Selling a tenanted property carries some potential to jeopardise your sale compared to selling a vacant property.
It’s no surprise, most tenants facing the sale of their ‘home’ are likely to be less than happy about the process. Many have experienced this same situation more than once; and an unhappy tenant can make things particularly difficult for you and your agent, potentially hampering the sale process and impacting on your profit.
Your tenants are facing the uncertainty of potentially having to find a new home. This can be a very costly and time consuming exercise with a removalist, cleaning, electricity and communications connections, coming up with another bond and two weeks rent etc., costs can easily amount to $2000-$3000 for a residential move.
Anything you can do to reassure and support your tenants is going to benefit your overall relationship and encourage them to cooperate during the sales process.
So what can you as the owner and your chosen agent do to make the process as painless and hassle free as possible, for everyone involved?
Firstly and most importantly remember that respect is a two way street. Yes, it’s your property, but your tenants pay for the right to the peaceful enjoyment of their home.
Open communication is key, abide by legislative requirements and notice periods and be reasonable about the number of inspections per week.
Let’s look at the best practice for selling a property with a tenant in place:
1. Speak To The Tenants Personally
If possible, meet with the tenants and your sales agent together, so you can arrive at a mutually acceptable plan for the sales process. If not in person then think about a Skype meeting – they will appreciate you making the effort.
Consider offering the property to the tenants first, you’d be surprised how often a tenant loves the home they live in enough to buy it if they are in a position to do so. Similarly offer it to the neighbours next, that has resulted in a sale more times than I can count.
Remember to check your state or territory’s laws for the notice period before inspections, if you are not familiar with the legislation speak with your property manager.
In most cases, tenants must be given a minimum of 24 hours written notice, and breaking that agreement could get them offside quickly. Most tenants will appreciate knowing the scheduled times for inspection well in advance so they can plan ahead.
2. Offer Incentives For Your Tenants’ Co-operation
While you might be paying the mortgage, the property is your tenant’s home.
Having to clean the house and groom gardens for every inspection can wear thin quickly, and it’s important that the house looks as tidy as possible when prospective buyers walk through.
Here are some incentives you could offer your tenants:
- A discount in rent during the sales process
- A free week’s rent when the house is sold to help offset moving costs
- A small fee for every open house they have to prepare for
- A letter of recommendation for their next rental if required
While you can ask tenants to step out during inspections, there is no legal requirement for them to do so. This is even more important where there are pets in the household who may react badly to strangers in the home. Setting fixed viewing appointments can help your tenant to feel less like they have lost control of the situation and allow them to plan around children and pets.
The longer a sale takes the less likely your tenants are to be inclined to co-operate. Sweetening the deal might be just the incentive they need to make themselves scarce while buyers walk through. Remind them that the buyer may well be their next landlord and that they should treat each inspection is a potential opportunity to impress.
3. Don’t Leave It All To The Tenants
Hire a cleaner and a garden maintenance person to tidy up the property prior to taking marketing photos.
It’s one less chore for the tenant and a great way to thank them for their cooperation. Better still, you’ll be assured of the best photos for your sale.
The cost for these services are a tax deductible investment, this one is a no-brainer.
Also, ask your agent to open curtains, blinds and windows and turn on lights before inspections, so the property presents as airy, fresh and open as possible – it’s a simple but effective step that is often overlooked.
4. Offer To Allow Your Tenants To Break The Lease Early
If your tenants are really unhappy or uncooperative, it may be better to offer them an early release from the tenancy. Some tenants prefer to choose the timing of their own move over the uncertainty and disruption of the sale process.
You will be missing out on the rental income, but you can often achieve a higher price in a shorter timeframe with a vacant property. You will have an opportunity to do a quick refresh if needed, you won’t have to worry about presentation or access issues and may attract higher buyer enquiry levels as your property will appeal to owner-occupiers as well as investors.
There are always Pros and Cons to consider, sometimes rented properties can present poorly if they are untidy and cluttered or if oversized furniture makes the rooms appear small. Other times tenant’s homes can present like a show home. Conversely a property which is on need of paint and carpet can be far more obvious once vacant, so there is no one size fits all here.
“For larger or high end properties consider staging the home yourself, or having virtual furniture added by the professional photographer. This is an effective tool for increasing your final sales price.”
Obviously, asking your tenants to leave is entirely dependent on your financial position and the terms of their lease. Any lost income dips directly into your overall profits, so weigh the decision up carefully. Speak to your agent about average days on market for properties in your area, taking into consideration tenanted Vs properties available for vacant possession.
To avoid reaching this point, be respectful of your tenant.
Be sure to stay in close contact with your property manager to keep the lines of communication clear.
5. Consider The Timing
Whilst there is a strong argument that timing the sale of a tenanted property closer to the end of a lease period makes sense, there are other considerations.
- If your tenants are on a fixed term lease but you want vacant possession, you are required to give them a minimum of 2 months notice to leave on the end date of their lease.
- Should the property sell to an owner occupier then the notice period for vacant possession is reduced to 4 weeks, but not before the end date on the lease, except by mutual agreement.
- If your tenants are hoping to stay on in the property if it was to sell to an investor, you may prefer to keep them in place, but allow the lease to lapse into a month to month agreement. You would still be required to give 2 months notice to leave if you need vacant possession, but the tenant would only need to give 2 weeks. Importantly the property could be available to the new purchaser in just 2 months, not 6 to 12 if the lease were renewed. So you dont discourage the buyer who intends to live in the property or even undertake a renovation.
That’s the legal side of the conversation, but there is also a human side. Imagine having the home you rent being sold over Christmas when everyone is busy socialising, and when rentals can become harder to find and there are other end of year and new school year costs to cover. It would be a very bitter pill to swallow for mosty tenants. Speak to your agent, your property manager and your tenants about specific time sensitive considerations in your area.
About the Author:
Keith Grisman and his wife Melanie Summer are seasoned property investors. Keith bought his first property at age 17 and has been steadily adding to his property portfolio ever since. Melanie has a background in property development, improvement and property valuations. For more of their story click here.
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