Selling a property with tenants?

With the average selling days on market at an all time high, we are constantly asked by clients, can we sell our property with a tenant in it?

It’s not just a straight forward answer, and something that should be considered carefully.

Selling a tenanted property often makes financial sense for investors. Not only do you need to sell at the time that’s right for you in terms of the highest possible sale price, but continuing to receive income potentially until near to settlement can make a huge difference to your bottom line and ensure that you stay on top of your investment loan repayments.

However, it can also be a tricky business and can affect your end sale price more than you think.

Important aspects to consider if selling a property whilst tenanted:

  • If I sell the property, can we ask the tenant to vacate at settlement? If you have a fixed term lease on the property, this remains part (or fixture) of the property at settlement. So if you are selling a property with a fixed term lease, the tenant is entitled to stay at the property until the lease expires – even if settlement occurs before the lease expiry. Any potential buyer needs to be made aware of any leases you have on the property and their expiry date. Tenants on a periodic lease must be given at least 30 days notice to vacate from the date the sales contract becomes unconditional, and this needs to be allowed for in any potential sales contracts. Obviously you can try and negotiate alternative terms for the tenant to leave early, but under the terms of their lease contract and the Residential Tenancies Act, they are entitled to stay until it comes to an end.
  • Not all buyers want a tenanted property (Owner Occupier Sales). If you’re selling a property with tenants on a long-term lease, you may drive away buyers who are looking for an owner-occupied home that they can move into immediately upon settlement. Buyers looking for a home to move into straight away are highly unlikely to want to wait potentially many months for the lease to expire and the tenants to vacate the premises, so you may lose a portion of the buyers that may be in the market for your property. On the other hand, some properties are more likely to attract investors, and having trustworthy tenants already in place can be a big selling point. (so this point can vary, depending property type and general buyer demographic).
  • Less control for you (Presentation). If a property is tenanted, you have less control over how the property will be presented to potential buyers. Whilst most tenants generally do the right thing and ensure that the property is in reasonable condition for buyer inspections, simple oversights such as an un-mown lawn or the lingering smell of last night’s dinner can have a big impact on how potential buyers may perceive your property. Also the tenants furniture style or placement can affect the overall perception of size and layout in a buyers eyes. In a competitive real estate market with the number of days on market still high, and number of properties available for sale also above normal supply volumes, making your property stand out from the crowd can often be the difference between a sale or no sale.
  • House viewings and inspections (accessibility). Tenants need written notice at least 24 hours before the property will be shown to a potential buyer. Although it’s common courtesy for tenants to head out for a little while when an inspection is taking place, there’s no official requirement for them to do so. A tenant has the right to say no to an inspection time if it doesn’t suite them, which means the viewing needs to fit in with their schedule more often than not, and this doesn’t always suit the potential buyer/s of your property. If your agent has a good relationship with the tenant, then more often than not verbal communication with the tenant will ensure good access is achievable throughout the selling process.
  • Keeping tenants in place provides income.  While selling an untenanted home may be easier in many ways, don’t forget that your tenants also provide a crucial source of income for you. For example, if your property takes three months to sell and then you need to wait another couple of months before it is transferred to the new owner, you could spend a total of five months without any rental income. You need to decide before you put your place your property on the market, whether or not you can afford to have your property vacant throughout the sale process.
  • Our Advice in the current market. Ideally an untenanted property is always the best way to sell a property, as you have full control over presentation, accessibility and ensuring you have done everything in your power to ensure you achieved the best outcome in the shortest possible time.

However if it’s not financially possible to have your property vacant for the selling period, then talk to your tenants first. Often if you have a good tenant, it’s worth negotiating some sort of incentive to them for helping you. By allowing you accessibility at short notice, and presenting the home to a high standard at all times, as a seller you should be prepared to offer them a rent reduction during time that the property is on the For Sale market. This can be the difference between you securing a buyer, whilst maintaining an income stream, and having a difficult, long drawn out selling period with your tenant.

Please make sure to factor in the above considerations in your calculations, as even though selling a property with a tenant might provide you a short term income stream, it doesn’t mean that it will provide you with the best long term outcome.

Selling a tenanted property can be tricky business and there can be potential complications regarding lease agreements. However it’s worth having a conversation with the team at Radi Estates, as not every property or tenant is the same, and we do have many methods and recommendations to help you achieve the best possible outcome for your property depending on your circumstances.