Selling an investment property

Selling an investment property

by Carly Susic, Melbourne Buyers Advocate 

For the last 18 months we’ve seen an upswing in questions about selling an investment property. There’s a definite trend in investors looking to offload investments. So if you plan to sell your Melbourne investment property in 2024, read on to get expert tips for a successful sale. 

Firstly, why are people selling investment properties? 

Of course, the interest rate rises over the past two years have impacted mortgages of people with investment properties. While rents have increased over that time too, it may not be enough to cover the additional mortgage repayment costs for some owners. 

Rental laws in Victoria changed, putting more restrictions on landlords in order to protect tenants’ rights. The new rental minimum standards required some owners to make considerable investment in order to comply. 

Also, the Andrews government made extensive changes to land tax, in order to pay off the covid debt. It included lowering the threshold of land valued at $300,000 down to $50,000. This change meant that 380,000 Victorians now owe this additional cost. Many of those owners are investors who now have an additional expense. The charges are about $1000 per year, which doesn’t seem much on its own. But landlords are also facing: 

  • higher body corporate fees
  • higher insurance costs 
  • stricter compliance requirements 
  • difficulty evicting problematic tenants 
  • upgrade investments 

For those that were already paying land tax, they have also had an increase with the Andrews government also adding a Covid Debt Levy on top of that they were already paying. It is a 10 year levy but time will tell if it is here to stay permanently. 

So for some owners, it makes sense to sell the property to free up cash flow in these uncertain economic times.

What kind of homes are people selling? 

Holiday homes are often the first to go. Owners feeling the pinch of mortgage rate rises may reluctantly decide to let that property go due to the extra expense. Therefore we are seeing lots of properties for sale in the Mornington Peninsula, Surf Coast and Bellarine Peninsula. Locations like Rosebud, Balnarring, Ocean Grove and Anglesea have plenty of holiday homes currently on the market. Local agents are telling us that more are set to be listed as the year continues. 

Unfortunately, if you bought your holiday home during the market peak of 2020-21, you might find that the property has not increased in value, or even decreased. And you may be competing for limited buyers in a high-stock market. 

Also, owners are offloading investment properties with tenants. These are typically units or apartments in suburban locations. It’s a lovely idea to buy an apartment, get tenants and have them pay the mortgage. But with the additional expenses now at hand, that doesn’t always work out. 

Vendor advocate tips for selling an investment property 

Decide to sell early 

Perhaps you are feeling the pinch of interest rate hikes. Or perhaps you have experienced a change in your financial position like losing your job or a sudden illness. Don’t hold on until the situation becomes urgent. Many owners delay in the hopes that circumstances will change, which can lead to extreme financial pressure. We are not financial advisors or planners. But we do see people selling in this situation and it is the last thing you want to be doing. So if you plan to sell, do so early. This gives you the time and funds to prepare accordingly. Always do your best to avoid a fire sale—which is a forced sale due to financial distress and usually involves selling your asset at a discount.  

Choose the right agents

Secure an agent who has experience in selling investment properties in your area. Look at the local streets to see who has the most for-sale signs on homes. If there’s a logo you see repeatedly on properties similar to yours, they are likely to be the market leader. 

Interview a few agents to give yourself a good range of options. Ideally your agent will be:

  • experienced in selling investment properties 
  • understanding of current market climate
  • aware of what buyers want in your area 
  • not overpromising an unlikely price
  • someone you feel comfortable trusting 
  • well recommended by previous clients 
  • experienced with and likeable by tenants (if you have them—more on this later) 

Know your ideal buyer

Speak with your agent (or us) about the most likely buyer for your investment property and how you can best appeal to them. 

If you have a holiday home, you’ll likely appeal to buyers who are taking advantage of the cooling demand. They want to scoop up their dream holiday home. 

If you have a tenanted property, you are likely to sell to an owner occupier. Investors are rare in the Melbourne market at present. So it’s important that you appeal to the needs of the owner occupier buyer when selling an investment property in 2024. 

The tenant dilemma 

Some investment property owners like to evict the tenants so the home can be dressed up to better appeal to buyers. The downside of this move is losing the rental income for up to four months while the property is on the market. If you are under financial pressure, this may not be a viable option for you. 

If you keep your tenants in the property, it may not be well presented and this can impact your selling price. Buyers aren’t great at using their imaginations so they often can’t overlook food in the laundry or the smell of teenagers’ musty bedrooms. In a well-stocked market, this can potentially impact your sale price. 

If you are unsure about evicting your tenant, take a look at similar properties on the market. If they are all presented to a high standard, without tenants, you should do the same to your property. 

If you must keep tenants in 

You might like the idea of keeping tenants in as it appeals to investor buyers who can continue the lease. But in the current market it is far more likely to be an owner occupier buying your home. 

Regardless, if you can’t afford to lose a few months of rent, work with your tenants to have the property as presentable as possible. As vendor advocates we often meet with tenants to ask their cooperation at open for inspections. Don’t send a list of instructions—they’re doing you a favour. Instead, ask to meet in person to discuss how they can help you. You can offer to give them a fortnight of free rent after the sales campaign if they meet your request. 

You can ask tenants to: 

  • have no dirty dishes in the sink
  • have no rubbish or mess visible 
  • no clothes hanging on the line or on drying racks
  • keep pets and pet food out of sight 
  • keep the house neat and presentable 
  • plug in an aroma dispenser to create a nice smell
  • to be absent from all open houses 

You might like to pay for a weekly cleaner to visit during the sale period to ensure the property is well cleaned before every open house.  Supplying fresh flowers and having them delivered weekly is a nice touch too. 

(I once inspected a property when the tenants were all uni students, fast asleep in bedrooms.

They’d clearly had a big night previously, and the smell alone was enough to put off buyers!)

Choose an agent who will get along with tenants. Some agents can be dismissive of tenants, so you need someone who knows the importance of communicating politely and respectfully with your tenants. If the agent gets the tenants offside, your sales campaign is in jeopardy. 

Consider the cost of lost rent versus tenant impact on sale price 

It may be the case that the presence of tenants will impact your sale price to the point that you are better off evicting them in order to present the house in its best light. Whether this is likely in your case depends on several factors. But it’s worth discussing with your agent or a vendor advocate. 

Get the price absolutely right 

In this fickle market, buyers are wary of overpriced properties. So you need to get your pricing strategy right, first time. When selling an investment property, the last thing you want is a property passed in at auction and your campaign in tatters. If that happens, your home may languish on the market for months. 

On the other hand, if you need an urgent flow of cash, you may be tempted to drop the asking price. However you don’t want to give the buyer an unnecessary bargain. 

Your agent and your vendor advocate can help you agree on the right pricing strategy. 

Consider the pros and cons an off-market sale 

Some vendors like the sound of an off market sale when selling an investment property. This means there’s no sales board out the front of the home letting the world know your home is for sale and the property is only marketed to the agents database and not advertised on the real estate websites. If privacy matters, an off-market sale can be beneficial. Also, you will save your marketing and auction costs, as you won’t need to pay for photos, auctioneer and online listings. 

However, off-market sales can limit the marketing of your home. In that case, you need really well connected agents who can bring the right buyers through the property. Off-market sales reach a limited buyer pool so you may find your house on the market for longer. If you avoid an auction, you’ll never know what buyers would have paid, and you may miss out on gaining the best price possible for your property.  A full-market campaign often results in a full-market price. So your marketing and auction investment may be well worth it. You get one shot at a good strong campaign before the property gets stale in the marketplace, so it needs to be right.

Present your property beautifully

Styling a home for sale is a common practice nowadays, so investing in a professional stylist is worthwhile, particularly if other homes on the market are styled. Styling will emphasise the best features of the home and maximise buyer appeal. 

If the property is vacant, especially if it’s had tenants, give it a polish up. Rental properties seem to have a typical look, which owner occupiers can spot. Tenants are known to be rough on properties and they appear well lived in. A fresh coat of paint, fixing any chipped woodwork or tiles and updating fittings and finishes can give the home a brand-new, welcoming feel. 

Read more about home presentation in our blog post, getting your house ready for sale

To recap: how to sell an investment property 

  • decide to sell early before you get into financial distress
  • know your target buyer 
  • choose your agent wisely 
  • consider evicting tenants 
  • give the home a good paint and freshen up
  • invest in professional styling 
  • consider pros and cons of an off-market sale
    • pros: privacy, no marketing/auction costs 
    • cons: risk lack of buyer awareness, risk of a lower market price, or not selling quickly 
  • if tenants must stay, negotiate with them about open house presentation 

Contact us for assistance 

As vendor advocates we can help you when buying your forever home and help you make the best possible investment for your lifestyle, health and financial situation. Contact us for a no-obligation consultation. 

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