Selling Investment Property to Tenants: Dos and Don’ts

Selling to ten­ants: a good idea or a big mistake?

I have had some land­lords ask me: “Should I sell my prop­erty to my cur­rent ten­ants? They have taken great care of the prop­erty and treas­ure it”. Though this may seem the rational thing to do, but will the ten­ants pay a premium price for your prop­erty? We will go into some pros, cons and the poten­tial costs involved in this process.

Will ten­ants pay the highest price for your property?

Being a land­lord myself I would like to think so. As a real estate agent we often see home buy­ers get emo­tional when buy­ing prop­erty. It could be that your ten­ant may genu­inely be emo­tion­ally attached to the house and may be will­ing to pay a good price for your property.

How­ever from work­ing within our prop­erty man­age­ment For sale or for lease owner selling investment property to tenantsdepart­ment we find that most ten­ants don’t think of your prop­erty the way you do.

For example some ten­ants can feel a sense of own­er­ship or enti­tle­ment and take on fixing/improving things them­selves some­times with or without your per­mis­sion or knowledge.

If they have lived in the prop­erty the many years and made per­sonal changes they start to think that you should reduce your price for what they have done to the prop­erty. Some of these “improve­ments” may have actu­ally deval­ued your prop­erty but they will still expect a discount.

You will also need to think about the wear and tear on the prop­erty when selling. When the ten­ant moves they may need to restore the prop­erty back to the con­di­tion that it was in when they ori­gin­ally signed lease. The prop­erty may be due for new car­pet­ing or a fresh coat of paint.This may help you get more for the prop­erty than if you sold it to the ten­ant in its cur­rent condition.

On the other hand, because your ten­ants have lived in the prop­erty and know it well, they may see past the imper­fec­tions of wear and tear that have occurred over the years and accept it in its cur­rent state.

How to handle your prop­erty manager

If you have a rela­tion­ship with the ten­ants it may be a good option to approach them dir­ectly, but make sure you are a smart nego­ti­ator and don’t agree to below mar­ket price.Seven Hills Real esate agent Working Hard

If the ten­ants are cur­rently in a lease, it may be a good idea to get your prop­erty man­ager to approach them, but keep in mind you are not oblig­ated to sell with your cur­rent prop­erty manager.

Ordin­ar­ily, man­aging agent agree­ments don’t have fees and charges if you decide to sell with a dif­fer­ent real estate agent.

Tip: keep in mind there could be a lease break fee that you may have to pay to the agents and the ten­ants so double check your agree­ment. A good idea is to wait until the lease is up so you can keep your options open.

Another thing to keep in mind when selling is that leg­ally, the ‘con­tract of sale’ should men­tion whether the prop­erty is ten­an­ted or vacant.

Selling to ten­ants pros and cons table

Here is a table that can assist your decision pro­cess, but bear in mind if you do decide to sell dir­ectly to ten­ants, you can miss out on the highest pos­sible price for your property.

Sell dir­ectly to tenants

Sell the mar­ket and tenants

It can be acquired pro­cess with no sign­board out the front of your property

A large sign­board in front of your property

Ten­ants could feel a sense of enti­tle­ment of the work they have done and ask for a lower price

Ten­ant will be com­pet­ing with all the buy­ers in the mar­ket and this may push the ten­ant to pay a higher price than what they expected

No pres­sure on the ten­ants to buy

Ten­ants will have a sense of urgency to buy– they may stick to their legal limit of two inspec­tions per week of buy­ers com­ing through

Save on agent fees

You may have to pay for an agent to get the mar­ket­ing right

The pro­cess can be very trans­par­ent if you have a good rela­tion­ship with the tenants

The ten­ants will have to con­tact the selling agent for information

Pro­cess may be fast

List­ing your prop­erty for auc­tion will involve four weeks auc­tion campaign

Deal­ing with the prop­erty man­ager may be difficult

The selling real estate agent will deal with the prop­erty man­ager on any issues that arise and for ten­ant communication

As you can see, there is not a one size fits all solu­tion for every­body as everyone’s situ­ation dif­fers. I hope this table helps you sort out the easi­est and most prof­it­able option for you.

Ulti­mately, if you hire a good real estate agents to sell your prop­erty on the mar­ket you should be able to get the best pos­sible price for your prop­erty with a lot less hassle. The reason being is that you are deal­ing with an emo­tional buyer that is ‚in the­ory, in love with your prop­erty for which they now have to com­pete for with the mar­ket. This may be just the kick they need to give you the price you want.

About 

Jhai is an award win­ning Inter­net Mar­ket­ing Real Estate Agent for Eld­ers Toongab­bie and Kings Langley. After run­ning his own inter­net mar­ket­ing busi­ness he has now set his own sites for the real estate industry. He observed that 90% of real estate agents did not know how to mar­ket them­selves online. Jhai is now fixed on one goal. To teach real estate agents that they can mar­ket online so much bet­ter than they cur­rently are.

Since then he has been con­sist­ently quoted in the Sydney Morn­ing Her­ald and Real Estate Busi­ness online. He is a reg­u­lar guest blog­ger on TheHomePage.com.au, shar­ing his expert­ise of mar­ket­ing aspects for the Real Estate Industry. His biggest pas­sions are his wife, mar­tial arts, dogs and most of all property.

seven hills real estate agent NSW
Cnr Federal Road Prospect Highway Seven Hills NSW 2147 Australia