Can I Sell My Rental Property with Tenants Inside?
Are you a landlord who wants to sell your real estate property, but you don’t know if you can with tenants inside? The answer is yes – but there are exceptions to the process. If the house needs significant renovations before the sale is complete, it will make sense to wait until after your tenants move out before putting it on the market. This article will cover what you need to know about the process of selling rental properties when tenants live in them and avoiding legal pitfalls that could arise from such situations.
Can I Sell My Occupied Rental Property?
Being a landlord is often very challenging. Overwhelmed by the number of houses they have taken on, distressed over problem tenants, or the need to switch strategies are common reasons a landlord could want to sell their property.
Other landlords find it perplexing that anyone would want to sell a real estate property that is still rented and bringing in money. However, there are certain circumstances when it is preferable to unload a rental property for cash, even when tenants are still inside.
Although the situation is a bit more complicated when tenants occupy the home, it is legal to sell an occupied property as long as the lease agreement terms are upheld, the security deposit is transferred over plus interest, and proper notice is given. The seller can’t make them leave the property or alter their lease terms before the expiration of their lease.
The Advantages and Drawbacks of Selling a Tenant-Occupied Property
When deciding whether to sell with a tenant in place, consider the following factors.
The Terms of the Lease
- Month to Month – In this situation, the landlord needs to give the tenant the appropriate amount of notice under state law. If you’re thinking of selling your home soon, talk to your real estate agent about whether the buyer should decide whether or not to keep a month-to-month tenant or terminate the tenancy before closing.
- Rent-Controlled Real Estate Properties – If your property is in a rent-controlled area, check the applicable legislation to ensure that the new buyers may terminate the lease if needed.
- Lease Agreements – If the tenant has a lease, the time remaining will be a significant consideration for buyers. Investors, for example, might be attracted by a long-term tenant as worthy investment, but many people could find such an arrangement too expensive.
Selling an occupied property is advantageous to some potential buyers and a drawback to others. Many real estate investors are eager to acquire a property with an existing tenant who is current on their rent, has a fixed term lease in place, and a security deposit. For income properties, having stable, well-paying tenants already in place helps a new owner realize their profits quicker.
Buyers who plan to reside in the property but cannot move in immediately may prefer a tenant-occupied property with a fixed term lease set to expire shortly after selling a property. Likewise, an active month-to-month lease is advantageous to the buyer because it can be easily dissolved when needed.
However, the existence of a tenant in your real estate property could reduce the number of potential buyers looking to move in immediately. Your urgency and timetable to sell the property will significantly dictate the type of buyer you want to target.
Multiunit complexes with several tenants can be attractive to investors looking for income properties. University towns and areas with many renters often attract investment-oriented potential buyers who won’t mind a current tenant in the home.
A look into the going market price of similar properties in the area will help estimate the potential pool of buyers. For the most part, people who buy high-priced houses intend to live in them and aren’t looking to make money by renting them to a tenant for cash. In this situation, few buyers will want to take on a high monthly mortgage payment while waiting for a low-rent-paying tenant’s lease to run out.
To get a better feel for what to expect when selling a house, place yourself in the shoes of various types of buyers and run the numbers on your property. Different investors will have different expectations for what constitutes a good return on investment.
Your Relationship with the Tenant
When selling a tenant occupied property, consider the individual characteristics of your renter.
- A tenant who doesn’t maintain the house or is uncooperative with communications would only impede your efforts to sell it to a new owner.
- A solid renter that is tidy, clean, communicative, and willing to help with requests for showings can be a great asset to the process.
- A current tenant who owes money or pays below-market rent is likely to be a headache for most purchasers.
What You Must Tell Your Tenant As a Landlord
Whether you keep your home or sell the property, the rental agreement dictates your tenants’ rights and does not change. If they sign a one-year fixed term lease, the terms of the agreement must be upheld if there is no early termination clause, even if you sell the occupied property.
Long-term lease tenants can only be forced to move out of a property if the owner or a direct family member moves in. When a seller is seeking to sell a house to a buyer, if the tenants are unwilling to accept the proposed lease termination terms, the seller will be responsible for finding a buyer who will take over the months left on the fixed term lease. For this reason, many landlords need to wait till the current lease expires to sell their home. Without finding a buyer willing to take on the months left on the lease, the seller cannot force a long-term tenant out prematurely without an early termination clause.
Month-to-month lease arrangements with tenants are much easier to handle because there is no long-term commitment. A seller will need to give notice to the tenant themselves or through their management company, but there are plenty of opportunities since the contract renews monthly. These tenants still maintain their rights prescribed by the rental agreement until its termination with proper notices.
Things to Keep in Mind When Selling a Rental Property
If the tenant remains after the home sale, there are several ways to market your home for better results.
Depending on the size and layout of your real estate property, you might wish to market it as a primary residence as well as a possible investment property after closing. This practice gives the buyer options as they pursue the property. Some buyers are looking for a new property but cannot move in until their place sells. Others are shopping for a new primary residence, but for various reasons and logistics cannot move in immediately. In these cases, such buyers may not be bothered by purchasing a property with a tenant since they can pocket some income while waiting to move in.
Sellers can do things to make a transaction go smoother, whether or not the tenant is still living in the property after it is sold. It also helps to keep in mind that any move is complex and that keeping track of showings and cleanliness aren’t things that will be at the top of your tenant’s mind.
- Consider your tenant’s schedule. Provide at least 24 hours notice for any showing, being respectful of your tenants’ schedules and commitments.
- During showings, ask the tenant to leave the house. Create a peaceful environment to show the property. The buyer should be able to freely view the property without a tenant watching. Offer to pay for their trip to the coffee shop during the showing.
- Help your tenant keep the house in good condition. The condition of the home is your responsibility. Offer to hire a cleaning or yard service and pay the difference if the property is on the market.
- Help your tenants find a new home, if feasible. If you have other investment property, let the tenant know if there are any vacancies. Offer to pay moving costs or put a good word in with other sellers; helping them vacate quicker could help the bottom line.
- Ensure all tenants have paid all their rent. It’s not a good selling point if the renter is delinquent. It’s time to take action if the tenant is remaining and behind in paying rent.
Although financial incentives may assist the process, sellers should not overlook the value of politeness and understanding to the tenant. While you own the property, it is still the tenant’s home while it’s up for sale. An unhappy renter can easily break a sale transaction, especially if they refuse house visits or cease cleaning.
We Can Help You Get Out of Your Property
If managing your rental property has become a nightmare, and you are distressed by tenants who don’t pay the rent, we have several options to help you get out of your property. When landlords sell rental homes, they frequently gain new freedom and peace of mind. Imagine being able to move on with your life once you’ve sold the property and no longer having to deal with difficult tenants.
At Rocket Eviction, we have several options to acquire undesirable rental properties from landlords such as you who are tired, weary, dissatisfied, and want to get their lives back together. We understand the struggles when you own and manage rental properties and are here to help relieve the burden of such a difficult situation. We will assist you in selling your current property for a fair market price as quickly as possible.