Real Estate

Listings with existing Tenants

  • Last Updated:
  • Feb 9th, 2017 4:37 pm
[OP]
Deal Guru
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Mar 31, 2008
11864 posts
2292 upvotes
Toronto

Listings with existing Tenants

So just browsing around, I've noticed a few listings that have existing tenants paying rent. Therefore there are no inside pictures. Listing pricing generally seem a slightly bit lower. Which makes sense to me as the most competitive ones are move in ready homes. The positioning of the ad doesn't seem as enticing vs a "Imagine living here in this fabulous home".

Of course the rental currently being received does not cover the basic cash flows based on the listing price. However, in a few cases, especially those in the outer GTA, it looks a lot better. So I'm just wondering what the deal is with people selling properties with existing tenants. Anybody have any hunches on why they're likely listing? Maybe they realize it's not covering their expenses? Hating the landlording game or other investment opportunities.

Would the new buyer have to assume the tenant? (Unless of course the new buyer says they want to move in). Is there really a discount to be had as a certain, high spending segment are generally turned off by that type of listing?
9 replies
Deal Addict
Apr 22, 2014
3097 posts
468 upvotes
Oshawa, ON
I have a tenanted property I want to sell. I'm going to give them notice and they day they are gone, I'm going to clean it and list it empty with a short closing and ask about $0.02 less than the most recent comps went for.
My agent says that could make the difference of about 10k. That's about 6 months of costs so I'll take that hit. Obviously any barrier to purchase causes a discount.
Also, I'm only barely cashflowing where I bought about 30% lower. There's no way a new buyer will cash flow at current income unless they put about 40% down if they current tenant stays.
Owner is allowed to give notice to sell or occupy as far as I know. Sometimes tenants want to stay so current seller gives them that option (at his own cost I guess). I'd say it's a dumb move but if the place is a tear down, whats the point? Buyer will not even care to look; they're going to buy and boot and build.
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Deal Addict
Mar 27, 2015
1472 posts
571 upvotes
Thornhill, ON
There's been a few posts on here before where experts have said never buy a house that has tenants in place.
Deal Fanatic
Jul 3, 2011
5825 posts
2976 upvotes
Thornhill
It depends. Generally where a property with more than one unit has been solely used as a rental for a decade or more and it's being sold at a discounted price with little to no pictures it's most likely that the landlord is ditching it because there is no getting around its need of a big capital outlay - particularly when the LL is a slumlord and there are a lot of those around. The next would be they're liquifying for retirement and the last is that the tenants are awful. The latter might not seem correct but it is because in general long-term landlords actually know how to get rid of bad tenants the nasty tenants you read about tend to take advantage of novice landlords.

It's not quite so serious where the LL also lives in the property but the issue of no pictures and tenants refusing showings and such is a product of the landlord and Realtor if they're using one not knowing how to properly handle difficult tenants. For the last two years, a partially tenanted property has been a savings grace for many homeowners as it helps to carry a mortgage they otherwise couldn't afford and in fact will often command a premium sale price.

To eldeejay, you cannot evict a tenant in order to sell a property. GTA wise, there are some Realtors who would suggest you buy them out and evict them but in the case of a condo, that's a failure on their part to fully understand the RTA and to properly market and capitalize on an either/or offer, and in truth I think it's sometimes a laziness to not want to invest the extra time and effort needed to sell a tenanted property. To that end, it's actually not the best advice nor is it the best advice if it's a basement tenant in a house unless the tenant is unmanageable and has wrecked the place. It only makes sense to purposefully reduce the buy pool if the property's highest and best use is as a tear-down or the tenant is a nightmare.
Last edited by licenced on Feb 9th, 2017 12:38 pm, edited 1 time in total.
Newbie
Jan 30, 2017
20 posts
1 upvote
To my understanding, buying a property with an existing tenant carries a risk, especially if you intend to use that property to live in as your home. The problem with residential tenancies are that landlords often have to go through a long process to evict. If a tenant just camps out at the property and refuses to pay rent, a landlord's limited option is to sue and that's both a nightmare and a lengthy process. So if you were to buy a property with an existing tenant, you would have 2 options:

1) Like you said, assume the tenant. That means the seller would tell you how many months are left on the rent and you agree to assume it (for example, after closing, the tenant's rent ends in 2 months). You purchase the property, wait for closing, wait for the 2 months and prepare to move in to live... only to find out the tenant refuses to move out! Then all you can do is sue the tenant... and that can take months to sort out, leaving you with no place to live while you wait.

2) Put in a condition that says the landlord will guarantee the property will be empty on closing. This shifts the problem onto the seller's shoulders, where if the tenant refuses to move, the seller is the one breaching the contract with you, and then you can sue the seller. Of course, if you wanted to move into the house yourself, this means you'll have to go through lengthy process to sort everything out... lawyers, no place to live while you wait for results etc.

I believe in Ontario landlords can't just kick tenants out nor can they change locks or throw away the tenant's stuff and be like, "That's it, you're out of here because you haven't been paying rent for the last x months". They have to first seek the courts or the tribunal or something for a solution.

Most cases this doesn't happen. Tenant will move out as agreed to, but just something to be aware of, there are times when tenants meet problems of their own (can't find another place, can't afford another place, or just a bad tenant in general) and will just refuse to leave.

As to why landlords sell, there could be a lot of reasons. Maybe they'd like to invest their money somewhere else etc.
Deal Addict
Nov 2, 2005
4265 posts
1509 upvotes
WFH
The buyer has to assume any tenants. Absolutely, there is a discount to be had because the purchaser still has to evict the tenant if he wishes to use the property for any other reason. Depending on the tenant this may or may not be an easy process. You could burn any discount plus some trying to get rid of the previous owners bad tenant.

As a rule, never buy a property with existing tenants. If you view a property that is tenanted your purchase agreement should specify that it is free of tenants at closure.
[OP]
Deal Guru
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Mar 31, 2008
11864 posts
2292 upvotes
Toronto
dirtmover wrote: The buyer has to assume any tenants. Absolutely, there is a discount to be had because the purchaser still has to evict the tenant if he wishes to use the property for any other reason. Depending on the tenant this may or may not be an easy process. You could burn any discount plus some trying to get rid of the previous owners bad tenant.

As a rule, never buy a property with existing tenants. If you view a property that is tenanted your purchase agreement should specify that it is free of tenants at closure.
I guess the new owner wanting to move in doesn't have standing? They assume all the headaches of evicting?
Deal Addict
Dec 16, 2012
2592 posts
491 upvotes
Vancouver
icantfigureoutausername wrote: There's been a few posts on here before where experts have said never buy a house that has tenants in place.
Do you have those links? I would like to read the reason why.
Deal Addict
Nov 22, 2004
1511 posts
599 upvotes
Good points above - I actually sold one of my condos with tenants still there. It had no problem selling. The tenants were great, I was just moving to another area and didn't want to be bothered with the commuting to take care of things. We transferred the lease to the new owners, they maintained the status quo until the lease expired then the tenants moved to another unit in the same building, and owners moved into the condo.

So, it really does depend on case-by-case, but I'd definitely want to ensure there are no issues with the tenants.
Realtor @ Royal LePage Ignite Realty
Jr. Member
Mar 21, 2006
174 posts
17 upvotes
I think some of you guys are goingna little overboard with this. We currently have tenants living in our basement that are on a month to month. They know that when the time comes for us to list they'll get their 60 days and move on. If they are to be assumed that will be up to whoever purchases.

One thing to also keep in mind is the the CMHC now allows rental income to be used when calculating a mortgage. This can be huge for someone who might not qualify otherwise especially in a hot market likeToronto. Now if you're talking homes with numerous tenants, then yes this could turn out to be a nightmare.

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