Are you looking to sell an investment property?
Should you sell vacant or with tenants in place? How do you keep your tenants sweet? What are your legal obligations as a seller? What are your rights?
This article looks at special considerations for sellers looking to sell investment property.
Sell vacant or with tenants in place?
things you control as a seller.
When selling any property, the two main things you control as a seller are presentation and access.
When selling an occupied investment property you have little control
It has been my experience that the advantages to a seller of selling a well-presented property, with easy access and flexible settlement far outweigh the disadvantages. ie. waiting for tenants to move out, meeting outgoings between campaign and settlement.
In brief, selling vacant simply gives you far more control as a seller and more control means a greater likelihood of achieving a premium.
Three bedroom home (80sqm) with carport. Cross-lease.
The seller had owned the property for four years. He was reluctant to service mortgage without rental income unless it was really necessary and was reassured by the company that managed his property that selling with the tenant in place would not compromise his result.
Tenants in place. Photos by property manager. Untidy house, overflowing wheelie bins, long grass. Poor access. 10 weeks on the market. Offers in mid $200,000s.
Vacant. Re-carpeted. Re-painted internally. Lawns mowed. Staging. Additional cost: under $10k.
Multiple offers after 7 days resulting in a sale at $337,000.
A few things to consider
What is your timeframe?
How soon are you looking at selling
If you are coming to the end of a fixed term tenancy or have a periodic tenancy your options are pretty clear.
Things are a bit more complex if you want to sell in three months and have ten months to run on a Fixed Term Tenancy that you suspect is unlikely to enhance your chances of a great result.
Don’t rule out negotiating with your tenant to end the tenancy early. You may get lucky! If you are able to agree on terms make sure you formalize your agreement in writing.
Can you manage the cost of a vacancy?
We don’t make our best decisions when under undue pressure so you will want to ensure that selling vacant is financially manageable before you give your tenants notice.
Think about whether or not you can manage the outgoings between the start of your vacancy and settlement. Look up median days to sell in your properties location and ask your agent about common settlement timeframes for the type of buyer you hope to attract. This will help you estimate rough outgoings.
Who is your buyer?
Who is likely to pay you the most for your property?
If it is an investor and you are charging market rent (or thereabouts) then selling with a quality tenant in place can be an advantage.
But if your buyer is an owner-occupier your tenants’ presence may shrink your market. Think one of or a combination of …limited access, substandard presentation, comments made by the tenant to buyers during viewings and lack of flexibility around
Is your property under-rented?
And is your target market primarily investors?
If your property is seriously under-rented, your lovely tenant who is paying $100 a week less than
“But my buyer can just increase the rent after settlement?”
They can. But put yourself in your prospective buyers’ shoes. Would you really want to kick off a new relationship with a tenant by lifting their rent substantially for a home they have lived in for several years already?
Potential issues with your tenants…
Again, if your property is seriously under-rented, your tenant is going to be understandably peeved about the prospect of moving and having to pay a market rent elsewhere. It is not uncommon for this to result in tenants attempting to delay the inevitable by being un-cooperative or worse, trying to sabotage your sale.
This isn’t an unkind judgment on tenants but an observation based on experience. Self-preservation is human nature. Your poor tenant who is shortly going to have to find an extra $100 a week to rent elsewhere is unlikely to feel like facilitating your process in any way shape or form.
It can be simpler and cleaner to keep the end of a tenancy like this and your sale completely separate.
90 days for any reason.
42 days from unconditional sale.
21 days notice (at least) prior to the end of a Fixed Term Tenancy. If you fail to do this the tenancy will revert to a Periodic Tenancy.
Days for service.
Don’t forget to add these to notice periods…
Email: 2 days
Hand delivered to
Post: 4 days
Talk to your tenant before you begin.
You will need to let the tenant know in writing that your property is on the market. This should happen before signage or marketing commences and certainly before viewings. Failure to do so can result in a $1000 fine.
Vacant Possession? After
If your Sales & Purchase Agreement stipulates vacant possession remember to give any required notices immediately after
Selling with tenants in place.
The Act entitles you to show buyers through provided the tenant is given reasonable notice.
Unfortunately, there is no definition of reasonable notice specified so this will have to be negotiated with your tenant. Your right to access has to be balanced by their right to quiet enjoyment.
Securing your tenants’ cooperation.
Moving is a pain at the best of times. It’s far worse when your move is someone else’s idea. Even if a tenant knows that they may be given the opportunity to stay on by a new owner, they will be wracked with uncertainty until a sale is finalized.
Want to secure your
Personally let the tenant know you are selling.
Give your tenant a courtesy call before they receive your letter. Telling them why you are selling may be helpful in gaining cooperation.
Your tenant needs to feel acknowledged and respected by your agent.
Careful management of your tenants’ feelings by your listing agent plays a vital part in securing their cooperation. I usually make an appointment to meet the tenant and discuss access, any particular needs or expectations they have etc. prior to the campaign commencing. A bottle of wine or a box of chocolates don’t go amiss either. Showing a bit of humanity and respect goes a long way.
Agreeing ahead of time with your tenants about appointment times can be a great way to ensure access and presentation. It also protects your tenants’ quiet enjoyment of the property outside of these times.
Buyers are generally quite understanding around the need to structure appointments when there are tenants in place.
Remember to confirm any agreement in writing. Sending reminder
Offering a rent rebate every 2-4 weeks in exchange for adhering to whatever has been agreed to is both an incentive and a nice little bit of financial recognition of the hassle involved around having their privacy invaded. In my opinion, paying a rebate is more effective than a straight out reduction.
Hire a Cleaner
If your tenant struggles to present well but has been gracious enough to allow you a weekend Open Home consider offering to engage a pre Open Home cleaner for them. Presentation is key.
Consider letting them go early.
One of the things tenants worry about is the possibility of overlap between giving you notice and securing their next home. Consider telling them that you will let them go a week or so early if needed. This simply gives them one less thing to stress about and creates some very handy goodwill between you.
Keep them sweet!
Get everything in writing!
Investors can be very creative with solutions but sometimes fall short in this department. If enforcement is important to you make sure you get any agreements formalized in writing to prevent last-minute unpleasantness.
You may also like.
Is Auction The Best Strategy? Three Times It Just Isn’t.
Is The First Offer Usually The Best Offer? Assessing Early Offers.
Smart Ways To Deal With Stupid Offers
Insight: What’s Here For You.
Thinking about selling an investment property in the greater Auckland area? Would you like to discuss your options without disturbing your tenants?
Give Maria a call on 021 454694 or email her here.
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