Selling your investment property while tenanted

Its 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, potential hampering the sale process and impacting your profit.

Your tenants are facing the uncertainty of potentially having to find a new home. This can be very costly and time consuming exercise with removalists, cleaning, utility connections, coming up with another bond and rent for a new property etc, costs can easily amount to $3000+ for a basic 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, your property manager and your selling 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 is your property and you can do what you chose, 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.

What is the best practice for selling a your investment with a tenant in place?

1:  Speak to the tenants personally.
If possible, either yourself or your appointed property manager along with your sales agent meet with the tenants so you can arrive at a mutually acceptable plan for the sales process. Include them in the plan. Most tenants will appreciate you making the effort to consider them in the process.

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.

Remember to check the legislation 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 24 hours written notice, and breaking that agreement could get them offside quickly. Most tenants will appreciate knowing the scheduled times for inspections well in advance so they can plan ahead.

2:  Offer incentives for your tenants’ cooperation
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.

Some incentives you could offer your tenants could include:

.  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 their 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 cooperate. Sweetening the deal might be just the incentive they need to make themselves scarce while buyers walk through. Remind them, as our property managers and selling agents do, that the buyer may well be their next landlord and that they should treat each inspection as 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.
Its one less chore for the tenants 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 an actual no-brainer.

Also, as I have seen this in the past with previous agencies, ask your agent to open curtains, blinds and windows and turn on lights before inspections. Our agency will even turn on heating and cooling before hand if available. This allows the property to be presented as airy, fresh and open as much as possible – its a simple but effective step that is often overlooked.

4:  Offer to allow your tenants to break the lease early.
If you 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 wont 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 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.

Obviously, asking your tenants to leave is entirely dependant 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 our agents about average days on market for properties in Warrnambool and surrounds, taking into consideration tenanted verses properties available at vacant possession.

Also 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 tenant property closer to the end of a lease period makes sense, there are other considerations.

.  If you tenant is on a fixed term lease but you want vacant possession, you are required to give them a minimum of 2 months (60 days) notice to leave on the end date of their lease.

.  If your tenants are hoping to stay on in the property if it sells 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 or 12 if the lease were renewed. So you don’t discourage the buyer who intends to live in the property or even undertake a renovation.

Putting the legal elements aside, 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 or challenging with competition, and other costs associated with end of the year and new schooling year, it would be a very bitter pill to swallow for most tenants. Be sure to speak to your acting agent, property manager and your tenants about specific time sensitive considerations about the local market and find the best solution for all invloved.