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September 10, 2020

REAL ESTATE'S GREATEST DANGERS – HOW TO AVOID THEM THROUGH SMART DECISIONS - PART #18 – SELLING WITH A TENANT

Property investors are rich!

This is an assumption many people make, and it is frequently wrong. Most property investors are not wealthy. They often experience hardship in the pursuit of a secure future for themselves and their families.  

The reality of residential property investment is a tale of everyday people having a go. Most property investors are normal people with average salaries. Sometimes things go wrong, employment or business opportunities change, tenants get in arrears and properties always need maintenance.

If circumstances dictate an owner needs to sell with a tenant in place, certain dangers must be addressed.

Firstly, if a sale is on the horizon and finances are tight most banks are negotiable when it comes to suspension or minimisation of repayments while waiting to sell.

Secondly, check the lease. A periodic lease can be terminated with the correct notice at any time. A fixed-term lease is more problematic.

A fixed term entitles the tenant to stay until the end date of the lease, regardless of ownership.  This narrows the field down to a buyer being prepared to inherit the tenancy - most likely, an investor. Any time the buyer field is narrowed, the selling price is liable to be lower.

Through effective negotiation, tenants may agree to move out. Compensation such as moving costs or a cash incentive may help.

A good tenant caring for the property assists when selling. Compensation such as a reduced rent is a gesture of goodwill that is more often than not repaid with a supportive tenant.

A rogue tenant can make a property very difficult to sell. Presentation will be sub-standard and inspections difficult. Buyers often don't give a property like this the same consideration they would to a vacant property.

Depending on circumstances, it may be best to give notice and wait for the lease to expire or have the rogue tenants removed for breach of tenancy. Once the tenant vacates, the property can be restored to a saleable standard through some hard work and repairs as necessary.


This article is an excerpt from “Real Estate’s Greatest Dangers – How to avoid them Through Smart Decisions” written by Andrew Trim – Managing Director of the Johnson Real Estate group - To receive a free please email mail@goulburnre.com.au and we can post a copy to you or visit our office at 148 Auburn Street.