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Discover the secrets of successful property management and investing on "The Property Investors Handbook" podcast. Join Colleen Sutherland as she shares expert insights and strategies for acquiring, managing, and maximising returns on real estate investments. Whether you're a beginner or seasoned investor, this podcast is your essential guide to navigating the world of property investment. Tune in and unlock the keys to financial success in real estate.
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Hello and welcome back to the Property Investors Handbook Podcast. Today we're tackling a common scenario in the real estate market, selling your investment property while it's occupied by tenants, which probably happens a lot, I would imagine. It's a situation that, It does require careful handling to respect the rights of the tenant, but meet the owner's needs as well.
Joining us again, our, our expert in property management, Colleen Sutherland is here in the studio. Colleen, great to have you here again.
Hi Adam.
Okay, so, let's talk this through. What are the first steps? You've got a tenant probably, maybe they've been in there a long time, and the owner comes in and says, I'm selling.
I want to sell. What, what happens?
Well, firstly, once the tenant picks themselves up off the floor, um,
It's not good news for the tenant, is it?
Well, no, not in this market because the housing, crisis. is just so tight and, everybody goes into panic mode straight up. Where there's a fixed term tenancy, over the property, the tenancy takes precedence over a contract.
Right. So that's the first thing I want to ask. So, it gets sold, they don't have to move out? Not straight
away. So if it, um, if it's an investor, that's fine.
It just keeps going. Yeah, it'll
just be renewed. But if it's sold to an owner occupier, Yeah. property for sale, and we do let our owners know this, that they need to have, discussions with the tenant first.
Firstly, they have to be issued with a form that it's going to be signed. sale. Right. But the discussion around the tenancy has to be had and has to be included in any contract.
Right. Okay. So that has to actually be included in the sale contract. It
does. Right. Unless the conversation goes down the lines of the tenant will move.
If an owner occupier buys it and wants to move straight in and that has to be an agreement that the tenant has to agree to that, they'll move early. Meaning, if your lease doesn't expire for another six months, and the property sells to an owner occupier, the conversation has to have gone down the lines of, Hey, Mr.
Tenant, would you be willing to move? So sometimes the tenant will agree just to move. As and when the
place is sold. Yes. Or even, can they opt and talk to moving even before it's sold if that's something they'd like to do? Yes. Yep.
It can be. And there needs to be an agreement with the landlord and the tenant.
Because the landlord is the seller.
Right.
And the tenant, what is the tenant going to do?
So, unpacking this a bit, they decide to sell, a notice goes to the tenant, then there has to be a conversation to decide, what are you going to do? A, you can move, will you agree to move, Before or when the property sells?
Yes.
Or are you planning to stay till the end of your lease?
Correct.
Right, okay.
So, if the conversation goes along the lines of, yes, the tenant will move, but you need to pay my moving costs.
Right, so there might be a bit of a negotiation around that.
And it's usually calculated out, Per Week So it's not, well, I'll get some quotes to get the removal truck and it'll cost me this much to relocate my power and stuff like that.
Or, a simpler version would be, I'll give the tenant one month's free rent. Right. Meaning You know, times four of the weekly rent, you get that, and you need to move by this date. But the tenant has the upper hand there, I can't stress that enough, because so many times I've seen property sell, and then the tenant goes, well I'm here until next June, and like, oh, I didn't know that.
You know, and then, the argument begins. Right. So, you need to make sure you've dotted all your I's and crossed all your T's before you even list the property. Is
there, when they have this discussion and the tenant gives them their intention at that point, Is that put into writing or into an illegal agreement so that they have to go at the time they said they would?
Right. They
do. So, it is put in writing. So yes, the tenant will move and I'll move in six weeks time. You need to give me four weeks rent and that gives him plenty of time to find another place. But, then that mutually ends the agreement. However, if the tenant doesn't move,
i. e. changes their mind,
yes, then it's a QCAT matter because it has to go before an administrator to make that decision.
Does that generally happen quickly? Because, right. So effectively the tenant does have the upper hand because if they take that line, they're, they're buying themselves more time and there's not a lot, the owner, or the new owner. Yeah. So it gets tricky. The agent plays a vital
part in, in maintaining those relationships now between the seller, the buyer and the tenant.
Sure. The most. Landlords who do want to sell, want, it would have to be a benefit for them, wouldn't it, to have the agreement that the tenant is going to move out at, at or before sale time, because it would, it would knock out a few buyers, wouldn't it?
It does. Yeah. So it also, is the way we market the property for sale to say, whether it's vacant possession, meaning the tenant, agrees to move out or it, you know, we have to list there that there is a tenancy in place until this date.
Right.
So that might knock a lot of buyers out or a lot of buyers will go, Oh, I can wait four months, six months. And then the process of having
a tenant
move out after that.
But if I'm understanding this correctly, then Let's talk about that awkward situation where they do agree, it's marketed as, taking it over as vacant, uh, vacant possession and the tenant does change their mind or can't find another place or for whatever reason says, look, I'm not moving, I can't or whatever.
It then becomes the new owner's problem. Is there any onus on the seller at that point? Because they've gone into the sale. Stating it would be on the basis of what the the tenant has said and then that hasn't hasn't occurred
What normally happens is settlement won't occur until the property's vacant,
right?
So though it's
still the seller's responsibility and not the buyer. Gotcha Unless he the buyer has full faith that the tenant will move. I'll settle. Yeah, I can't get the tenant out There is always a process of having the tenant move You know, you can't just boot them out, change the locks. Of course.
That's old school. Yep. But yes, I wouldn't settle if I was buying a place with a tenant in there until there was vacant possession. Sure. So that property manager has to do all things to make sure that the property is available for settlement.
Sure.
But that's only if they're moving, if that was the agreement.
Sure. Okay. Now, Next thing I wanted to ask is about, access and the rights and responsibilities for open homes and viewings, because that's a whole other kettle of
fish. That's a whole nother, kettle of fish. Yep. We do still need to give the tenant notice that, 24 hours notice that we're coming through to show a prospective buyer.
Just 24
hours. Yeah. We've organised, and again, this is where your, conversation with the tenant prior to listing comes into it, we've organised certain times that we can come through.
Right. On an ongoing basis. Yes. Tuesdays between 2 and 5. Until there's
a contract over the property.
Right.
So yes, Tuesdays at 5 o'clock, Saturdays at 10 o'clock, and we can only go in those times. You've got, also the presentation of the property.
This is, this was what I was about to talk about and we can, I've got a few things I want to ask about this.
Is there any onus on them to make sure, so they can do what they want?
They can, as long as they're within the tenancy agreement of looking after the property.
Right.
So,
as long as they're ticking all those boxes that they've always had to during their, which There's certain things, but it doesn't say it has to be immaculate and look its best, does it?
No. And you know, some tenants, their furniture is not that showroom stuff. No. Or they've got little children and it's hard to keep the place clean with little kids. one of the ones I had, I'll just let you know, I had was I took some people through and she was fine with it. She was at work, but she had her smalls hanging everywhere.
Oh. And it's sort of like Oh, and we can't touch anything of theirs, so we had to sort of work around the inspection to say, look, the tenant's done a load of washing this morning.
Just be aware. Yeah,
so that was probably one of the embarrassing things. But, yes, the tenant still lives as normal. You know, they are living there.
And I would imagine as per an inspection, they can choose to be there or not.
That's right. But that's the same with a routine inspection as well as a inspection for a buyer.
Yeah, that's what I meant. As long as we've
given the right amount of notice.
Yep.
Do you, in your, you know, in your experience, what did they generally choose to do?
They generally, or was it a mixed bag?
If you've got a really good rapport with the tenant, it's relatively easy. If you have got a difficult tenant, they can make it extremely difficult to get through. So what I often recommend to a landlord who's going to become a seller is that you list it towards the end of the tenancy and then you don't have any of those problems.
Right, yep. And I guess you probably advise your landlords, you know, that regularly with communication things that, you know, as and when the time comes to sell, bear in mind that, cause it can make things so much easier. Yes.
I have that conversation individually with landlords. I had a landlord recently who had listed with another agent.
Because she was able to give him a higher price. Yep. Uh, listed it with them. The tenant still had six or seven months left on the lease. And he found it extremely difficult. The tenant wasn't letting them in because the tenant didn't know that other agent. Not letting them in unless they were there.
Did not, cause they didn't want the property sold, so when they, when it comes to that. In the end he took it off the market, because your tenant is making it difficult. And I'm there, well it's not my tenant, it's your tenant, but they can. Yep. You know, if, if they want to make it difficult, they can.
So, he had to, he chose to withdraw it, he'll relist it again in the new year, closer to the end of the tenancy. Yep. But the problem there is, he's paid, he'll have to pay two lots of advertising, and that can get expensive. So, I'm not saying, to landlords, oh, wait towards the, till towards the end of the tenancy.
Just because I want the tenancy, it's because, yeah, it's easier to sell.
It opens
up the market to owner occupiers and or investors.
Yep, and you can probably present it a little better, you know, I mean, in a lot of cases having it, Empty, and cleaned, would make it much more presentable than what it would be going through with tenants there.
What sometimes what happens is the tenant will follow the potential buyer and the agent around, and you've actually got to tell them to go sit down, don't follow me around. But they're so distrusting. Sure. Of agents they don't know. That's the problem.
Yep. But again, like you said, leaving it towards the end, or even once they're gone, that the place is empty, you can go view at any time.
Correct. You can tell people drop around, have a look in the backyard, you know, cause there's no one there. So. That's right. And,
but what the landlord seller would have to take into consideration is that if we move the tenant out, and make it easier to sell, but when we move the tenant out, you've got the holding costs.
Because there's no rent coming in. Yeah,
exactly. So you've got to weigh that up too. So you've got to go and do some sums. There's a lot to, to. There's a lot
to consider, but I think if you've made that, all those decisions, makes it a lot easier to sell and you have a lot cleaner.
Absolutely. Absolutely.
Now look, this has been a really interesting topic to talk about. And look, so many takeaways from this episode for both landlords and tenants. And the buyer. And the buyer, yep, as well. There's so many people playing. Then you've got two sets of agents, the property manager, All trying to make this, this thing happen.
So, a lot of really good advice there for, for everyone. So, look, thanks. Thanks, Colleen. This is truly one of my most enjoyable episodes. I've, I've mentioned a few times here. I'm a tenant and this is something I've. Often, often wondered about. Thankfully, I haven't had it happen while I've been in a property, but now I, I know what it, um, what it's all about.
So look for any of your, your property management needs, please go and visit, Colleen's website at
s p l e Mg, SP mg,
spmg.com.au. All the contact details are there. And of course, there you can also listen to any of our previous episodes. We're, we're now up into the, into the mid forties. Oh, are we?
We are. So there's absolutely everything you could wanna know there. And, yeah, have a listen. pick and choose the, the topics that, you know, are pertinent to you. It's all there. So, once again, Colleen, thanks for coming in.
Thanks for having me.