The PROPERTY DOCTORS, Sydney Australia Novak Properties

NOVAK NEWS - SELLING AN INVESTMENT PROPERTY? HOW TO MAXIMISE YOUR SALES PRICE

• Stevan Bubalo, Glen Higgs • Season 29

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Deciding whether to sell your investment property with tenants in place or vacant is one of the most significant decisions you'll make as a property investor looking to maximise your returns. This compelling exploration of the tenant-in versus tenant-out dilemma provides real-world insights from property experts who have guided hundreds of investors through this exact process.

The financial implications form the cornerstone of this decision. With tenants in place, you'll continue receiving rental income throughout the sales campaign—potentially 8-10 weeks of additional cash flow that could make a substantial difference to your bottom line. However, this approach comes with trade-offs in presentation, accessibility, and potentially limiting your buyer pool to predominantly investors rather than owner-occupiers or first home buyers who need immediate occupation.

We dive deep into the presentation factor, discussing how vacant properties offer the emotional blank canvas that helps buyers envision themselves in the space. The freedom to make strategic pre-sale improvements—fresh paint, new carpets, minor repairs—can significantly boost your final sale price. Yet this must be balanced against the reality of lost rental income and additional holding costs during the vacancy period.

The podcast offers practical strategies regardless of which path you choose. For tenant-occupied sales, we explore the importance of clear communication, lease term considerations, and the value of offering rental reductions as an incentive for cooperation. For vacant properties, we discuss timing strategies to minimise financial impact while maximising presentation value.

Whether you're a seasoned property investor or preparing to sell your first investment property, these insights will help you navigate this crucial decision with confidence. The expertise shared here could be the difference between a good sale and a great one. Ready to make an informed decision that maximises your investment return? Listen now and transform your property sale strategy.

Speaker 2:

Ladies, gentlemen, monday night. Monday night selling your investment property how to maximize your prize. Welcome everyone to Monday Night News. What we're going to talk about tonight is selling your investment property how to maximise your price. I think the question you always start with tenant in, tenant out. What's the best way? What are your thoughts, stevan I?

Speaker 1:

think it's a good question. Obviously, it's the first one you think of when you do have an investment property and you're thinking of selling and look there's some really good advantages and disadvantages to both sides of keeping your tenant in and taking them out. Advantages to both sides of keeping your tenant in and taking them out. Obviously, I guess the key one really is is the financial balance. And how are you, how are you handling your weekly repayments, monthly repayments, because a tenant out situation will essentially cut that rent coming in while you're selling a property. So definitely something to think of is that tenant out, but let's talk about tenant in, shall we?

Speaker 2:

Yeah, let's start off. What's the benefit step of having the tenant in?

Speaker 1:

Benefit of having the tenant in is one is okay the flip side of what I just said. You're going to be getting a rental return while you're on the market, so it's obviously going to help you hold that asset, hold that property a little bit longer, balance up the books a little bit easier while they're in there. So that's number one. Number two is that the buyers you might be targeting potentially could be investors themselves. So you're going to have a tenant in there that's already got a proven track record as an agency. We would know them, our property managers will know them, and if it's a good tenant paying on time, there's no transition period where there's weeks without rent and costs associated with finding a new tenant. So cash flow is really good, not only for you as the vendor but also for the buyer coming into the property. Again, lower holding costs You've got them putting a little bit of money into your pocket while you're running through the process.

Speaker 1:

Prep work as well. Hopefully, if they've got the property looking good, you don't have to pay. That's paper styling. If it's presented well, it's usually the property is going to be kept clean, you know. So minimal prep work and expenses on that side in regards to actually having the property presentable. Sometimes a tenant will even buy the property. I don't know, I don't think I've ever had it.

Speaker 2:

But I have. I had, I had a property in 52 Cassia Street. The tenant ended up buying it. Oh yeah, they'd be. They'd been there for eight years. We did open the property to the market. Yeah, I think if you tenant is looking to buy it, I would always have your agent say to them yeah, look, you'll buy it. Look, if you want to buy it, you can buy it. Yeah, but you know the property is on the market. Yeah, because I have seen the other examples where the tenant says I want to buy it and they maybe do want to buy it. Yeah, but they don't know what they need to buy it and when they find out what they need, they're not in a position to buy it. It seems like a little bit of a stalling tactic.

Speaker 1:

There's one other point I forgot to mention. The benefit of having a tenant in the property is typically the property is going to be in good working order, so your services will all be, working. You won't have too many issues with the property because it's been lived in day in, day out.

Speaker 2:

So would there be disadvantages selling with the tenant in?

Speaker 1:

Definitely. Again, it comes down to the owners and the not the owners, sorry, the buyers that you're working with. And for an example, let's just talk about first home buyers To get a benefit of any type of grant, you've got to occupy that property within 12 months. Now with most New South Wales residential lease agreements you've generally got a 12-month period. So if the tenant's already in there, you will be into the property before 12 months. But you've got to really look at, okay, what's my buyer pool, what's the type of property I'm trying to sell? If it's a house, you know you're going to be targeting families, young families that want to occupy straight away, where having a tenant of property for 10 to 12 months is not going to be ideal for you in some instances with it, the flip side again to having a tenant in there is sometimes they're fantastic with presentation, sometimes they're not great with presentation, so a little bit harder to dictate how the property is going to be presented to market.

Speaker 1:

As agents we have strategies around it where we do virtual furniture, things like that, to not only protect the tenants but also try to present the property in its best light as well. So that's another thing. Lease, your lease terms. You know that's in play as well, maybe more so for commercial, where there's option periods and things beyond that too. That's something to think about, and a big one for us. Us, glenn, is we know that we're balancing up um a third party that doesn't really have a financial interest in the property, but we're working with them for inspections, for viewings, um, you know, as agents, we're asking I hope not a lot from tenants, but we are asking them for help as well. So we're there twice yeah the minimum showing your properties and things like that look I, I sort of like it.

Speaker 2:

Brand new property presentations good, so it could be a two to three year old property. Yeah, it could be a property that's been renovated two to three years ago. Yeah, with a great property manager, will be in similar condition to when you renovated tenant in if the lease isn't too long, but there's always that fine line of access and them enjoying the property that they're paying for. With the property empty, we can show, show it 24, 7, like 7, 11. Right, yeah, you know, yeah, so I, I think that uh works better. Let's talk about benefits.

Speaker 1:

Now, yeah, if the property is vacant, when it's vacant, obviously just what you said glenn access 24 7 to get him and show prospective buyers bank valuations, uh, building best reports, whatever. There's no real hang up on time. A lot easier to work around people, particularly, you know, after hours viewings and things like that is a good one. It's attractive to both parties, both investors and owner occupiers. Investors can see it for what it is and generally if you're looking for a property that needs to be tenanted, your agent can source a tenant during the settlement period well, you can.

Speaker 2:

Yeah, look, the agent might be able to negotiate with the vendor or the owner to look for a tenant yeah, leading into settlement, yeah, or to kick it off straight after settlement, yeah, so generally you'll find if the property is vacant, you should be able to place a tenant within a week or so of it coming to market.

Speaker 1:

Having a vacant as well will give you an opportunity to get in and you can repaint or you can address any concerns that the property may have Bathrooms leaking taps, you know ridiculous ceilings, you can paint those. So it just gives you a chance. New carpet, new paint something we talk about all the time with investment properties, um, so it gives you an opportunity to get in and do that. Um, the other thing is being a vacant property when, when you're negotiating, you know the terms of a sale with the buyer. It's the settlement period is completely open and flexible, um, so someone that needs to get in again shorter, shorter and quicker. You can do that to accommodate different buyers.

Speaker 1:

The other thing is a bit of an unspoken but the emotion, glen, that we see. You know, when the properties whoever's saying you're selling to a buyer, you're selling them their property, you're not selling them your property. And it's a little bit easier when it's owner occupied. You can get your owners to put certain things away to make it a little bit less personal to them. But with tenants it can be a little bit trickier.

Speaker 2:

So, vacant property you can visualize yourself in there a lot easier as a buyer, without as much emotion attached and especially with the rent so high now, you might find, you know, a couple would start out in a one bedroom, yeah, and then lease a two bedroom property and that gets a bit small. They'll get a three bedroom, but with rent so high now, they might stay in the one bedroom, yeah, for a long period of time, yeah, and unless they're minimalist, they'll accumulate things, yeah, and it could look, could feel a bit cluttered, yeah, so, um, it could feel a bit cluttered. So with a vacant property you haven't got that clutter. Often in the property Properties are clean, functional, well-maintained. But we all know if you stay anywhere too long, you know you've got your old school report cards. You know from back in black and white, the downsides of a vacant property, sir.

Speaker 1:

Again, probably the opposite to that is that you're not going to have access. Yeah, access can be a little bit more challenging. Rental income, you know, can be lost and just those additional expenses. Again, marketing styling things like that as well, so it's more on the financial side is the downsides. Filing things like that as well, so it's more on the financial side. Is the downsize? It's got its costs and really its accessibility and presentation that you can't control as well.

Speaker 2:

Yeah, I think if you, because that's the main decision when you're selling an investment property, do I sell it? If you've got the choice, when you sell it, do I sell it once the tenant's moved out, the I sell it once, uh, the tenant, the tenants, moved out, the property is vacant, or with the tenant in, uh, in dy. Average days on market for an apartment, I think it's running around 21 days. Some are longer, some are longer, um, so you have to factor in three weeks without rent, okay, and and you might not go straight to market, it might be a week of preparation. So four weeks without rent, and the selling period after that too, of four to six weeks. Of four to six weeks, yeah, so you could be looking at eight to ten weeks without rent, almost a quarter, yeah, so you would have to be able to pay the mortgage on that investment property with no money coming in for that period.

Speaker 2:

Sometimes too, I think if the property is vacant, it does put pressure on the owner to be a little bit more negotiable on the price. Yeah, right, if they have a tenant in there, they can wait and get their price. So it's really a financial decision. Okay, I'll put you on the spot. What gets a higher price, tenant in tenant out? I'll tell you what I think.

Speaker 1:

Yeah, I'll tell you what I think. I haven't really thought this one through. I think tenant out, to be honest, yeah, just because we can service the buyer so much better with access, with parents seeing it, you can address issues quickly. I think tenant out probably gets you a better price. Not always, but from my experience tenant out is just a little bit easier.

Speaker 2:

Yeah, look, we have over 4,000 great tenants at Novac and access is never too much of a problem, I think what I think gets the highest prize. It sounds like I'm sitting on the floor. Fence is tenet out. Yeah, I, I think there's those little touches you can make to the property. Um, with the tenet out, and you know people could say, oh well, you know you could do it with the tenant in, but you can't really paint. No, with the tentative or carpet or carpet, you know they're the, the two main things we find, uh, with apartments carpet and fix anything like a soap holder that's broken, replace that. You can get in and do that with the tenant out. I also think that emotional feeling, most of our units we virtual style with our $0 marketing. There's no cost to our vendors for that, so photoshopping images in, but people can come in, it's a fresh, bright space and and I think that secures a higher price.

Speaker 2:

But not all our landlords want to do that because they may be testing the market with the tenant in. Yeah, and I'll give you an example of that or a case study of that. You might be saying, stev and Glenn, if I get $800,000, I'll sell my unit. We might say my investment unit that's at the top, we might say that's at the top end of the range. I would probably leave the tenant in if you couldn't afford to be vacant for a period of eight to ten weeks, because it's not a guarantee that the property might be valued at $760,000. And you know we're roughly getting $40,000 over, which is about 6%, which does happen. But we wouldn't say put the tenant out for that. We would say look, you know, let's leave the tenant in, get some offers. We'll make a decision on that.

Speaker 1:

And just I was going to say, glenn, the reason I'm more inclined to tenant out is just ease of accessibility. You know, if somebody wants to see it, you can see it right now let's go type of thing, and I think that's really important, particularly when some agents will just say go to the open house. And particularly when some agents will just say go to the open house, even if it's vacant, they'll still send you just to the open home viewings.

Speaker 2:

I like to have a property that I can show someone through right now if you want to see it well, I think opens are very good for seeing the property in a group setting, seeing it the first time, but really, private inspections or coming back a second time or a third time after seeing two opens is where you can say to someone hey, we've been here a few times, you're not coming back, you know, just because you've got nothing to do. This is probably the right one for you. Yeah, and we start negotiating Dating from there on sure. Okay, before we wrap up, we're gonna get steps famous from there on sure. Okay, before we wrap up, we're going to get steve's famous step-by-step guide for selling with the tenant a famous one in right, because selling with the tenant out, um, you know, it's just a, a simple sale, or it's like selling if the vendor lived in there. Yeah, but selling with the tenant out. There's a few more things to fill in, sorry a few more things to fill in, things that you want to do.

Speaker 2:

So Steph's famous tip selling with the tenant in.

Speaker 1:

Sounds like I sell famous meat pies the way you say it.

Speaker 2:

Well, very, very close to my heart Sausages and meat pies. Very close to my heart, mate, Don't make any jokes about that Okay.

Speaker 1:

So look, first thing you want to do is you really, if you are buying a property that is tenanted or leased at the moment, is you really want to check that lease? Go through it, read through it. They're typically not that complicated. There's a lot of words in the back but generally the first few pages are going to have the body particularly in a residential lease of what's important. So you want to check, okay, how much is the tenant paying? But, more importantly, when is the end date of the lease? Are there any specific terms to come out? How much bond has been put, you know, aside from the property, particularly if it's in poor condition? You want to make sure that you know that's going to be tackled for you on the way out. So read that lease agreement, check the lease term and work through that. I think that's really, really key.

Speaker 2:

And how should you communicate with the tenant? What would you suggest there? Clear?

Speaker 1:

honest, look. As an agent, we communicate in both verbal and written formats. It's best to do written from our angle anyway, but clear, honest communication. Tenants as well, you know they, particularly when it's getting towards the end of a lease or if it's a rolling month-to-month lease agreement, you know they just want to have some comfort around their situation too. So they don't appreciate an agent that's not going to be, you know, black and white or be, you know, guiding them the best they can so that they can make the right decision.

Speaker 1:

They might not want to vacate and we might be negotiating three or four buyers, of which two are investors and one's an owner occupier. So they'll be like look, we don't want to leave. Is your investor looking strong? We don't give them all the all the financial details, but it's respectful to be good to your tenants in in clear communication, um, because again they're balancing their lives around the sale of a property where, unfortunately, they don't have any financial, you know, benefit out of it and I think when you've got a tenant in the property, you've got to work out who's your target market going to be and, where we spoke about, you've got to know your lease.

Speaker 2:

If it's a really long lease in an area where it's hard you know a really long lease area where it's hard to find a tenant then you might really look at advertising for investors. Like it's not always easy to find a tenant. Then you might really look at advertising for investors like it's not always no easy to find a tenant, you know. But if it's a short lease, yeah, you might be advertising more for homeowners.

Speaker 1:

Um, and investors, and it's also good practice to offer your tenants an incentive. I know that's hard as well when you're balancing up the books, but if you're after top dollar, you know a rental of $50 a week goes a long, long way in keeping your tenants happy, and they'll do the best to help you when they feel like they're being looked after as well. So that's a big one. How would you?

Speaker 1:

prepare the property for tenants. Again, look, it's a personal thing. You and I are big fans of virtual furniture. It respects the tenant's belongings in that regard. So with online marketing, virtual furniture is good. You try to have the conversations about obviously keeping it clear and easy to access and keeping it clean, but I think the incentive by offering a rent incentive, a reduced rental return, goes a long way in that. Well, I think with the virtual furniture.

Speaker 2:

I always like to say to the tenant hey, we're not going to have you live on display on the digital platforms or to our database. You're not going to see your furniture on display and I think they like that. It's a sign of respect. You start off um in that vein and then you can run all the way through yeah, so finishing up. Step any written down. Yeah, any final advice selling an investment property it really just comes.

Speaker 1:

Look, I would say take your agent's advice. Really, to me as an agent and what I've seen, influence price is accessibility and presentation of the property. And if you've got a tenant that's going to be good with access and presents it very well, you know, definitely keep them in. If it's poor access and very poor presentation of the property Not necessarily because of the tenants I'm not putting this out to say the tenants presented it poorly. We have landlords that go from tenant to tenant to tenant that make a little investment into their property every time it's vacant. You've also got to take on the responsibility to say, look, I can present this property in a better manner. Um, you know it doesn't necessarily mean the tenants not presenting it in in a positive manner. Um, so definitely presentation in that regard. Um, but that's kind of it, glenn. I would think they're kind of the key points to me access and presentation.

Speaker 2:

So you heard it from the great Stevan Bublo prefers to have the tenant out if you can afford it, if there's a thought that it would be stressful for you financially, um, have the tenant in. Um these decisions, how does it present? Well, that's pretty easy. Uh, when we do our uh periodic inspection, we'll go through and take a video and send to our landlord so they always know what the property looks like and when we can refer back we haven't pulled up the numbers, but you sell a lot of apartments in dy glen, so do I.

Speaker 1:

How many do you think that you will be selling in a ratio? Percentage-wise would be tenanted versus non-tenanted.

Speaker 2:

Well, DY is very beach-centric. So if you look at DY, the closer you get to the beach the more unoccupied it is. And then Pipwater Road is like a divide. West of Pipwater Road it's more tenanted properties. So down near the beach you'll probably find it's 40% tenanted and I'm saying 200 metres from the beach and 60% owner-occupier, yeah. And when you get to Pitwater Road it's probably 60% investment and 40 unoccupied, right, okay, the difference is about 600 meters. That's where you see it's beat century.

Speaker 2:

At the end of the day, you're selling a lot of both so what you would find is, I reckon, 50 of all apartments sold in dy. Not many people are upsizing now because of the cost. Yeah, our investment property, yeah, that's probably right. Um, also, too, when you think that there's a lot of people my age, in their mid to late 50s, so they're saying, hey, I've had this, I'm going to sell my investment property, pay the house out fully. Yeah, sell it, help my kids.

Speaker 2:

I get a lot of that where they sell their investment properties that they paid maybe 200 000 for and selling it for a million and now able to give some deposits for the kids. So in dy I I would say if I sell 24 units, 12 would have a 10 or more. Yeah, I'd agree with that. So it's uh, other areas it could be less, but I think for apartment definitely, you'll find that over 50% and tell you awesome, all right, well, look, thank you very much for spending about 20 minutes with us tonight. I hope we gave you some ideas about selling a tenanted property. If we can help in any way, please don't hesitate to contact us. Thank you, cheers.