Time for me to sell...how to deal with tenant

[trev]

i have some single family units in Ontario. townhouses, semi detached, detached.
we have decided to start liquidating to free up cash for other ventures.
All units are tenanted.
All tenants in good standing.
All leases expired so tenants are month to month.
in my opinion we will get the best value if we get vacant possession, clean them up, update where advantageous then list the property.
sounded easy enough. Then started researching and heard things like serving a form once i had an APS, which would mean listing and showing with the tenant in, and in the current condition. also rules about compensation.

Any tips on a smooth transition from tenanted to market ready to sell for best price?

 

[Thomas Beyer]

Indeed that is THE Achilles heel of investing in rental properties as you do a “change of use” when selling at best possible price, namely from a rental property to an owner occupied one.

The best strategy is to wait for tenant to move out, or give them strong incentives (say $12,000) to move out.

Selling with tenant possible but expect deep price discount, non-cooperation, hostility even and many potential buyers that simply won’t write an offer until empty.


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[Michel Lafleur]

I think the best sale price will depend on the property & situation. In general single family homes are better sold vacant. May be better to update one unit at a time (ideally as they go vacant) before you sell them.
Many owner-occupied home buyers dont want to buy "a rental." Best to sell the property vacant & cleaned if thats your target market.
If they cashflow as rentals (for a buyer putting 20% down with current mortgage rates & current rent), investors may be interested in purchasing with the tenant in place.
If you have multiple properties, I'd suggest speaking with active investor Realtors in your area. May be a good protfolio purchase for someone with commercial financing available to them.

 

[Thomas Beyer]

Investors don’t pay full retail price for a rental property with a tenant in place in almost all cases esp in rent controlled rent capped provinces. To get full price you need to sell vacant. Of course that is best done after tenant has moved, after cleaning and sensible renovations & upgrades and potentially even staging.

A portfolio sale is possible but expect a 15-20% discount to market.


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[trev]

Thanks for the replies.
I do agree, vacant and cleaned up is the only way to go. I hate to go to 12k but I can see it if I had to sell.
I'm thinking to set up my realtor to go thru them all and see if anyone bites at a lower offer, say 2 months rent to avoid the hassle of me scheduling showings and open houses. See if anyone bites. Up the ante after that if need be

 

[Thomas Beyer]

Thanks for the replies.
I do agree, vacant and cleaned up is the only way to go. I hate to go to 12k but I can see it if I had to sell.
I'm thinking to set up my realtor to go thru them all and see if anyone bites at a lower offer, say 2 months rent to avoid the hassle of me scheduling showings and open houses. See if anyone bites. Up the ante after that if need be

Ask tenants if they wish to buy too


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com

 

[Willyboy]

I have a question for you. You say all leases are expired and now they are month to month. My question is since you have been planning on liquidating why didn't you get possession of your rentals upon expiry of each lease and keep them vacant until they are all vacant and then you could list for sale?

 

[Thomas Beyer]

I have a question for you. You say all leases are expired and now they are month to month. My question is since you have been planning on liquidating why didn't you get possession of your rentals upon expiry of each lease and keep them vacant until they are all vacant and then you could list for sale?

You can’t in Ontario or BC. Leases go month to month automatically. You can’t force a new lease into an existing tenant or just terminate it. You can evict only for cause, such as non-payment of rent, property damage, nuisance to other tenants, illegal acts, violence or personal use. None of this applies in this case.


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com

 

[Willyboy]

You can’t in Ontario or BC. Leases go month to month automatically. You can’t force a new lease into an existing tenant or just terminate it. You can evict only for cause, such as non-payment of rent, property damage, nuisance to other tenants, illegal acts, violence or personal use. None of this applies in this case.


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com

Thanks. So in Alberta where the rules are easier in this regard and buyers can probably deal with a tenanted property easier do you still think it's better to sell vacant like a four plex for instance with all four units vacated? And if it's better but the seller lists the multi-unit tenanted do you think it will get a significant discount same as in BC and Ontario?

 

[trev]

Thanks for the advice. Thought i would update everyone on how it went. My experience is that most tenants do not know all their rights, so i decided to test the waters. i sent out this email

Dear…………...
Due to some personal and family issues, my partner and I will need to sell a few of our units in the spring.
I will be passing your contact info along to our realtor. She will make arrangements with you to have a look thru all rooms to assess condition and give recommendations to us and estimated market value.
Once she reports back to us we will decide which units we are going to put on the market.
There are a few ways we could proceed with the process

If you are in a position and would entertain purchasing the unit as your home please let me know. It could be a win / win for all of us. If we don’t have to go thru the process of listing the property and paying commissions to the realtors we could certainly accept a below market price from you.

The second option is for us to come to mutual agreement to end your tenancy. We would then wait till that time to list the property and you would not have to deal with our realtor scheduling showings or open houses. We would be looking to have vacant possession February or March.

The last option is that we list the property, schedule showings or open houses and give notice once we find a buyer.
We do understand that this may come as a shock and is an inconvenience for all of us.
We appreciate your cooperation thru this process.
Please let me know if you have any questions or concerns.
Thanks

i sent this out to 10 tenants. All but 1 replied. Not one of those who replied said anything about not having to leave. The questions i got were how soon they had to leave. I had no trouble getting 5 of them (that was how many i wanted) to sign an N11.
1 asked for a months rent, 1 asked for 1/2 a month, to help with moving cost, which i gladly gave. the rest just signed. 4 of the 5 are out, the 5th is moving this weekend.

You never know until you ask

i did learn one other thing. once you have a signed N11, file an L3 application to lock it in. the board will send back an order to you and the tenant stating that all parties have agreed and that the landlord has the right to arrange the sherriff immediately needed. It does give the tenant about a week to dispute, but otherwise it would be difficult for them to get it put aside. the application fee is $190.
I was advised to do this immediately. in the 2 or 3 months between when they sign and agreed to leave, they might find out what rights they have, and the process to gets easier for the tenant to cause trouble
I did this for all of them. in hindsight i did need any of the orders.
I look at it as cheap insurance.