Jason Thackray (Your Place) interviewed by Paul Travers, December 2017.
Subject: How does selling a tenanted apartment differ from selling a vacant one?
Paul Travers (PT):
So, Jason, do you sell more tenanted apartments or vacant apartments?
Jason Thackray (Jason):
At the moment it is maybe 50/50, which isn’t too bad, although we’d always prefer to sell vacant apartments of course. As you probably know, in Berlin there are usually more tenanted apartments than vacant ones for sale at any one time; it’s still very much a city of renters, with owner-occupiers relatively rare.
Since of the fall of the Berlin Wall, many buildings have been divided into individually owned apartments and investors bought these single apartments with tenants already inside. Remember, the rental agreement is not changed when an apartment is sold, and the new owner takes over the existing tenant and the existing rental agreement. So, they’ve continued to be tenanted and even when re-sold, they are often sold with tenants in situ.
PT:
Why do you say that you would always prefer to sell vacant apartments?
Jason:
Well, we don’t mind selling tenanted apartments, and we are good at it, but there are a number of reasons that it is more of a pleasure to sell a place that is not rented.
Firstly, when an apartment is rented we must take care that we are following our own ‘Fair Makler Policy’ and this takes time and attention. We must filter the enquiries for genuine investors only – not always straightforward – and must take care about who buys the apartment and what their intentions are regarding the tenant. This is our moral obligation.
Even though we explain this policy to the tenants and explain to them that, because of our policy, they don’t have to worry about the new owner trying to remove them from the apartment (perhaps to claim own usage) it is still a sensitive issue for tenants, so they are understandably not always motivated or co-operative with regards us visiting their home for photos, viewings, etc.
This means things go slower because each visit must first be agreed with tenants and then co-ordinated with the schedules of tenants, potential buyers, and us. For empty apartments this is much easier to arrange and in cases where the owner still lives there it is also easy because the owner is the seller and so motivated to be flexible about these things.
There are also more documents to check when preparing the sale of a tenanted apartment. Not only do we have to analyse the documents for the apartment and the building, we also have to check everything regarding the tenancy and the rent.
There is also the disadvantage with tenanted apartments that we usually cannot take great internal photos because the apartment is full of the tenant’s things and they don’t have the same motivation to move them around as an owner-occupier does. We use a professional architect photographer; with a vacant apartment we can always do as we like and get the best shots possible. With a tenanted apartment our options are limited.
PT:
How is the selling price affected by an apartment being tenanted rather than vacant?
Jason:
That depends upon a few factors, the main one being the rental income. When selling a tenanted apartment then the price must be low enough to give the buyer (investor) a reasonable return from the rental income. In Berlin this return is getting lower and lower, but, because interest rates on savings accounts are so low at the moment, some investors are willing to accept a return from the rental income as low as around 2%. Not so long ago this was more like 4%.
If the rent is very low then this can result in a selling price up to one third lower than it would be if the apartment were vacant. Any lower than this and investors would just gamble and buy speculatively for the potential future value increase.
The circumstances of the tenant also play a role. If the tenant is a student who says they will leave Berlin after their studies, then of course the buyer can expect to have a vacant apartment in the not-too-distant future. In that case the tenanted selling price would be closer to the vacant selling price.
But investors are not only buying for the rental income; they are also buying for the capital gain/return – to sell at a higher price a few years later. So, factors which might potentially affect this increase in value will also affect the tenanted price. For example how well the tenants are looking after the property, how the local area is developing, and so forth.
PT:
You have mentioned your ‘Fair Makler Policy’ a couple of times. Can you tell me what that actually means in practice?
Jason:
Firstly, there is a general element to it. For example, don’t mislead sellers by telling them in advance that we can achieve a higher that what is realistic selling price in order to get their business, or try to get them to take low offers in order to earn our commission more quickly. On the other side we don’t mislead buyers, for example by not highlighting defects or downsides of a property that we are aware of.
Secondly, there is the more specific aspect regarding how we deal with tenanted apartments – As I mentioned already, in case we are asked to sell a tenanted apartment, we check to confirm whether the tenant does indeed wish to stay in the apartment, and if so we take great care to ensure that we only sell to an investor who has no plans to attempt to remove the tenant, either for their own-use of the apartment or in order to get a new tenant in at a higher rent. This makes our job more difficult, but it helps us to sleep at night. We cannot control the Berlin rental market, but this is our own little way of ensuring that we don’t contribute unnecessarily to adversely affecting the security of tenants.