31 July 2017
While many investors still own every investment property they ever bought as part of a self-funded retirement portfolio, there are others who want or need to sell a property because their circumstances – personal or financial - have changed. Is it better to give tenant notice to quit before putting the property on the market or should they sell it while the tenants are still in place?
The obvious answer is to keep the tenants in residence. This incurs the least loss of income and unless the house is really dirty and untidy, it usually presents better with furniture household items making it look lived in.
However, there are times when a tenant in residence could be a financially less rewarding scenario. Tenants who do not want to move can put a lot of obstacles in the way of a sale. They can limit and postpone inspection access almost at whim in spite of legally having to provide ‘reasonable access’ (what is ‘reasonable’ to one person may not be ‘reasonable’ to another). By the time this sort of obstacle is sorted out, valuable time has been lost and many purchasers have moved on. If the market is not trending up, this can result in a lower sale price as the market drops before the property can be sold. Furthermore, if the seller is using the money for another financial project, delays in having the money available could cost them the project or render it more expensive if bridging loans are required.
Disgruntled tenants can also highlight the property’s faults in order to put off prospective purchasers and while many owners are happy to absent themselves from the property to allow the agent to show the purchasers around at their leisure and improve their selling prospects, tenants have no such motivation to leave the property and many more to stay watchfully present.
Sometimes property owners don’t realise that tenants will behave badly in the event of a sale, but there is a bit of basic research investors can do to try and determine whether their tenants will play ball. Ask your agent how easy it has been to get access for periodic maintenance inspections or for tradespeople who have been contracted to carry out work on the property. Tenants who have been slow to concede access for activities such as repairs that will benefit them are highly unlikely to come to the party when they think they will ultimately lose their home to a successful purchaser.
Conversely there are positive steps that can be taken to encourage tenant cooperation long before you ever need to sell – during the tenancy period in fact. If you foster a positive relationship with tenants (through your managing agent) by keeping repairs up to date and being reasonable about requests, most tenants are likely to help out in the event of a sale even if they don’t want to move. And if you are prepared – if necessary - to pay for a cleaner and reduce the rent to encourage tenant cooperation you may be well on the way to a successful sale without making more than a dent in your rental income.