As a landlord, selling a rental property with tenants presents several challenges. This is due to the simple fact that the process requires a firm grasp of several key aspects of the real estate business. Moreover, finding a property buyer who is willing to take on a tenant-occupied home can be quite difficult. To help you navigate this process, we have compiled a list of some of the most effective tips on selling a house with tenants.
Related: How to Sell Your House: A Complete Step-by-Step Guide
The Options That Are Available to You When Selling a Rental Property with Tenants
When you are trying to put a rental property with tenants for sale on the market, there are generally two options to choose from.
1- Transfering the Lease to the Buyer
Selling a rental property with tenants on lease is your first option. In this scenario, the tenant will remain on the premises after the new buyer acquires the property. This rental lease transfer to the new owner means that the new landlord will start collecting rental income according to the rental agreement that is already in place. This can be a big selling point for experienced real estate investors who prefer to buy investment properties that can generate immediate cash flow.
2- Finalize the Sale of the Property After the Lease Expires
The second option is to simply wait out the lease term. Waiting for the tenant to vacate the rental property leaves you with ample time to upgrade and clean the home before doing a showing. On the other hand, this can drag out for months and the vacancy period that occurs between the tenant’s departure and the finalization of the sale can prove costly.
The Challenges of Selling a Property with Existing Tenants
Before selling a rental property with tenants, it is important to be aware of some of the challenges that come with this process. Here is a look at the most significant ones.
1- The Market Is Fairly Small
The property seller will have to find a buyer in a substantially smaller market. This is due to the fact that the vast majority of real estate investors prefer vacant properties. The low demand for such properties can make selling a house with tenants a very lengthy process.
2- Showings Can Be Complicated
One of the main drawbacks of selling a rental property with tenants is the difficulties that you might face when doing a showing. A lot of tenants tend to react negatively to the sale of the property that they are occupying. As a consequence, they may be less likely to be open to the idea of a house showing and may even refuse to maintain the property in a presentable condition.
3- Discerning Landlords Can Be Difficult to Deal With
Selling an investment property with tenants attracts experienced and very discerning landlords. These potential buyers tend to examine everything with a fine-tooth comb and will try every trick in the book to drive the price down. This can be especially problematic when your rental property is occupied by a less-than-ideal tenant.
6 Tips for Selling a Tenanted Property
If you decide to sell the property with the tenant on lease, then you need to abide by certain best practices. The tips outlined below will guarantee a smooth and relatively quick real estate transaction.
1- Check Local laws
Researching local laws is a critical step of selling a rental property with tenants. The requirements and guidelines vary from state to state and it’s important to be aware of their implications. More importantly, checking the laws of your jurisdiction gives you a clear understanding of your obligations as well as tenants’ rights when a house is for sale.
2- Send a Notify Tenant of Sale of Property Letter
Informing your tenant of the impending sale is extremely important. You need to remember that the tenant has enough leverage to delay the process, so it is highly advisable that you proceed with the utmost courtesy. Informing the tenant is typically done via a letter that addresses local laws and explains the situation in detail. The key here is to maintain a good rapport with the tenant and avoid any unnecessary tension.
Related: What’s the Secret to Maintaining a Good Landlord and Tenant Relationship?
3- Pick Showing Times That Are Convenient for the Tenant
The first thing that you have to keep in mind is that your tenant needs a notice of 24 hours for showings. You also need to pick showing times that are ideal for them. Avoid showings in the early morning and take time to discuss the matter with the tenant to figure out the perfect window of time.
4- Help the Tenant Maintain the Rental Property
Maintaining the property should not be the responsibility of the tenant alone. As a matter of fact, the onus is on the landlord to ensure that the rental property is in good condition. Consider hiring a cleaning service throughout the listing period. At the end of the day, it’s the seller who has a stake in the sale of the home, not the tenant.
5- Consider Listing the Property Off-Market on Mashvisor
Off-market listings refer to properties that are sold outside of multiple listing services. Taking your property off the market offers you a lot of flexibility with regard to negotiating the ideal deal for you. It also makes finding the right audience much easier. Furthermore, the fact the listing is kept out of the spotlight will ensure that your tenant is not prematurely unsettled. Mashvisor offers the ideal platform for such listings. In fact, both homeowners and agents can list homes as non-MLS in the Mashvisor Property Marketplace.
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6- Make Sure That the Tenant Does Not Owe Any Rent
A problematic tenant that is behind on rental payments can be a major red flag for potential buyers. Make sure to sort everything out before proceeding with the sale. In order to avoid court action, you can offer to write off the owed amount in exchange for the tenant vacating the premises.
Related: What to Do with a Tenant Not Paying Rent
The Bottom Line
An existing tenant should not stop you from selling your house. As long as you market your property to the right audience and maintain a good rapport with the tenant, you can complete the sale in a smooth manner. If you still have some uncertainties regarding the process of selling a rental property with tenants, consider retaining the services of a qualified real estate agent.