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Selling a property with a tenant? Here's what you need to know

At first thought, some landlords think it is overly complicated to try to sell a property with tenants in it, but there are workable solutions to consider, which can make the process of selling less invasive for your tenant. If you plan well and make sure your communication is open and understanding of the impact on your tenant, hopefully the process will be a positive and successful one for everyone involved.

Selling a property with a tenant?

Your initial decision to sell will of course be for your own personal reasons, and the outcome of the sale should help you to achieve the financial goals you had in mind. However, in the process of getting your timing and logistics right, your tenant/s might get caught in the middle. Deciding to sell when the market is right, or when you have an exciting opportunity can happen at any random point in time. It’s an unfortunate reality that the point in time may often be right in the middle of a tenant’s fixed term lease. This would mean you have no choice but to sell the house with whoever lives in it as part of the package.

Don’t despair though as this situation can be a marketing solution in itself. Most investors are looking for a ready-to-go investment property, so good tenants already in residence make your property more appealing. Such a scenario also means your tenant will endure minimal disruption as they won’t need to move, and you’ll keep banking rent and covering your mortgage right up until settlement of the sale.

If you can manage to plan well ahead and give everybody plenty of notice, it will certainly make the process somewhat smoother. These basic steps can help you get the best result out of the sale process and hopefully keep your tenants happy too.  

 

1. The tenants must be kept in the loop

As soon as you decide you want to sell, the first people to notify would be your property manager and your real estate agent – who will inform your tenants. As the landlord, you are perfectly within your rights to sell the property but you do have to conform to your state’s specific tenancy laws with regard to your tenants. If your tenants are on a fixed term lease, you cannot ask them to vacate until their lease is finished. They, however, can choose to break their lease under the circumstances. Periodic leases can be terminated however specific notice periods apply. In Victoria, for example, a landlord must give tenants 60 days notice to vacate the property, stating that ‘the property is being sold with vacant possession’. In NSW it is 30 days . You should check with your state’s Real Estate Institute for local terms. In most states you can issue a notice to vacate with no reason if you give 120 days notice.

In addition to conforming to tenancy law, you should also be compassionate about the impact of the sale on the tenants. Their home being on the market has the potential to disrupt their lives in different ways so the more notice and support you can give them, the more accommodating they are likely to be. This is where a respectful, constructive approach from your real estate agent is critical. If the tenants are to stay in the property, they’ll need to adjust their routine around open inspections but it’s way better that these take place at agreed times. Just telling a tenant when your agent will be opening the property for inspection is unlikely to enlist their participation in presenting the property well. The more notice you can give them, and the more consultative the approach, the better prepared they can be and more likely to work with you than against you.     

 

2. Disruptions from open inspections and private viewings need to be minimised

With the house on the market there will need to be times when prospective buyers go through the property to inspect it in person. Specifics around this vary from state to state but landlords always have to give a set period of notice before an inspection, organise the inspections within certain time periods, and can only arrange a set number of inspections per week. In some states for example tenants do not have to agree to more than two inspections per week, while in all states a landlord must give anything from 24 hours to 7 days written notice before an inspection will occur.

The best strategy is for your agent to talk with the tenants, explain the marketing strategy, and agree to the day and time of the week that suits them as well as the marketing campaign’s priorities, then lock in inspections every week until the property is sold. Your tenants then know when they have to tidy up and make themselves scarce, for 1 hour every Wednesday at 10 am and every Saturday at 11 am, for example. Tenants don’t have to leave but not that many choose to stay. In some situations, landlords sweeten the deal for their tenants by offering a reduction in rent during the sale period or a week’s rent free at some point. You can think outside the box too – why not get fresh flowers delivered once a week so the house looks nice for the inspections and the tenants can enjoy them in between as well. It’s only a small gesture but it may take the edge off any inconvenience the tenants are experiencing. If there is any maintenance or work that needs to be done to prepare the property, such as landscaping or painting, work with the tenants to find a suitable time – for example while they are at work - that will get what you need done, without too much intrusion for them.

 

3. Make sure everyone is on the same page and focus on risk management

When you have a real estate agent engaged in the process, work closely with them but let them lead the process. There’s nothing worse than mixed messages and a hovering landlord. It’s much better if the tenants just have one point of contact and one person is across everyone’s needs and managing them well. Make all the important decisions in advance – such as whether you’ll ask periodic tenants to vacate or not, whether you want to do any repairs or renovations, when you want the house to be sold by – and then,have your agent approach the tenant to discuss the next steps. Liaising with the tenants based on their needs, through your agent, will ensure all the things you need can happen too and the agent will then be across coordinating things in ways that suits everyone.

In the event of unhappy or difficult tenants, stick to the rule of the law and let the agent handle things. Be simple, succinct and clear, and make the decisions that will give you the best result. If they have been problematic tenants and you know the sale process will annoy them, consider having them vacate before the property goes on the market and absorbing the loss of rent yourself. It may cost you a few thousand dollars, but how much more will you lose off the final sale price if the tenants decide to sabotage viewings and inspections? All night parties the night before an open house are an agent’s worst nightmare, along with tenants recruiting friends and neighbours to talk down the neighbourhood as buyers arrive or linger around the property looking ominous or threatening. 

 

 4. There are somethings you have no control over

If the tenants will be there during the sale process, you will be largely dependent on them to make the property look great. You will know from the regular condition reports supplied by your property manager during their tenancy whether this will be possible or not. If they have reasonable furniture, pictures on the walls, pot plants and have generally made the house feel like their home then you are in luck. However, we all have individual tastes and their taste may not be the kind that delivers you the standard of presentation you seek. An investment property owner can also consider having their vacant property staged for photography. These images can be used multiple times – when readvertising for new tenants and when marketing the property online. You have little influence over how the property looks now, under the current tenancy, but you do have control over showing off its greatest potential and any good buyer can quickly spot the difference and decide accordingly.

 

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DISCLAIMER

The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions. Click here for full Terms of Use.

Topics: Selling

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