Sooo…..You Want To Sell Your Tenanted Property?

Why?

Why aren’t you waiting until the tenant leaves?  You’re really going to list it for sale with the tenant still there?

Are you lazy?  Cheap?  Uninformed?  Or all of the above?

Just listen to my story from this past weekend, and use it as a cautionary tale.  You’ll say “Oh, my tenant isn’t like that,” but do you really ever know for sure?

BadTenant

“One month’s rent.”

That’s what I told a prospective seller on the phone last week when she asked me, “How much would I lose if I did it your way?”

My way?

Isn’t it: the only way?

Let me back it up…

She had her unit on the market for two months, unsold, which in itself raises a red flag.  The listing expired after 60 days, and she called me to ask what I think she did wrong, and what she could have done differently.

Sure, price was an issue, as it most certainly always is in Toronto, when you’re on the market for two months.  But the bigger issue was that this landlord/owner was trying to sell the condo with the tenant still living there.

There were no photos of the property on the MLS listing, which is about single-easiest mistake a seller can correct, but is also among the most common, and the seller told me, “The tenant said I couldn’t take photos of the unit because her personal property was inside.”

Geez.  A budding law student, perhaps?

Regardless of what you think is fair, you’d be nuts as a condo owner to not take photos of YOUR condo when you want to list it for sale on MLS.  We can just photo-shop out the DVD Box-Set of “Girls”…

So along with the high price and lack of photos on MLS, came the fact that the tenant demanded, as is her right, 24 hours notice in WRITING, to show the condo.

And this is when I simply said to this lady, “You have to get rid of the tenant, and sell the condo after she’s vacated.”

Sounds simple, right?

You might even say it sounds……obvious?

But this lady, who was very kind, very personable, and seemed very smart, absolutely refused to “lose” a month’s rent.

And she freaked when I told her, “Who knows it could be two months rent, in the end.”

I told her that she was dealing with an asset of major value, and in no way should she sell it unless the price of the asset is maximized to the fullest.

If the theory doesn’t move you, then how about the numbers.  The condo is worth about $380,000, and rents for $1850/month.  Let’s say the tenant vacates on March 31st.  You get painters in on the 1st of April, followed by stagers on the 2nd, and then cleaners on the 3rd.  You list the property for sale on the 4th, and if you can get it sold in two weeks (I told her I could), and obtain a quick closing (vacant properties often close in less than 30 days), you end up “losing” about 1 1/2 month’s rent – $2,775, and you’ve spent $1,500 on staging, and $200 on cleaning.

That’s the best $4,500 you’ll ever spend.  And you didn’t really “spend” the money that we’re counting in lost rent.

Alternatively, you can continue to let the unit rot on the market, show poorly, and have a tenant cause you issues.  You can easily end up getting $25,000 less for the condo because of this.

If you think I’m exaggerating, or you don’t believe in the value of staging, or both – just listen to what I witnessed on the weekend.

I wanted to show a Yonge/Eglinton condo on Saturday afternoon at 12:00pm, and because the property was tenanted, I made a point of making the viewing request on Wednesday.  I called back again on Thursday, and again on Friday; each and every time, never getting a confirmation.

I talked to the listing agent who said, “This tenant is a disaster, and he never gets back to us.  He seems to think that if he just doesn’t get back to us, then we’ll go away.”

Yeah, that’s pretty common among tenants!  And most of the time, it works.

So you have all these buyers who want to view the property, and all these buyer agents trying to get in, but it’s not uncommon for a problem tenant to cause 80% of showings to fall through.

And when 80% of showings fall through, it not only means there’s 80% less chance of an offer coming in on the property, but also that the property sits on the market longer, and the seller’s leverage decreases with every passing day.

The listing agent for this condo was able to get me an appointment (I was very persistent), and at 12pm on Saturday we headed over for a look.

I put the key in the lock and turned it, but it was hollow – and by that I mean that the door was unlocked.  Never a good sign…

I opened the front door, and to quote Jerry Seinfeld, “like a punch in the face,” I was instantly hit with the wicked stench of beer and cigarettes, that was so incredibly pungent, that I think it’s still in my hair.

“Whooooah,” I said as I ducked back from the door, trying to let the stank go over my head.  Of course, my clients smelled it was well, and hands immediately were raised to cover noses.

The unit was pitch-black, which was odd for 12pm, but it turns out that all the shades were drawn in the living room.

I turned on a light, and saw about ten cases of beer bottles stacked up inside the foyer, and the entire kitchen counter was lined with stale beer bottles.  But not just any stale beer bottles – I mean the ones that have five dirty cigarette butts in the bottom.

I’m not a smoker, and I never have been.  In fact, I am physically repulsed by the smell of cigarette smoke.

But do you know what’s an even worse smell than cigarette smoke?  How about cigarette butts that have been marinating in the backwash of somebody’s beer bottle for 48 hours?

This place was worse than the worst dorm room you’ve ever seen.

And all this was just from the foyer.

I took two steps inside, and that’s when I saw a foot hanging off the couch.

“Hello?” I said, somewhat afraid of what might come next.

But nothing.

I moved further into the hallway, and finally laid eyes on a 20-something guy, passed out on the couch, in his underwear, surrounded by ashtrays, empty liquor bottles, and of course – the cigs marinating in booze.

“HELLO,” I said again, hoping to wake the dead, but this guy was passed out to the point where we could have reenacted the events that likely took place in that condo the night before, and it wouldn’t have woken him up.

I laughed, shook my head, and said to my clients, “Let’s get out of this place.”

A contrarian might suggest, “Well wouldn’t that have been a great opportunity to get a deal?  To pick up a unit that shows poorly for less than fair market value?”

Yes, it would have been.  I’d agree with that, however my clients were just in the building to get a look at any unit, and this wasn’t really a candidate for us.  So I’m not going to suggest that I was influenced by a unit that didn’t show well.

But what about the rest of the market?  What about the rest of the buyer pool?

How many buyers would have gone in there and looked around at the “potential?”  Some, sure, but not most.  Not even close.

And keep in mind – how hard it was to even get into this unit in the first place!  So now you’re excluding 80% of potential viewers, and the 20% who do get inside are likely going to walk right out.

This isn’t how to sell your largest asset, and I refuse to accept anything otherwise.

Some landlords will say, “My tenant isn’t like that!  My tenant is clean and respectful!”  That may be true, but the 24 hours notice still pushes some buyers and agents away (ie. when a viewing has to be today), and even the nicest most respectful tenants still cancel showings.

Tenants also stay home during showings more often than not, and many buyers feel uncomfortable viewing a property when the occupant is sitting on the couch!  They don’t spend as much time in the unit, and never consider it seriously.

Recall the property I mentioned in Riverdale two weeks ago, where the tenant was home, and would not stop talking about all the problems in the house!  She sat upstairs, under the guise of being quiet and out of the way (the listing agent conducting the open house was on the main floor), but every single person that came through the third floor got her unsolicited and uncut opinion of the house.

The house sold for less than most agents thought it would have, and perhaps this was a contributing factor.

A client of mine, who ran into the Chatty Cathy at the open house, said, “If I ever had a tenant, I’d pay them up to $10K to leave for 5 days if necessary.”

There’s a man that understands how to get the most out of your $1 Million asset!

Time and time again, I see properties listed on MLS, tenanted, with no photos, severe restrictions on viewings (one recent house had viewings only Tues/Thurs from 1-3pm; as if that works for most buyers!), and I wonder how somebody smart enough to own the property in the first place, could be clueless enough to suppress the value.

Will people ever learn?

15 Comments

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  1. JP says:

    I had a couple of tenants in my own investment property that went from all sweetness and light to hellish the moment they moved in, and worse when they bought somewhere else and were waiting for it to close.

    When I decided to put the place up for sale, they made showings almost impossible “Friday is my day of rest, and weekends aren’t good for my wife”, every excuse in the book, and those prim and proper applicants turned out to be Pig Pens relatives. So I ended up canceling the listing and waiting 2 months for them to move out and then sell it. Not before having to scrub a kitchen floor that I don’t think had been washed in 1.5 years, and repainting rooms that they’d decided to paint (badly) without my permission – that had been freshly painted before they moved in.

    I sold it and decided then and there that that would be my last experience as a Landlord in Ontario.

    Two years later one of them calls and asks me to do them a “favor” and send a letter confirming rents paid for proof to CRA. Apparently, receipts weren’t enough. Yeah, like that went to the top of my priority list.

    As a Realtor who does a lot of leases I’ve seen it all. Lockboxes located miles away from the property, no word back regarding confirmations, nude Tenants, Tenants in showers, unflushed toilets (for several days by the look/smell of things), yogurt cups and used spoons in unmade beds, Tenants SCREAMING at us to get out despite having confirmations… You know, the usual.

    1. jlmx2 says:

      How did you get them out?? We want our tenants out so we can get in and freshen the place up. They are PIGS. We had it up for sale last spring and then took it off the market. The same bathroom crayon “I Love You Mom” is still on the tub tile over a year later. They have put in faulty wiring which we had to pay an electrician to fix, cut holes in the wall, destroyed, washer (It is so gross I cannot believe she washes her children’s clothes in it), put in a big above ground pool -which has destroyed landscaping, patio door is so scratched from a dog, etc.

  2. Kate louise says:

    Nice post. You have pointed tenants issue very well. We also have real estate agency in Toronto. If you want any assistance than contact us on our website: http://www.rentinto.ca/services

    1. ScottyP says:

      Using TRB’s message board to plug your own RE services, are you?

      Not nice, Kate Louise….

      1. Krupo says:

        The agency uses a 647 contact number (forgiveable) combined with clipart of who they are on the about page (combined, MASSIVE RED FLAG). I think Dave allowed the post through for the lulz.

        Also @P (don’t want to spam in another comment), from what I’ve seen they don’t actually NEED the letter from you for the CRA. CRA doesn’t actually require proof to be sent in on the original return. Now if they’re being audited, that’s another story…

        Dave: remember the time you showed me a house that not only had tenants (actually there were a few of those), but also had pigeons roosting in the garage? Good times.

  3. Bruce Wayne says:

    Schmidtz, it works both ways. Ever see “Pacific Heights”?

    1. Schmidtz says:

      Have you seen “The Tenant”?

      If someone squatted in my place, it would be Saw 4 time….

  4. Schmidtz says:

    It’s pretty easy actually to evict someone. Just need a friend or tow, some ski masks, and a few bats. Works every time.

    1. ScottyP says:

      I used a tow to evict someone once. Messy, but effective.

  5. Ben F. says:

    Problem is, The only way you can evict a tenant is if you or a direct family member (or a future buyer, if listed with a tenant residing in the home) requires the unit for personal use. Assuming of course the tenant is on a “month to month” lease arrangement. If there is a lease in place, and the tenant wants to stay there is nothing you can do to evict the tenant. Let’s say you want to sell and you evict the tenant saying you require possession of the property. If the tenants that have been evicted find out you or a family member have “faked” moving into the unit only to sell the place a month or two later, they can turn around and file a case against the landlord via the housing tribunal. I’ve sat through a case at the Ontario Housing Tribunal where owners evicted a tenant claiming their son was going to be moving in. The son stood up and told the judge that he moved into the unit to fix it up. The judge asked the owners son how long he resided in the apt. The son replied “3 months or so”. The judge said to the owners “well clearly you just wanted the tenant out so you could fix the place up and raise the rent.” The judge then awarded the former tenant thousands of dollars in damages for having to move etc. It equated to about 3 months of her rent plus her moving costs etc. It is VERY difficult getting a tenant out of a rental property they don’t want to vacate.

    1. Potato says:

      You don’t have to evict them. You can come to a mutual understanding to voluntarily leave. If you figure professional movers might be $2k, a few evenings and weekends sacrificed to pack and clean might be worth another $2k, and add on some for their troubles and inconvenience, then for ~$5k-10k you should be able to work something out with most reasonable tenants. And you’ll likely make more than that back on the sale anyway.

      After all, what message does a tenanted place send? If the tenant was good and the place was making money, why would you sell?

    2. reluctanttorontonian says:

      Exactly. I don’t know where this idea of one month’s rent comes it actually. If your tenant won’t leave then you have a serious issue. I tried to sell my house with an obstinate tenant (cheap and dirty but rich and knew the landlord tenants act like the back of his hand) in it. He and his wife left food scraps on the floor, taped up a diaper changing mat on their baby’s room window and left their shoes in their bed (no joke). Perhaps that’s how they lived (could be), perhaps they didn’t want to leave (they didn’t) – the listing expired and eventually I had to throw the lot of them out and take over the property myself. I’m still in it and happy with it but it’s not a question of being cheap, lazy etc, it’s an issue of landlords being pretty much stuck with an idiot tenant unless they want to co-operate. Otherwise, there’s only a few situations in which you can actually force them to leave.

  6. Joe Q. says:

    I’ve also been in a situation when I was a tenant in a property that the landlord had listed for sale. We had an infant at the time. We went out of our way to keep the place clean and tidy, the landlord typically gave us a day’s notice for viewings, kept them during family-friendly hours and we generally (90% of the time) were able to get out of the place for these viewings. The most frustrating aspect was actually late viewing arrivals. We’d leave at 2:30pm well in advance of a viewing scheduled for 3:00pm, stay out until 5:30pm, come home to find no-one had visited. Then the viewing agent would show up with his or her clients at 6:00pm while we were getting the baby ready for bed.

    The house was a former rooming house that the landlord (who was also a Realtor) had personally renovated and turned back into a single-family home. In the end it took him several months after we moved out to actually sell it, and the buyers turned the home back into a rooming house.

    1. ScottyP says:

      I, for one, can’t imagine Joe Q. as a young tenant with an infant.

      Admit it, Joe Q.: You’ve been 45 years old with multiple investment strategies and unparalleled RE knowledge since birth. ADMIT IT!

  7. myeo says:

    Last year I was a tenant in a house that had been divided into three units. The listing agency never gave written notice 24 hours before each viewing. They would call almost everyday and stopped calling when it became apparent my co-tenant and I were not impressed with the daily viewings. The listing agency then would just allow people to come in without notice. This was not a good strategy as the prospective buyers got to witness the viewing agents look like fools for not giving notice and even suggested that they did not want to invade our privacy and not view the unit.
    On a side note, I was surprised at the broad level of professionalism from all of the viewing agents. The best agent introduced himself, gave me his business card and was extremely polite (he was about 60 years old and looked like he had been in the industry for some time). The worst agent was rude and looked surprised that I was even there. It really came down to the listing agent breaking the law by not providing notice and the owner not giving 60 days notice to end the tenancy.

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