How a tenant changes what a property is actually worth

When a landlord decides to sell, the tenancy does not disappear, and neither does its effect on value. Whether a property is worth more or less with a tenant in place depends on who is likely to buy it and what the lease actually says.

The lease travels with the sale

In Ontario, a new owner inherits the existing tenancy on the same terms, including the rent amount. A valuation has to account for this, because a buyer who wants to move in themselves faces a longer timeline and added cost compared to a vacant purchase, while an investor buyer may see the same tenancy as a value-add.

Below-market rent is a discount on value

If the current rent sits well below what the unit would command today, an investor's valuation will reflect that gap as reduced income potential, even though the property itself hasn't changed. This is one of the more overlooked factors in pricing a tenanted investment property, and it can pull the appraised value below what an identical vacant unit would fetch.

• Pull the current lease and rent roll before pricing the property
• Compare current rent to what similar units are renting for today
• Confirm deposit records match what the tenant actually paid
• Flag any arrears or disputes, since these affect buyer confidence and price

End-of-tenancy notice affects the buyer pool

A buyer intending to occupy the unit can require the seller to serve notice under the proper legal process, with compensation and a defined notice period. This adds time and cost to that path, which narrows the buyer pool to investors or patient owner-occupiers, and a smaller buyer pool typically means a softer price.

What this means for pricing the sale

A seller trying to value a tenanted home should get comparable sales of similarly tenanted properties where possible, not just vacant comparables in the same building or neighbourhood. If those are scarce, adjust the vacant comparable downward for the rent gap and the reduced buyer pool, and upward if the rent is strong and the tenant is reliable.

For investors evaluating a purchase

Buying a tenanted property means valuing the income stream as much as the building. Confirm the numbers before waiving conditions, since a rent that looked attractive on the listing sheet can turn out to be well below market once you compare it properly.