As a landlord, you may choose to sell your rental property for a variety of reasons.
Regardless of the reason, selling an investment property takes a little extra work due to the fact that someone else is typically living in your home. Selling a renter-occupied home requires coordination with your tenants to keep the house in show-able condition during the listing period and accommodate agents popping in to show the house to buyers. You may also experience challenges if your tenants do not want to move.
Reasons You May Sell Your Rental Property:
- Perhaps you are moving and don’t want to be a long distance landlord.
- Maybe you inherited the property, with no intention of ever being a landlord.
- You may live in a hot real estate market and you’re ready to liquidate your investment.
- Or you might be simply ready to get out of the landlording game altogether.
It may seem logical to wait until your tenants move out before putting a rental property up for sale. In this situation, a seller must decide if the convenience of selling an empty home is worth the potential income loss if the property sits vacant for too long. According to Realtor.com, the average days on market for homes sold in January 2019 was 87 days, nationally. Depending on where you live, the selling period could be longer or shorter. That could be rental income you might not be willing to part with.
In other cases, you will decide to move forward with a sale when a renter still occupies the home. Most state laws allow homeowners to sell their investments at any point during ownership, even if it is currently occupied by a tenant. The best way to make the sale of a renter-occupied home go smoothly is to communicate with your tenants to work together and coordinate schedules.
Tell Your Tenants
The most important step in dealing with your renters during a sale involves active communication. You should not be afraid of an in-person conversation with your tenants explaining your plans with selling the property. Personalizing the experience with your tenants will help them feel included in your decision and will encourage their participation during the process.
The success of dealing with a tenant during a sale is less about the message and more about how it is delivered. Give your tenants time to decide if they want to move, advanced notice before showings, and incentives to work with you during the process.
Empathize with Your Tenants
Your tenants might be shocked to learn they might have to move before they originally planned. You will benefit from acting respectful and accommodating to their reaction. Outline your timeline and explain the process so they know their options.
Tenant options can include:
- Start the moving process now
- Wait until the sale goes through and move then
- Hope that the buyer will keep the property as a rental and the tenants will not have to move.
Depending on the terms of your lease you will have to deal with the need to handle your renter’s tenancy in different ways.
Fix-Term Lease Tenants
Your tenants are entitled to live at your house throughout the length of the lease agreement they signed with you. If you decide to sell the home before their lease expires, the new buyer will have to agree to take over the lease.
The other option is to arrive upon a mutual agreement with your tenants that they will vacate the home once it has been sold, ending the lease early. Any lease can be legally terminated before its end date if both parties agree. Landlords may be successful in reaching agreement about an early lease termination if they offer incentives like covering the cost of moving expenses or offering a rent discount.
Month-to-Month Lease Tenants
If your tenant is on a month-to-month lease, they have fewer protections in staying at the property during or after the sale. If you want your tenants to move before the selling process starts, you simply need to provide your tenants with written notice about the end date of their tenancy. The same holds true if you want the tenant to move once the house has been sold; just send them a written notice that their lease is up in XX days.
Depending on your state or city, you are required to notify your tenants before they must move, typically 30 days in advance.
Showing a Renter-Occupied Home
If your tenants remain living in the home during the selling process, you will need to work with them to have the home available for showings and in pristine condition. Home values have been known to drop because of the condition of the home and the lack of access for agents and prospective buyers.
A great way to encourage active participation from your tenants to work with real estate agents and accommodate showings is to offer incentives. Rent discounts are excellent monetary rewards for helping you sell your home.
Other incentives include:
- A weekly or bi-weekly cleaning service -this will keep your house in a clean state for showings, encourage your tenants to keep the place tidy, and will help your tenants get their security deposit back!
- Restaurant gift certificates or Movie Tickets for showing appointments – you will get your tenants out of the house for a fun activity when an agent needs to stop by.
- Hotel room during an open house weekend – Staying away from your home a whole weekend is a lot to ask, the convenience of a hotel room will be greatly appreciated by your tenants and give them a place to relax during a stressful time.
Taking the steps to include your tenants during the selling process will be beneficial for a smooth rental property sale. If you choose to work with a real estate agent, make sure they understand the terms of tenancy for your current renter. Additionally, you should consider these ideal buyers for your rental property.
Ideal Buyers of Your Rental Property:
- Your Tenant. Consider approaching your tenant. In some cases, your tenant may be interested in purchasing the home from you. Long term tenants with stable income may be in a position to purchase your home and avoid moving from the property they have come to love.
- An Investor. If you market your property as a rent-ready investment property, you may attract like-minded landlords who are looking to expand their portfolio. If you already have a responsible, rent-paying tenant, your property can look exceptionally appealing to a smart investor who sees the benefit of collecting rental income right away by avoiding the process of finding their own renter.
Note to investors: If you are purchasing a renter-occupied home and plan to keep the same tenants, make sure to require that are entitled to conduct your own tenant screening and have the current tenants sign a new lease with you.