July 18, 2019 | income property
You have a property with tenants. Maybe it’s your own property with a basement unit. Maybe it’s a condo that you rent out. Maybe you own a triplex where you rent out all three units. Maybe it’s an empire of rental properties.
Anyway you have it, if there is a tenant in place and you want to sell this property, there is one thing you should do first: Do your best to have the unit(s) vacant before you sell it.
This could mean you may wish to wait until your tenants decide to leave on their own accord before selling the property, or you may wish to make an arrangement with the tenant to leave that is mutually beneficial to you both.
Of course, any agreement you make with your tenant will have to be done within the boundaries set out by the Ontario Landlord Tenant Act. You cannot force any tenant to leave if that’s not what they want to do.
There are a few instances where having the tenant in a unit during the selling process can prove to be an advantage when it comes to selling. Sometimes, though rarely, it is better to have the tenants there. If they pay market rent and show a good income on your property, it may act as an incentive. If your triplex, for example, brings in good income, that will act as an incentive to land a better price based on the income generated. Investors are going to look at what kind of money your property generates ( a cap rate) when coming up with an offer price.
To be honest, though, that’s usually not the case. Most tenants who have been in place for awhile are paying below market rent in Toronto, and this may effect your sale price if the future buyer wishes to keep the property as an income property. Some tenants may also have units that show terribly. Not great for potential buyers going in.
If you and your tenants come to an agreement for them to leave, remember, it has to be agreed upon and put into writing. It has to be mutually agreed to end a tenancy. You cannot trick or coerce someone into leaving. The law in Ontario states you cannot remove a tenant unless you or a family member are taking over the unit for your own purposes. Then you must live in the unit a full year and give the tenant a free month’s rent. So, you can’t just force tenants to leave by telling them you or a family member are moving in, if you or a family member are not actually moving in. I have seen landlords and landladies falsely tell tenants they or their family members are moving in to a given tenanted property to have the tenants leave. Unless you or a family member are going to live in the tenanted property for a year, you cannot eject a tenant like this. If caught, you can face some steep fines and compensation required to the tenant.
If you find that you will be selling with tenant on the property because they bring in good income, you like them too much, or they would prefer to stay, then I would turn to Plan B: How to sell a property with tenants.
If you do have a tenant that is staying, and you would like to sell, I would recommend that you make sure the tenants’ lease has been in place for over a year and you are on a month to month basis. If, for example, you are selling a condo, you may have buyers who want to live in the unit. If the tenants have only been living in the rented property for three or four months of a one year lease, they do not have to leave, not even for the new owner coming in who plans to use the unit for themselves. If the original first year of the lease is in play, the tenant has protection for that entire year. So, your unit will be a lot less appealing to buyers since any buyers who want to live in the unit, must wait a long time to move in. Most don’t want to do that. If the tenant does not want to leave, and their tenancy is still under one year in length, your bottom line can be seriously effected. Best to wait until the one year has passed. That way, if you need an interested buyer who wants to move in, he or she could give notice to the tenant to vacate (minimum 60 days), and then the buyers could occupy the space.
Now, let’s say your tenants are all month-to-month and past their first year lease. You have no new leases under one year, and they all want to stay. If you want to sell your house with tenants in it, here’s what I would suggest:
- GET YOUR TENANTS ON SIDE It does not have to be a landlord vs. tenant situation. By simply making the tenants a part of the process and offering some basic respect for their time, privacy and belongings, you will make your the sale of your property much more easy for yourself and for them. If your tenant works night shifts, for example, maybe have showings only after 2pm. And remember, unless your tenants agree, all bookings to see their home will need a minimum of 24 hours.
- GET READY TO TROUBLE SHOOT Even the best-est, neatest, most easy going tenants may become Mr Hyde. And in some ways, who can blame them? They may possibly be forced to relocate their home if another owner moves into their unit, and there are rounds and rounds of buyers coming through their home constantly interrupting their lives. They don’t have anything to gain, and a lot to lose. I suggest you offer a price reduction to their rent for their inconvenience. That way, they feel they are being compensated for the troubles they will have during the sales period. If the tenants are not on side, they can prevent you from taking photos of their home. They can make appointments difficult. They can talk poorly to any possible buyers coming through about the property or building, true or not. They can leave out dirty dishes, their unscooped kitty litter, or vintage porn collection. Be proactive here, offer to send a cleaning person through before photos. Be respectful of their schedule. If you have them on side, this process will me much easier.
- DON’T BE AFRAID TO STAGE A TENANTED UNIT Let’s be honest, I don’t think you can remove all of your tenants belongings and stage an entire condo unit. That would be too invasive and difficult. That said, it is worth trying to do a certain kind of staging, but only if your tenants will allow it, so you can improve on what is already there. Remember, photos sell real estate. If your photos look good, buyers will be more receptive.
When you own a property, tenants can be great! I know full well. I have had many tenants over the years. They help pay your mortgage, and in some cases they can be revenue streams to build your wealth. If you are lucky, they will take pride in their rented home. That said, when you sell a property with tenants you need a good plan, and some guidance that will help you maximize the price of your home if you are selling a property with tenants in it.