Ever wondered if an investment property can be sold while the tenants are still in it?
The short answer is yes. But there are several things to consider when selling a property with a tenant in it successfully.
Considerations when selling a property with a tenant in it
1. Fixed vs periodic leases
First, understand the tenants’ rights under the lease type.
A landlord can’t terminate a fixed-term lease simply to sell a property. A fixed term lease is when both tenant and landlord have agreed to a specific length of tenancy, for example, 12-months from 1 June 2021 to 1 June 2022.
If a fixed-term lease is in place, neither the current nor the future owner can make the tenant leave without a breach of their lease. If the fixed-term lease has ended, the tenant is still entitled notice to vacate. This notice period can change depending on the state or territory the property is in.
If the tenant is on a periodic (ongoing) lease, they can be asked to vacate once contracts are exchanged but the required notice period must be given, which can be go up to 90 days. Having to find a new place to live could be extremely stressful for the tenant, so be considerate and give as much notice as possible.
If the property is sold, the new owner will also be bound by these requirements. They must honour a fixed lease and provide all relevant notice periods.
2. Incentives
If the goal is for the tenants to stay during the selling period, offering incentives to stay may help. An incentive could come in the form of reduced rent, free yard maintenance or end-of-lease cleaning. Remember, expenses such as cleaning and maintenance are fully tax deductible to the investment property owner.
3. Open homes
The tenants are probably used to having a routine inspection every six months. Once the property is for sale, inspection frequency can change to weekly or even several days a week.
Having prospective buyers through the home on a regular basis is an inconvenience to tenants. Make it easier by giving plenty of notice (more than the required minimum when possible), adhering to time restrictions on access and by maintaining communication with the tenants.
It’s also important to note that auctions cannot be held on the premises without the consent of the tenant.
4. Tax deductions
If the property is ‘genuinely available for rent’, all tax deductions can be claimed. This includes interest repayments, insurances and depreciation deductions.
If tenants are staying while the property is for rent, these tax deductions can still be claimed until the property is sold. But if the tenants have vacated and the property remains empty, they can’t be claimed as the property is no longer ‘genuinely available for rent’.
A BMT Tax Depreciation Schedule allows you to claim depreciation deductions for the lifetime of your investment property – from as soon as it’s advertised for rent, until the very end while it’s genuinely available for rent until it’s sold.
To learn more about BMT and their investment services, contact the team on 1300 728 726 or Request a Quote.