Thinking of selling your Toronto real estate investment? Tenanted properties come with unique challenges when selling. Here’s what you need to know:
- If your tenant is in a lease, the tenant has a right to stay. It doesn’t matter if a new owner wants to move in, the lease obligations transfer to the new owner until the end of the lease term.
- If the tenant is month-to-month, the new owner may move into their space. Minimum 60 days written notice (from the first of the month) must be provided and the new owner must occupy the space themselves (or rent it to a family member) – they can’t simply kick the tenant out and rent it to someone else.
When should list your tenanted property for sale? Should you list it while your tenant has a lease in place, at the end of their lease or wait until they give notice that they are leaving? Timing the sale of your investment property depends on a few factors:
- Your Target Buyer If your target Buyer is an investor, the fact that there’s a tenant already in place, and a known rate of return may be a benefit to the Buyer. Of course, if you aren’t charging your tenant market rent, that will be a deterrent to investors. If your target Buyer is an end user (in other words, someone who will move into the unit themselves), then you’ll want to time the listing of the property towards the end of their lease. Remember that once an agreement of purchase is in place, you can provide 60 days notice to the tenant (from the 1st of the month) on behalf of the new Buyer, if they (or their immediate family member) will be moving into it. For example, if the lease ends on July 1st, you could give notice on behalf of a new Buyer as late as May 1st. If condos in your building take an average of 30 days to sell, then you’d probably want to target a listing date of April 1st. That way, if your tenant is in a month-to-month lease, you’ll be able to target effectively both investors and end users.
- Your Goals Your personal financial goals need to be considered when timing the sale of an investment property. Do you need the equity for other purposes? Is your mortgage up for renewal? How would your taxes be affected by a sale?
- The Market What’s happening in the real estate market? Are values in your building or neighbourhood increasing or decreasing? Should you lock in your returns and move on? What’s happening to interest rates?
Keep in mind that you cannot ask your tenant to leave because you want to sell, if they are in a lease OR if they are month-to-month tenants. If you wait until your tenant gives notice before selling your property, you could be waiting for years.
As a landlord, you don’t have the right to stage your tenant’s apartment. You can’t force your tenant to rearrange their furniture, take down their personal photos or keep it clean. Of course, how well a property is presented impacts price and how long it takes to sell. Here are a few strategies to getting cooperation from your tenant:
- You DO have the right to repair anything that isn’t working, give the walls a fresh coat of paint, change the light fixtures or wash the carpets.
- In our experience, most tenants are amenable to their landlord sending in a cleaning service before the property gets listed – who doesn’t want someone else to clean their home?
- Having a good relationship with your tenants, or allowing your real estate agent to build a positive relationship with them, will go a long way to helping the sale. Happy tenants will be more open to de-cluttering and preparing their apartment. A fast sale is to your tenants’ benefit too.
It can be more difficult to market a tenanted property. Depending on your tenant, you might be restricted in what photos can be taken, or if you have a messy tenant, photos might work against you. Tenants are often not very cooperative with open houses, so reaching potential Buyers can be more difficult. A good agent will market your home online and will have a pool of Buyers they are working with to overcome some of the marketing challenges of tenanted properties.
You have a right to show your home to potential Buyers, provided appropriate notice (24 hours) is given. While it isn’t convenient for a tenant, it is your right. Don’t let your tenants bully you into restricted showing times, but always be respectful of the tenant. A cooperative tenant will go a long way to making the sale happen faster. The 24-hour notice requirement means that you’ll miss out on last minute showings, but with so many investment properties in Toronto, this isn’t unusual.
Ideally, your tenant will leave their apartment during a showing, but again, this isn’t something that you can require. We’ve showed properties where hungover tenants stayed in bed during the entire showing! A simple request from your tenant might resolve this obstacle.
Other Selling Considerations for Landlords
- If you’re thinking of selling an investment house or multi-unit dwelling soon, don’t sign new leases. You’ll get a higher price for your house if you are targeting both investors and end users who want to live in one of the apartments themselves. Having a vacant apartment is an attractive feature for many Buyers.
- If you’re NOT thinking of selling soon, increase your rents every year. The amount of rent your tenant pays will directly impact the sale price of your house. Because the lease transfers with the property, a tenant who is paying below market rent will mean the new owner will take in less income than they would with a comparable property, and that will make your house less valuable (read: lower price). Always charge market rent to a new tenant, and always increase rents annually by the amount allowed by law.