Easier said than done? Perhaps.
But not impossible, and if you’re automatically passing on properties just because they’re tenanted, then don’t ever complain about the lack of inventory!
A property that is tenanted, especially those long-term, is not an ideal purchase option if you’re looking to move in immediately. However, there are ways to get vacant possession upon closing, and if you’re willing to put a little work in, you might open the door to a property that other buyers don’t have access to…
“This is going to be a long, drawn-out process, and it has a fifty percent chance of ending in disappointment,” I told my would-be buyers, of a property that had a long-term tenant.
My buyers had exceptionally specific criteria, with respect to location, price, size, and building amenities, and while we were basically down to three buildings in Toronto’s downtown core, I knew in my heart that it was really only two, and if it came right down to it, they were limiting themselves to one building.
We had seen a couple of units in that particular building, and they said, “If the 07 model on a higher floor ever comes out, we’ll be all over it.”
Sure enough, that unit did come on to the market!
But not only were they on vacation at the time (isn’t that always the way?), but the unit had a long-term tenant.
I’ve never understood why condo-owners decide to put up a unit for sale when it’s tenanted, and ask that the buyer assume the tenant.
“Investors,” and by that I mean buyers who are not looking to occupy the unit as a primary residence, but rather would rent the unit out, probably make up less than five percent of the overall buyer pool.
And any investor worth his or her salt is going to want his or her own tenant in the unit, not just because there’s a possibility of getting a higher rent, but also because you want to forge your own path, and pick your own tenant.
I’ve written about this fascination – owners trying to sell tenanted properties, on this blog before several times. I really, truly believe that it’s a fruitless task, and if a seller actually was able to move the unit with a tenant attached, they’d likely be doing so at a lower price than what the unit could have sold for if it were vacant.
In any event, my would-be buyers of the tenanted property came back from vacation and within hours of touching down at Pearson, we were in the unit, taking a look.
As we suspected, this was “the” unit for them, but the unit was leased until August 31st, and it was February.
I told them there were two things we were NOT going to do:
1) Close on September 1st. As much as they loved this unit, there’s just no point in buying a unit with a 6+ month closing. Not only would we be able to find something comparable, or better, in that time period, but the world can change in an instant, and a half-year is just too long to leave yourself exposed.
2) Assume the Tenant. There was no way that my clients, first-time home-buyers, who had been renting and saving every penny for years, were going to become landlords by default. They had no interest being landlords, no business being landlords, and if they were going to buy a condo, it was going to be THEM living in it!
My clients asked me, “What do we do?” and I told them it was simple: we would make an offer, with a closing date of May 1st, asking for vacant possession.
Not exactly ground-breaking stuff, is it?
Don’t forget, you can ask for whatever you want in an offer. You can include whatever terms and conditions you want.
So what’s to stop somebody from making an offer on a condo, asking for May 1st possession, of a vacant condo, when the MLS listing specifically states, “Buyer Must Assume Tenant Until August 31st, 2015”?
Nothing at all.
And so that’s what we did. We made an offer with a May 1st closing date, and put several clauses in our Schedule-A with respect to vacant possession, giving proper notice to the tenant, and providing us with a copy of the executed Form-N11.
The rest was up to the seller and the listing agent.
I wouldn’t say that the listing agent was caught off guard by the offer. It was pretty straightforward, and I spelled it out in my email, and then in my phone call with him.
“The ball is in your court now,” I told the listing agent. “Do what you can to get the tenant out of there for May 1st, and who knows, maybe we’ll do a deal here.”
Read between the lines, folks.
We use the word “incentivize” in real estate, which basically means “pay the tenant to leave.”
It’s no different than a seeing a gigantic line to get into a nightclub, walking right past that line, handing the doorman $50, and walking right inside.
In fact, it’s the exact same thing. You want to get in early, and you don’t want to wait. So you pay the person who is standing in your way. Doorman, meet Tenant. Tenant, meet doorman.
Now let’s not gloss over the fact that the tenant had absolutely every right to remain in the condo until August 31st, 2015. He had a signed lease, and the seller was asking him to leave early, not telling him to.
The earliest that my clients could have taken vacant possession, according to the existing contractual obligations in place, was September 1st, 2015.
So we took a shot, and hoped it paid off.
Speaking of paying off, that’s exactly what the landlord/owner did to the tenant.
If you’re a tenant, and you’re leasing a condo for $1,800 per month, what would you consider “enough money” to leave four months before your lease is up?
It’s not like the tenant was being thrown out on the street. If he agreed to sign the Form-N11 for early termination of a lease, he would be given 60 days’ notice from March 1st, to vacate the property by April 30th.
So what would you want if you were the tenant?
Well, some people might not want to leave. Some would say, “To hell with you, I don’t need your money,” and stay in the unit.
But would they really?
Would they stay if offered a dollar? How about a thousand dollars? How about ten thousand dollars? How about a hundred thousand dollars?
Everybody has a price, right?
I certainly hope all this doesn’t come off as insincere. I realize that tenants have rights, and I respect those rights. But this is business, and if a deal can be reached between two parties, then have at it.
The tenant first responded to the landlord’s request by saying that he wanted $5,000, and to live in the unit for free for the duration of the lease.
He wasn’t stupid, and apparently, he was a great negotiator!
The tenant had given first and last month’s rent as a deposit when he moved in, so the August rent was already paid for. He was essentially asking for three months’ rent for free, and at $1,800, that was a whopping $5,400. Not exactly chump change!
His request was a bit crazy, but perhaps he wanted to know just how bad the landlord wanted him out of the unit, so he could close the deal on May 1st instead of possibly terminating the listing and waiting until the fall. As I said – I don’t see any buyer purchasing the unit and agreeing to a September 1st closing.
Ever two days, the listing agent would call or email me to say, “We’re still working on it,” and our offer actually expired well before we even came close to reaching an agreement.
It was eight or nine days after we made our initial offer that the listing agent called me and said, “I think we have something here.”
The tenant agreed to leave for $7,000 in combined cash and free rent, and the seller/landlord agreed as well.
The tenant signed the Form-N11, and my buyers and the seller signed the Agreement of Purchase & Sale.
I had told them from the start, “This could be really, really drawn-out,” and it was almost two weeks from when we first went in to see the unit to when we had an accepted Agreement, but it was all worth it.
Is it cheesy to say that everybody wins?
The tenant got a whack of cash.
The owner/landlord got his condo sold, and was able to close four months sooner.
And my buyers got the condo they wanted all along.
Cheesy, fine. But you can’t argue that it’s not all true!
A current client of mine wants to see a unit at Market Wharf this Saturday that is on the market for sale, and is tenanted until……wait for it………April 30th, 2016.
Maybe THAT is stretching things a bit.
But if you’re an active buyer, and there’s a unit you have your eye on that is tenanted for several months, don’t automatically dismiss it. There are ways to get vacant possession of a tenanted condo, if the parties involved can work towards it, and agree on fair compensation for all.