I've had the title for this blog post on a post-it note on my bulletin board for several months now...ever since I helped a client buy a condo in downtown Toronto. When I started to do an outline of what I wanted to share on this topic, I realized there were way too many angles to explore so I've just covered what I feel are the most key points & divided it up into 2 posts, one for Sellers & one for Buyers (find it HERE)
So first up are 4 things Sellers should consider when selling an income producing property (does not apply to multi-plexes) & the backstory of what inspired me to write down this title in the first place:
My first-time Buyer had some very specific requirements for his first home relating to location, budget & amenities. I was doing my best to put those requirements together with a "quality" building in terms of reputation (both of the builder/developer & of the building itself) & future re-sale potential.
We'd been looking for a couple of months when a great unit, in a great building, became available that seemed to meet all of the criteria. It was a tenanted unit with an out-of-town owner. Long story short, I tried to get us in for a showing for over a week & all I got was the run-around...the Listing agent wasn't much help, he let me know that he was also helping the tenant purchase his own condo & he didn't want to "pi$$ him off" by pushing too hard...one of the non-confirmation messages I received said "time not convenient, please try back next week...seriously? Technically the tenant only had to be provided with 24hrs notice that a showing was booked, his permission was not required. Sadly in this case, the tenant was the only one with a key so nobody was able to show the unit as a result!
It was a frustrating situation since what we were looking for was in short supply in my client's price range but in the end we were very fortunate that another unit came up in the building, within a few days of the first one & I helped my client successfully make the purchase! A few points for your consideration:
- If a property/unit is listed on the MLS® then it must be available for showings, otherwise the Listing agent is in breach of MLS® rules.
- The Listing agent was not acting in the best interests of his client, the Seller...although he may have been acting in the best interests of his client, the Tenant. So who's interests should have taken precedence?
- My Buyer was ready, willing & able to purchase the unit & COULDN'T because the Tenant would not allow access...effectively killing any chance of a sale!
- The unit was pulled off the market & re-listed a few months later & eventually sold for 95% of the listing price...Ouch!
So now YOU'RE the Seller & we're talking about YOUR home that you're either renting out in its entirety or just a portion of...what do you do if you want to sell?
#1 KNOW THE RULES!
Vacant Possession on Closing Day
- Lease...You can't evict a tenant with a lease. A Buyer would need to assume the Tenant during the lease period.
- Monthly Tenancy...60 days notice is required from the 1st of the following month...ie; today is Dec 8th, 60 days from January 1st.
- Read more on this subject HERE
Giving Notice for Showings
-24hrs notice must be provided to the tenant for showings, their permission is not needed
- Showings allowed 8am-8pm only
Act in Good Faith
- You can get yourself into big and/or costly trouble if you're found trying to "trick" your Tenant into leaving early
- Read more on this subject HERE
#2 BEWARE OF THESE PITFALLS!
When it comes to Basement Apartments, unless you have paperwork to prove otherwise, you're just a Single Family Dwelling.
Big Brother IS Watching
- The Fire Marshall as well as city/town employees are watching the MLS® for listings advertising "illegal" basement apartments
- The Fire Marshall states that if you have separate quarters where someone can eat, sleep & be self-sufficient in, then you have an apartment & it CAN happen that that they will knock on your door & require you to remove or retrofit the space
- A Buyers' Lender could request that the space be retrofitted
- You can retrofit but you may not be able to make it legal
- The rules for what makes a basement apartment legal are both Provincial & Municipal (so it varies depending on where you live) & there is also zoning to consider as well
- Anyone can request that a unit be inspected for compliance...neighbours, angry tenants
Insurance
- Your insurance & your Tenant's may be null & void if you have a claim stemming from your "illegal" basement apartment
Utilities
- Landlords are responsible for Tenants' unpaid utility bills
- Most utility companies will not install separate meters for "illegal" apartments
#3 CONSIDER THIS SOLUTION
Smooth The Way
- Offer your Tenant incentives for keeping the unit clean & presentable and to co-operate with the inconvenience of showings & open houses
- Buy your tenant out of their lease...make it a WIN for both of you
#4 DON'T LEAVE MONEY ON THE TABLE
Back to my client, we looked at a lot of units in those couple of months, many of them tenanted & they ran the gamut from presentable to pig sty. The pig stys didn't bother me in the least, in fact, the worse the unit looked, the better deal I could probably get for my client!
There is an expression "don't step over dollars to pick up nickels". The fear of losing rental income while you prepare & have your home/unit on the market is a good example of this! Don't lose sight of the big picture because a properly presented home/unit could net you TENS of thousands of dollars more! It might cost you more in the short term but doing it right, maximizing your biggest asset, will pay you back in the end!
One final note, if you're selling a home with a non-legal basement apartment then make sure that any Agreement of Purchase & Sale that you sign says you're selling a Single Family Dwelling! I'd suggest putting a clause in the offer, that the Buyer acknowledges that the home is a Single Family Dwelling. That way you're covering yourself & it's up to the Buyer and/or their Representative to do their due diligence if they want to use it for any other purpose.
Related: So You Want To Buy An Income Property...4 Things To Consider!
Related: So You Want To Buy An Income Property...4 Things To Consider!
Additional Links You may Find Helpful:
Choosing the right Tenant HERE
Landlord & Tenant Board HERE
Retrofitting a Bsmt Apt HERE
City of Oshawa on Accessory Apts HERE
Town of Whitby on Accessory Apts HERE
Municipality of Clarington on Accessory Apts HERE
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