Tips on Buying or Selling An Investment Property

Owning an investment property is a smart way to increase your cash flow by generating rental income and building equity over time. It’s a wonderful way to diversify your portfolio and create wealth. With higher interest rates and recent changes to the capital gains tax, it’s become harder to realize profits. Possibly even worse is that Tenanted properties are becoming increasingly more difficult to buy or sell. I’m all about solutions and mitigating risk so read on to learn more…

Points To Consider When Selling Your Investment Property

The most important considerations are a) Type of Tenancy – are your Tenants on a month-to-month Tenancy? In their first year of the lease? Did you draft up a new lease for them after year 1? b) Vacant Possession – are you able to provide vacant possession to the new Buyer? 

The reality is that the market value of your property will be higher if you’re selling after the Tenants have left. So how can a Landlord (Seller) ensure they can sell the property without Tenants?

1) N12 – this is an eviction notice and is used to give notice that the new Buyer is moving into the property. It’s also used to give notice that the Landlord (Seller) is planning on moving into the property or an immediate family member or caregiver (not cousin or aunt) is moving into the property. The effective date on the N12 must be after the end of the Tenant’s lease. The Buyer or Landlord(Seller) must live in the property for at least 1 year. 

* If the Tenant “doesn’t like” the N12 (i.e. is paperwork correct? will the Buyer be truthful and move in for 1 year? or some other reason whether justifiable or not) they can contest it and have a hearing at the Landlord Tenant Tribunal. aka Tribunals Ontario. The wait for a hearing is 8 months – 1 year. 

So if the Seller has sold the property and the new Buyer can’t move in, then the Seller is in breach of contract for failing to give vacant possession. As you can see it’s a real risk to assume that your “nice Tenant who pays their rent on time” – will leave. According to most real estate lawyers and paralegals who specialize in helping Landlords, 80% of N12s go bad which is a stark contrast to even 3-4 years ago. Unfortunately, a Landlord’s rights aren’t enforceable and Tenants are taking advantage of the long delay in getting a hearing date. 

2) N11 – this is a form which both parties must sign to mutually agree to terminate the lease. Ideally, it should be used before listing the property and involves “cash for keys” whereby a Landlord MUST give the Tenant a considerable amount of $$$ (several months rent) to have them leave. 

The N11 “cash for keys” solution will ensure that a Seller can list their investment property and confirm vacant possession. Expect a period of at least a few months where the Seller is paying out of pocket to carry the property while it’s on the market, sells and then closes. In most cases, the higher dollar value of the sale with assured vacant possession will more than offset these costs. Unfortunately, not everyone has the cash flow to carry the property without getting rent from Tenants. 

* When giving the “cash for keys” option, never give all of the money upfront. Be sure to give in stages i.e. 1/2 upon signing the N11 and 1/2 in exchange for the keys. This lessens the chances that a previously “co-operative” Tenant decides to extort the Landlord for more money than initially agreed upon on the N11 especially when the Tenant knows the property has been sold. 

Points to Consider When Buying An Investment Property

If you’re buying a Tenanted property, you’re incurring a great deal of risk if the Tenant is still living in it when you’ve signed the agreement. It doesn’t matter if the Tenant previously agreed to vacate because they know they have months to wait for a hearing and that they can simply stay put. When the Seller is in breach because they can’t grant vacant possession, the Buyer has nowhere to live. Not an ideal situation, is it?

Some Buyers think that if they just agree to take over the Tenant as a last resort, everything will be fine. However, this only creates additional problems as it affects the Buyer’s ability to obtain financing. Most lenders including all of the big banks have the borrower sign an affidavit stating that the property will be their primary residence. 

If the Buyer wants to take over the Tenant so that the property closes, they will need to re-qualify for an investor mortgage. The rate and terms for this type of mortgage are much different than for a traditional mortgage and the Buyer may not qualify. Further, the Tribunal won’t favour the original Landlord once they find out that the new Buyer has assumed the Tenant. 

As a Buyer, you’ll need to have a Plan B in place if you’re truly not an investor and are buying a property with existing Tenants and you plan on living in it.

Here are a couple of options: a) refuse to close, sue the Seller and get your deposit back but as you can imagine this is time-consuming and can be costly. b) extend the closing date and have the Seller cover your living costs, movers fees, rate difference if at closing the rate has changed and any other costs directly associated with the Seller being in breach and not being able to close.

Thinking twice about investment properties? I can’t say I blame you. Losing faith in humanity? I can see why. The good news is that there are excellent professionals out there who can help you navigate these types of situations whether you’re a Buyer or Seller. 

As a Realtor, my expertise in assisting you in dealing with Tenants is limited but I can help you mitigate the potential risks if you are considering an investment property whether Buying or Selling. When all else fails, I know some wonderfully competent lawyers and paralegals who specialize in Landlord/Tenant dealings. Hopefully, I won’t have to refer you because you won’t be Buying or Selling a property with Tenants…right!?! 

Kimmé Myles

Matching her knowledge of Toronto’s eclectic mix of central core neighbourhoods and impassioned by her diverse mix of buyers and sellers, Kimmé is naturally motivated to create a positive and professional experience. Kimmé does her homework and knows her inventory. She is genuine, honest and a straight shooter. Nor is she afraid to think “outside the box” as she employs creative strategies to make dreams become reality.

Born and raised in Toronto and coming from a successful fashion background in design and management, Kimmé could not have met a better match for her entrepreneurial skills than by working in Real Estate. Inspired by her father, well known Toronto clothier to the stars, “Lou Myles”, she learned from a very young age to work hard and strive for excellence.

Licensed since 2005 as a full time Sales Representative and a Broker since 2016, she continues to be proud to be affiliated with the Toronto office of Sotheby’s International Realty Canada and to be part of the highly respected world renowned global luxury brokerage, Sotheby’s International Realty.

Kimmé has received numerous sales awards throughout her career including the prestigious Gairdner, Diamond and President’s Awards. She has completed extensive negotiation training and is among a select group of realtors in Canada to hold the Master Certified Negotiation Expert (MCNE) Designation and the Certified Negotiation Expert (CNE) Designation. In addition, she is a member of the prestigious U.S. based Institute of Luxury Home Marketing and also carries the Luxe – Luxury Listing Specialist Designation. She holds the SRS Designation – Seller Representation Specialist and the SRES Designation –Senior Real Estate Specialist – both accredited programs through NAR – The National Association of Realtors, USA.

Entrusted with the life choices of her clients, Kimmé is truly honoured to have the opportunity to serve and assist others and does so with integrity, commitment and enthusiasm.

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