OPINION: Belinda Moffat is the Managing Director of the Real Estate Authority, the independent government agency that regulates the conduct of real estate professionals. Here, she answers your questions about buying and selling a home.
Q: We have owned an investment property for a few years, but we have decided to put it on the market at the start of the new year. Although we have a good tenant, it seems like now is a good time to cash in and then we’ll have one less thing to worry about.
Our tenant is currently on a periodic lease. Do you think we should try to sell while they are still living in the property or is it easier to sell a vacant property?
A: Knowing when to sell investment property is always a tricky decision, but it seems like you’ve decided now is the time for you.
* Should I sell before buying a new home?
* Should we get work done on our house or sell “as is where is”?
* What to know if you are selling for the first time
As you point out in your question, the first decision you will need to make is to sell the vacant or rented property. There are advantages and disadvantages to both approaches.
Your obligations to the tenant are governed by the Residential Tenancies Act, which was recently amended. You will need to notify your tenant in writing if you are putting the property on the market, whether you are selling it vacant or for rent.
If you decide to sell the house while it is rented and the new buyer wants the tenant to move out, you will need to give your tenant at least 90 days written notice. Keep this in mind, as it can affect the settlement date of the sale.
Benefits of selling a vacant property
- If your tenants are gone, it makes it easier for you to make repairs or renovations before the sale.
- It will be easier to keep the property tidy for the houses open and visitation, and it will be easier to organize these.
- The selling process can be faster as you won’t need to consult with tenants about photos, property access, and viewings.
- As pointed out above, you’ll also be more flexible in terms of a settlement date as you won’t have to include a notice period for the tenant if the new owners want them to move out.
Benefits of selling a leased property
- Retaining the tenant can make the property more attractive to someone buying a rental property – it shows that it’s a viable investment and that they don’t need to spend time finding new tenants.
- Buyers who are looking for their own home will benefit from seeing a home furnished and will be able to get a better idea of what may fit where.
- Your rental income continues throughout the sale period
- Selling a rented property can also be beneficial for the tenant: they can stay in their house longer and can continue their rental with a new owner. It is important that you think about the interests of the tenant and respect their legal rights.
Check out rental services for more information on what to do if you are selling a rental property.
Once you have decided on your preferred option, you need to talk to your tenant and make sure they are aware of their options.
The selling process is likely to be stressful for your tenant, especially if they have any doubts about their ability to stay in the property after the sale. You can help make the process less stressful by making sure everyone knows what’s going on at each step.
Tips for selling a rental property
If you and the tenant decide to stay while the property is on the market, here are some tips to make the selling process as easy as possible.
- Consider reducing the rent during the sale period. The selling process can be difficult for the tenant, and they will need to adjust their weekend routine to facilitate open houses and private tours.
- You will need the tenant’s permission so that anyone can access the home for photography, appraisal, a building inspection, open houses, and viewings.
- You also need tenant permission before posting any marketing materials that contain photos of their property.
- Put your visit / inspection plan in writing to make it as easy as possible for your tenant
- Agree with the new owner what information you can share with the tenant. Do your best to keep the tenant informed.
- You will need to give the new owner a copy of the existing rental agreement.
What if the new owner wants the tenant to stay?
If the buyer wants the tenant to stay, the sale and purchase contract must state this. The new owner will become the owner.
You can collect the rent until the day of payment. If your tenant has paid the rent in advance, you will need to pass the rental funds for the period after payment to the buyer. Contact Tenancy Services for advice on how to handle the delivery of the bond.
As you can see, there is a lot to consider when selling investment property.
Whatever your decision, maintaining a good relationship with your tenant throughout the process and being respectful of the impact the selling process will have on them can make life easier for both of you.
All the best for your next steps!
For more information on what to expect when working with a real estate professional, visit rea.govt.nz. Have a question for Belinda? Send an email to [email protected]