Those three words can literally quash any hope a seller had of bringing an interested buyer to the table.

In this market, or any market for that matter, a seller has to make his or her property as attractive as possible.

But forcing the buyer to assume a tenant?  Why not just tell them your in-laws are moving in too…

The other day, a colleague of mine asked for my help in appraising a unit that she was going to try and list.

She told me she would treat me to a Starbucks coffee and “be my best-est friend,” and that was all I needed.  Unlike many agents who ask for a 25% referral for the mere hour of their time (yeah, seriously, this happens…), I was more than happy to tag along in her car with the top down on a beautiful, sunny day and check out a unit in a building I’d never been in.

We brought along the comparables; both past sales as well as units currently on the market, and we listed off all the features of this unit that were different from the rest.

We thought we had pin-pointed the price, but this one unit currently offered for sale in the building threw a wrench in our plans.  It had a very attractive price, but had been on the market for almost three months.

A little digging and reading of the “fine print,” and we soon found the reason why.

MUST ASSUME TENANT

There was the reason; the sole reason why this beautiful unit with a great price hadn’t sold even after 88 days.

Here are the remarks from the MLS listing:

The property in question is a 1-bedroom, 2-bathroom unit of 1055 square feet at prestigious 20 Scrivener Square at Yonge & Summerhill.

The price is a mere $575,000.

I know that sounds like a lot for a “1-bedroom,” and it is, but comparatively speaking, the price for 1055 square feet in this building is quite competitive.

So WHY then are buyers turned off my those three words, MUST ASSUME TENANT?

First, consider this: the seller has leased the unit, probably on a one-year term, for $2,500 per month until October 31st, 2009.  This lease cannot be broken in the event of a sale, thus the buyer must assume the lease with the purchase of the property.

I think with the assumption of any lease comes TWO large drawbacks:

1.  Buyer Becomes A Landlord

I’m going under the impression that the buyer was NOT looking for a property currently tenanted.  Sure, there are buyers out there looking for these types of properties as an investment, but this is hardly the right building, and hardly the right price.  More on this later.

A buyer interested in this particular building and unit would be looking to purchase the unit and occupy it.  This unit is supposed to be “home.”

So if a buyer has to assume a tenant, all of a sudden the buyer becomes a Landlord, whether he intended to or not.

Being a Landlord is a tall order, especially if you have no experience.  For a buyer of a half-million-dollar, luxury condo in Rosedale, looking after the leaky faucet, noisy washing machine, and loud neighbors might not be an ideal situation.  Consider the demographic of a person buying this unit (perhaps a late-20’s, early-30’s investment banker who works 80 hours a week), and you start to realize that becoming a Landlord could provide for some massive headaches.

In this case, the buyer is really only assuming the lease because he has no choice, and because he really wants the unit.  Assuming the tenant is the sacrafice he’s going to make in order to get into this sought-after building.

This leads into my next point.

2.  Delayed Excitement

I don’t think I’m being a sucky-baby by saying, “Boo-Hoo, I want my $575,000 condo now, and not later!”

If you were out for lunch and you purchased a Subway sandwich, how would you feel if you had to sit and stare at it for 45 minutes before you were allowed to eat it?  Take that one step further: how about if somebody else was going to come along and pick at the ends of the bread before leaving you to “enjoy” the sandwich?

Well I think purchasing any property should be an enjoyable experience, and I can’t imagine it’s very easy to shell out a half-million-bucks and then wait until Halloween until setting foot in it.

It can’t be easy to picture the tenant having dinner in your dining room and then taking a bubble-bath in your jacuzzi with a good Sophie Kinsella novel! (I swear I have never taken a bubble-bath while reading Confessions of a Shopaholic….never…)

Bottom line: most people don’t buy a condo seven months in advance of when they want to move in, so this scenario would present a shock to the system of any buyer.

So why do people do it?

Why do people sell their properties when the tenant is still on a lease?

Well, in case you haven’t read a paper in the last six months, apparently, we have fallen on some hard times.

Perhaps investors are losing their proverbial shirts, and maybe a whole slew of tenanted properties are going to hit the open market.

In the case of the Scrivener Square property mentioned above, I don’t suspect this was a true investment property.  The seller lives out of the country, so I would assume that this is a case of an owner who was living in the luxury Rosedale condo and left on a job transfer but hung onto the unit.  The owner was either sentimental about the unit, thought it would keep its value, or planned on moving back to Toronto, and thus found a tenant at $2,500 per month.

Now, situations have changed, and the unit is on the market.

But the existing lease is going to make the property very hard to sell, and it won’t move until the “right” buyer comes along.

As for the whole idea of this being a “great investment property,” I disagree.

If you’re looking for a true investment property in Toronto; one that generates income, you’re looking at the gross income as a percentage of the price.

At $2,500 per month, this unit brings in $30,000 per year in income.  That represents only 5.2% of the purchase price.

Contrast this with, ooooh, I dunno, say, my condo at Rezen which I paid $210,000 for and is bringing in $1,450/month, and that figure is 8.3%.

Or, take a hypothetical $265,000 condo with a parking space at CityPlace which brings in $1,550 per month, and you’re looking at 7.0%.

Any way you slice it, the Scrivener Square condo just doesn’t bring in enough income to justify purchasing it for investment.

So what happens?

Well, eventually the price gets low enough that it becomes attractive to somebody who can wait seven months to occupy the unit.  It’s already been reduced from $599,000 to $575,000, and I’m sure another price drop is just around the corner.

I’ve seen an increasing number of properties coming onto MLS with those three words: words “MUST ASSUME TENANT,” and the same two words keep coming to mind:

GOOD  LUCK