Selling IP with tenants

I am going to sell IP in an area where most homeowners are living in Brisbane. The tenancy agreement is not expiry until the next 12 months. Thought I offered compensation for relocation but the tenants rejected to move out.

If tenants are staying, then I have very limited potential buyers. Also, I cannot do renovation before selling the IP.

What are the best approaches in this scenario?

 

You can sell an IP with tenants in it. It’s just going to be a lot harder to organise opens.

Just make sure you build a really good relationship with the tenants so they aren’t too fussy with opens. May be offer some incentive (2 weeks free rent) to win their cooperation.

Your other problem is that you will be limiting yourself to just the investors as no owner occupier would want to buy a house with a 12 months remaining lease on it. Not many investors in the market at the moment unfortunately so be ready for longer time on the market or price the property accordingly for a quick sale.

Good luck!

 

The main consideration is what you have already identified - limiting potential buyers. Not all home buyers want to have tenants in their property prior to moving in, even if for a short while. Some also have a general aversion to buying an ex-rental as the perception can be that it's not as well maintained as a home, which to be honest is generally true.

If would run it off market with an agent who you're comfortable with to ensure you don't have a digitial footprint of online marketing and if you get no bites, just let it rest until the lease expires.

- Andrew

 

How much did you offer them to relocate? I'm considering doing this for one of my properties, although the amount of time left on the lease is only 3.5 months.

 

Wait until the tenants leave?

 

4 weeks rent

 

Do you have a good reason to sell it now? Calculate the expected discrepancy in sale price today if sold off market to an investor, rather than an oo. Then compared this to waiting until the lease expires and the anticipated price you would get then for a vacant house after a refresh. You may find that there is little difference between option a and option b if there is a minor price correction over the next year, or if your have negative cash flow while holding.

 

I did think about these options but who can tell the future market and who can know how much market will drop by next year to quantify the differences and select the best option?

 

reason foe sell to cash up and buy in a different market where price will drop

 

You cant know but you can have a general understanding for whether your property is highly sort after or not. We sold with tenants in place at the end of 2021 and my agent worked his magic on the tenants and the buyers agent he deals with. We had a sale in three days, full asking price. To us, cash in our hands was worth more than waiting it out longer. Your personal situation will be different from ours.

Once you do the maths, give your reason for selling a dollar value and see how you go after a good night's sleep.

 

Looks like a good reason to sell. If Brisbane drops say 5% by the time the lease expires, how much more will Sydney drop in that same time? Maybe a good reason to wait?

 

That would barely cover their moving and relocating expenses!

And given the tight Brisbane rental market, they would probably struggle to find alternative accommodation.

 

Agree with the above. An offer of 4 weeks payment to terminate a 12 month lease is barely worth even replying to.

 

You really have only 3 options:
1. Offer the tenant more money to leave.
2. Sell now with the tenant in place.
3. Wait until the lease ends, renovate and sell.

 

How do you know that? It's not a fact, it's an assumption.

Why bother renovating before selling?
The cost and time required may not give you that much of a benefit when you sell anyway.
Have you done the actual figures on this?

 

Could be missing lots of opportunities then, I've had several clients buy where they want to live, with existing tenants, just collect the rent until the lease ends then they move in. Only people desperate to move in right away would not consider doing just that...

 

In SEQ right now, with the well publicised shortage of available rentals, selling a vacant property will appeal to a much wider market than selling with tenants in place. An OO buyer won't want to adopt an existing tenant in case they find they can't get rid of the tenant when they need to at the end of the lease because the tenant can't secure another rental. An investor might want to choose their own tenant, and given the competition for rentals right now they know they won't run the risk of a long vacancy