Selling a rental property can be a complex process, especially when tenants are involved. Having tenants in the property while selling often makes financial sense for investors. However, timing will play a critical role. You want to ensure you are selling at the right time and retain consistent rental income until the property sells. This can make a big difference to your financial stability, especially if you need to make home loan repayments.
While an investor might be more interested in the property if it has reliable tenants, some buyers are likely to look at the property to make it their own home. Landlords face important decisions regarding whether to sell the property with tenants or wait for them to vacate.
There is an extra layer of complication with tenants in your property. In many cases, tenants facing the sale of their ‘home’ are likely to not be very happy. They may have to find and move into a new place which is both time-consuming and costly. This can include searching for a new property – this can take some time; pay for movers, cleaners, utility connections and find the bond for their new place. This could cost a tenant $2000 - $3000 which is a lot of money. And a lot of reasons not to be over the moon about it.
For a successful property sale, you want to keep your tenants happy at the same time. How can you do that?
Communicate openly with your tenants
Effective and upfront communication is paramount when selling a rental property. It's imperative to inform your tenants about your intention to sell the property well in advance of putting it on the market. Remember your tenant has a tenancy agreement that gives them the right to live in the house. By ensuring everyone knows what is happening can make the process less stressful.
Not only does communication show respect to your tenants, it also gives them an opportunity to consider purchasing. Initiating a conversation with your tenants before the "For Sale" sign appears can make a significant difference in their willingness to cooperate throughout the sale process, which is crucial to a successful sale.
During this time, it’s important your tenants are aware of their rights and responsibilities from the start of the process. You are required to inform them in writing. However, delivering that letter in person so you can discuss the sale and property access would be helpful.
Open homes
Having a good relationship with your tenants and open communication will set you up for success throughout the sales of your property. As you prepare for open homes, you need permission from your tenants to access the house to get an appraisal, photos, for open homes and viewings. You also need to get their permission before publishing marketing that includes any photos of their possessions.
While a tenant can’t unreasonably refuse access, they can set reasonable conditions. This may include limiting access to certain days and times of the week. They can also refuse open homes and auctions at the property.
It’s best to sort a plan that will see you through the marketing process. Ensure all parties agree to it in writing by making sure it is signed by everyone involved.
Provide incentives
Ensuring a steady rental income during the property sale is a priority for many investors. Incentives can greatly influence a tenant's willingness to maintain the property in good condition and make it available for inspections. Incentives you can consider include:
Rent reduction: Consider reducing the weekly rent by $50 to $100 in exchange for the tenants' commitment to present the property in its best possible condition for viewings and staying away during open homes.
Relocation support: If the tenant must move after the sale, offer one week of free rent to assist them in covering relocation expenses.
Small inspection fee: Provide a nominal fee to tenants for accommodating open homes while ensuring they tidy and prepare the property for sale.
Reference for future rentals: Offer to provide a reference for their future rental property applications, enhancing their prospects in securing a new rental.
Pay for professional cleaning: Not only will this help you get the property looking great for viewings, but it will also take pressure off your tenants before photos and open homes.
These incentives not only promote cooperation but also foster a positive relationship between landlords and tenants during the challenging period of selling a rental property.
Selling a tenanted property: advantages and considerations
Selling a rental property while tenants are in residence presents several advantages and considerations for both landlords and potential buyers.
Benefits for tenants:
Continuity and stability: Tenants can remain in their familiar surroundings, providing them with continuity and stability.
Potential lease continuation: The new owner may choose to honour the existing lease, allowing tenants to continue living in the property.
Enhanced market appeal: A tenanted property demonstrates its viability as an investment, potentially attracting buyers looking for income-generating assets.
Furnished viewing: Prospective buyers looking for their own homes benefit from viewing a furnished property, which aids in visualising the space's potential.
Benefits for landlords:
Continuous rental income: Selling a tenanted property ensures that rental income continues throughout the sales process.
Time and cost savings: Landlords save time and effort on finding new tenants, marketing the property, and addressing potential vacancies.
Once the property is sold and the buyer wants the tenants to stay the agreement for sale and purchase should specify this. You will be able to collect rent until settlement day, and then transfer the bond to the new owner.
If the new owner wants the property vacant on possession, you need to remember your obligations under your tenancy agreement and factor that into your sales process.
If you currently have a periodic tenancy agreement, you need to provide your tenants at least 90 days written notice.
With a fixed-term lease, the property must be sold with the tenants in place. The exception is when the tenant agrees in writing to end the fixed-term agreement early. However, if the fixed term lease was granted on or after 11 February 2021 the tenancy can end on expiry or later with 90 days written notice.
Selling a vacant property: advantages and considerations
Alternatively, some landlords may opt to sell a vacant property, which offers different advantages and considerations.
Benefits of selling a vacant property:
Facilitates repairs and renovations: A vacant property allows for easier completion of repairs or renovations before the sale.
Ease of property maintenance: Keeping the property tidy for open homes and viewings is more straightforward when it's vacant.
Streamlined sale process: The sale process can be faster without the need to coordinate with tenants for access and showings.
Whatever option you decide, selling a rental property requires careful planning and consideration. Whether you choose to sell with tenants in place or wait for the property to be vacant, open and transparent communication with tenants is crucial.
Understanding the rights and responsibilities of both landlords and tenants throughout the sale process is essential. This will allow for a smooth and successful transaction. Ultimately, the goal is to achieve a mutually beneficial outcome, ensuring clarity and stability for all parties involved.