In the Toronto real estate market, tenanted properties come up for sale all the time. Listings for houses with basement tenants, for example, are quite common. And there’s certainly no shortage of renter-occupied condos for sale. There’s one very important distinguishing question for the potential buyer of such a property though, “Can I take vacant possession or do I have to assume the tenant?”
If the tenant must be assumed (i.e. they’re not yet at the end of their lease term and arrangements can’t be made for an early termination) the pool of potential buyers shrinks significantly. Essentially, all that’s left are landlord/investors or buyers who love the property so much that they’re willing to become landlords themselves until they can move in at the end of the lease term.
In the case of a house with a basement tenant, it’s not so much of an issue. There are actually a number of buyers looking specifically for a house with basement rental income to help pay their mortgage. So the fact that there’s an existing tenant can be a real bonus.
With condos and lofts however, a tenant that must be assumed can prove to be a tougher sell. These properties often sit on the market longer than others. Not always though...
Just this month I worked with a buyer from Ottawa looking to purchase a condo for investment purposes. We started out visiting the sales center for DNA 3 in the King Street West/Liberty Village area but then decided that a resale property was a better alternative for her (Pre-Construction versus Re-Sale is a subject worthy of its own entire blog post, so I won’t get into it here...).
We spent a few days viewing what was on the resale market, crunching numbers, and talking through the different scenarios at hand (“How much do you think we could rent this suite for versus that one?” “Which of these 3 buildings has the best potential for future value growth?” “Could we get more money if we rent out the parking space separately?”).
One of the best properties we saw actually already had a tenant in it and they were only halfway through their lease term. In the end, this is the one my client chose. She was happy to buy this particular condo knowing that she could assume the tenant and immediately start collecting rent without having to spend the time, money, and effort required to find and qualify a tenant from scratch.
This is a great example of a situation where having to assume the existing tenant actually worked in the seller’s favour. Generally, these properties can take longer to sell. But here the sale happened quite quickly. As so often happens in real estate, it was a matter of the right buyer coming along at the right time.
If you’ve got a tenanted property to sell and would like to find out more about my services, feel free to contact me for more info.
If you're thinking of buying a tenanted property and would like to know how I can help, feel free to contact me for more info.