How to maximise the return when selling an investment property.
Some selling agents do not like tenants; they believe tenants are unhelpful when presenting a property to buyers. These agents will tell you to move them out and hire furniture that suits the property better to ensure it is presented perfectly to the tastes of the target market. Some agents will claim it may be the difference between getting a sale or missing out.
In some cases, this advice might be justified. However, the reduction in income and the expense of staging your property warrants a closer look at this strategy. Moving a tenant out should really be the last option and not the first when selling your investment.
Tenanted or vacant
Always look at the numbers to see if they can provide any help on whether a tenant should be moved out before selling. The average time for a sale to be negotiated in Sydney and Melbourne is about 60 days.
If you move a tenant out, there will be seven to nine weeks in lost rent before your house is sold. The average settlement period after contracts have been exchanged to when the money finally reaches your bank account is about nine weeks.
These numbers suggest there will be 16 to 18 weeks of lost rental income if you move a tenant out. Why then are agents so quick to suggest getting rid of them?
Generally it’s because the 16 weeks of rent comes out of your pocket and not theirs! The real question for you is: would a tenant’s presence reduce the value of my property by more than 16 weeks’ rent?
In many cases, it would be unlikely for the occupancy of a tenant at a $500 per week property to reduce the final sale price by more than $8000. The average buyer looks for about three months before selecting a property to purchase and most inspect many properties during the search.
Buyers are aware of what they are looking for and what constitutes value for them. If the property’s presentation is respectable the right buyer will look past your tenants and focus more on the features of the property.
The rental market is not always easy for tenants. Rents generally rise over time and most tenants would prefer to compromise with the landlord rather than move out. Offering a slight reduction in rent to the tenant while the property is on the market will help to ensure the property continues to generate income. In return, the landlord could ask that the property be presented well and that access times for inspections be agreed upon in advance.
A tenant is more inclined to be supportive of your desire to sell if their personal circumstances have been respected. Even though a landlord owns the property, it is still the tenant’s place of living and their ‘home’. ‘Open inspections’ invade a tenant’s personal space.
When an owner-occupier decides to put their home up for sale they do so with the reward of a sale at the end of the day. For a tenant, however, a sale means they must move out and find a new home to rent. Therefore, when they have lots of strangers traipsing through their home two or three times a week for a negative result for them, the relationship between the tenant, the landlord and their agent can quickly deteriorate.
A happy paying tenant benefits the seller.
With a rent reduction, inspections by appointment and a professional cleaner enhancing the presentation, the tenant is far more likely to support the sale campaign.
As a seller, the upfront cost is minimal. The upside is that the little money you have spent is just as likely to result in a sale as was moving the tenant out and hiring furniture.