financial institutions because it has a track record of monetization.
This makes it easier for financial institutions to approve loans at the time of purchase.

May be available at a lower price than the market price

Generally, owner-change properties are subject to various restrictions and can be purchased at a lower market price than properties occupied by the purchasers themselves.
Also, when purchasing a vacant property to lease, repairs are often made immediately after purchase, but with owner-change properties, there is no need to rush to make repairs because there are already tenants.
Therefore, the time and effort required for repairs and the initial cost can be reduced.

Easy to make operational plans

Another advantage of owner-occupied properties is that it is easier to make an investment plan.
At the time of purchase, you can refer to a variety of historical data, which makes it easier to project income.
You can refer to the past records such as how many years the tenants have lived in the property, how long it has been since the tenants moved out and how long it will be until a new tenant moves in.

The demerits of owner-change properties

After understanding the advantages, let's also make sure we understand the disadvantages.
Owner-change properties also have disadvantages because the tenants are already living in the property.

Difficult to assess indoor conditions

If you are purchasing a vacant property, you can directly inspect the building and facilities for any problems beforehand.
However, since owner-change properties are lived in by tenants, in most cases the situation can only be verified from the outside or on documents.
Therefore, there is a possibility that problems may occur, such as the interior being more damaged than expected or the water facilities being outdated.
In some cases, it may be discovered that substantial repairs are needed only after the tenants have decided to move out.

The contract must be taken over

In the case of an owner-change property, the lease contract will be taken over as is.
Even if the current rent is lower than the market rate, it will be difficult to change the terms, such as raising the rent.
Also, even if the contract is disadvantageous to the owner, it cannot be changed without a valid reason.
This may cause trouble between the new owner and the tenant, so it is necessary to carefully check the rent setting and the contents of the contract.

Difficult to ascertain tenant information in advance

The type of tenant is one of the owner's concerns.
If the owner is looking for new tenants, he or she can screen tenants on his or her own, but in an owner-change property, he or she cannot choose tenants.
If the former owner's criteria for tenant screening are too permissive, there are various risks, such as nonpayment of rent or troublemakers moving into the property.
Since the status of nonpayment of rent or trouble cannot be determined by looking at the status of the lease contract (rent roll), etc., it is advisable to confirm the situation as much as possible beforehand.

In Conclusion

Owner-change properties are proven properties that already have tenants.
This is a real estate investment that even beginners can tackle easily, as they can smoothly start rental management.
However, there are risks associated with owner-change properties, such as not being able to check the condition of the property in detail and having to take over the contents of the contract.
Do not be reassured by the immediate rental income, but carefully check the details of the contract, rental demand, etc., and carefully decide whether you should invest in owner change real estate.