Becoming a landlord is a great way to generate additional income. At some point, you may get tired of dealing with tenants. At this point you probably think you need to put your rental property up for sale… or maybe you have already thought about it. You probably have questions about selling a property with tenants in it. Like is it legal to sell a house with tenants? Or maybe what are the drawbacks to selling rental property with tenants?
You really have 2 options when looking to sell. They are selling with tenants or waiting until there are no tenants. We’ll be clear about selling here, selling without tenants will be easier. There are numerous options for selling property with a tenant. It starts with addressing the lease and dealing with the tenants. The good news is that if you’re looking to alleviate the headache of dealing with the tenants and just want to sell the property with the lease in place, there are numerous options for that as well. Keep reading to see what options you have for selling the house with tenants.
Can You Sell A Rental Property With Tenants In It?
The legal aspect of selling a property with tenants still in it is absolute and you very much can sell it. There may be a few more hoops to jump through and some tenants can make the process more difficult. You legally can sell the property though. The type of lease and quality of the tenant can make a difference. Month-to-month leases or fixed-termed leases are the most common you’ll see when selling, and either lease will matter. The most important thing is to follow the terms of the lease agreement and not force the tenant out when they have a legal right to be there.
Leases On Your House When Selling A Property With Tenant
There are different types of leases you may have on your property. We’ll cover 3 types here, though one really isn’t a lease. Just knowing what kind of lease you have will help you figure out the level of difficulty you may have when you attempt to sell house with tenants.
A month-to-month lease also called a tenancy at will, allows lease rights to the property for an indefinite period of time. Either the landlord or the tenant can terminate at any time, following requirements stated from the lease or notice required by tenancy laws. In most states and counties, it is required to provide 30-day notice, though some may require 60 or even 90-day notice. To ensure your local laws, it might be best to contact an attorney for guidance. The pros and cons of a month-to-month lease to sell house with tenant. Let’s take a look at them.
Control over the end date. Either party has a greater level of control. If the tenant doesn’t like the location or they are dissatisfied with any terms of the tenancy, they can provide notice and leave. If the landlord is unhappy with the tenant’s performance of the lease, he may provide the same notice. It not only allows greater control, but great flexibility too.
Greater financial control. A landlord can change the rent every month if they choose. The tenant can choose to exercise their right to a better rent rate elsewhere. There also is generally a higher rental rate to allow that flexibility.
Peace of mind. Landlords can get rid of bad tenants easier and without having to evict them. A tenant can feel free to move at any time without having to worry about breaking the lease or finding a sublessee.
Moving out or replacing a tenant on short notice. If the new term isn’t renewed, finding a new home in 30 days can be extremely difficult. And landlords may be left fixing the property with the same notice to find a new tenant. This can leave them footing a bigger bill than expected.
Higher rents with less predictable income. As we mentioned above, a landlord does generally collect higher rents for that flexibility. However, because a tenant can leave at any time, they could have fluctuating income from month to month.
A fixed-term tenancy, or tenancy for years, has a defined amount of time. They generally start at 1 year and can be signed for any term both parties agree to. It will have a set start date and end date with terms the tenant will need to follow within the lease. This type of tenancy also has its pros and cons that you should read about.
Security and stability. Tenants have an assurance of a home for a specified period and price with no changes for a designated time. The landlord has a fixed, predictable income stream for the duration of the lease.
Reduced turnover. Landlords have less expense for turnover and prep for a new tenant. The tenant can ensure a longer rental period at renewal by complying with the rules of the lease.
Future planning. The tenant can make a plan to stay in the current property or look to buy by knowing their fixed expenses. The landlord will be able to plan for turnover and prep expenses at designated times to allow for little disruption to tenants.
Little to no flexibility. Because they are committed to the duration of the lease, should anything arise that would cause the tenant to need flexibility, like getting a new job, there would be expenses incurred for breaking the lease. For a landlord, if the tenant isn’t an ideal tenant, they would not be able to replace them by just giving notice and may require eviction.
Limited negotiation. Neither party would be able to negotiate the terms of the lease and would need to abide by all the rules set forth in it. Things like negotiation of repairs not required by law, change of the terms, or even a modification to the lease agreement would be bound by the lease.
Squatters are not legal lessees of the property but they do obtain the right to use the property by staying on the property for a period of time. There is a difference between squatting and trespassing. A squatter has been living in or on the property for a defined period of time and is given tenants’ rights while a trespasser may be in or on the property for just a short period of time and they can be removed. We address this because sometimes, landlords end up with squatters and are not sure what to do. There are no pros or cons to squatters and dealing with the headache will require legal counsel or by selling the house with a notice of squatters on the property. Neither is beneficial for a landlord looking to sell a property.
Challenges With Selling A House With Renters
There are challenges with attempting to sell a rental property and some you may not have even thought of yet. Here are 5 to know about when starting to decide how selling rental property with tenants should transpire.
Challenge 1 – The Smaller Buyer Pool
The buyer pool looking for properties like yours is much smaller. It’s more difficult to market to families or those looking to downsize. That shrinks the buyer pool significantly. Factoring in that the most likely buyer is a real estate investor who will be focused solely on the income and numbers the property performs at, makes your buyer pool shrink even more significantly. Going only after investors will provide a double-edged sword. Where their offer will be unemotional and only based on numbers, they are more likely to buy the property as is too.
Challenge 2 – Communication With Tenants
Most tenants like to keep things status quo. So upsetting the status quo without good communication could cause real problems including anger and animosity from the tenants. Tenants may not like the thought of having a new landlord or having to deal with showing the property, or even leaving the property to allow for showings.
Challenge 3 – Scheduling Showings Or Doing Open Houses
This goes hand and hand with communication with your tenants when you want to sell your rental property. They don’t want to be inconvenienced any more than anyone else. They will probably be worried about the new landlord. Factoring in the extra needs with showing the property and you might get a tenant that won’t cooperate or allow for showings of the property.
Challenge 4 – Buyer’s Fear Of Bad Tenants
Even factoring in everything you can account for and tending to those concerns, there are just some things that are out of your control. A buyer and their thoughts are among them. They may have fear for numerous reasons, like: your price, your rental amount, your history with your tenants, or even your tenant’s payment history. That’s before even factoring in due diligence when they get to look at leases and your financial history. No buyer would be happy to buy something that could cause them a major headache in the future.
Challenge 5 – A Lower Selling Price
All of these challenges can factor into each other and they can all lead to a lower selling price. Even just having tenants in place and depending on your lease and your understanding of your local tenancy laws, some buyers may not be willing to pay your price, or even come close to it. Investor owners looking to purchase will factor all these things into account when they are submitting an offer for your property with renters in it.
You may be able to overcome one challenge. Having multiple to deal with may just be too much. If you think any of these seem like challenges you don’t want to deal with or have multiple you don’t want to deal with, fill out this short form below and we’ll get started on an offer for you to sell your property with tenants.
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How To Sell A Property With Tenants Lease
I’m sure by now you’ve seen that selling property with tenant can make the selling process more difficult. We know that the best way to sell is without the tenant in the property as it allows for more and easier showings, you can prep the property for sale, and you don’t have to adjust your price because of the headache a buyer may have to deal with. Sometimes you have no choice but to sell with the tenant in the property. So how do you actually go about doing that? Well, here are 5 ways to address selling a home with tenants and how to deal with the renters that reside there.
Wait Until The Active Lease Expires
This kind of seems like a no-brainer to us. This means your tenants have moved out and you can sell the property with no tenants in place. Ideally, this is for someone who’s not in a rush to sell a property with tenants, has good cash flow, and has plenty of equity on the property. This would provide the same advantages that selling a property without tenants would provide: time and space to improve the property thus improving the rental rate and the price of property and fewer hassles when showing the property.
The downside to this is that you still have to manage the property. That means paying the mortgage and all the other debts, insure the condition of the property and paying for repairs and maintenance, as well as dealing with any other tenant issues. It also means that you are waiting to sell. While the lease may be defined, while the house is prepped and waiting to close, you’re still waiting to be paid for the property.
Negotiate An Early Lease Move Out
Sometimes buyers don’t want to deal with the headache and may want to wait until the lease ends or the tenant has left the property. If this is the case, you can speed up the process by offering to terminate the lease early so the tenant can leave. Remember that the tenant has the option to reject your offer and remain in the property until the end of the lease. Here are a few ways how to incentivize the tenant to accept the early move-out option:
- Offer to pay for moving expenses. Covering the moving expenses is a small price to pay when someone has to move on short notice. Giving them that peace of mind may be all they need to move into a new property.
- Offer to reimburse a month of rent. Letting them know that they will get one month of rent back may let them worry less about how to come up with the expenses of a new rental property. We would always advise them to pay this after they move out though.
- Pay the rent difference. If the tenant is moving into a more expensive rental, you can offer to pay the difference between the rent from their lease and their future lease on a different property. The comfort of knowing that they won’t have to make a higher rent payment for a period of time may allow them to move without difficulty.
- Pay for their security deposit. You may be able to entice them to move out by paying the largest chunk of what they will have to come up with to secure a new property.
- Offer an additional payout. Any payout provided should be factored with anything already provided to the tenant and ought to be weighed against any cash flow and the net profit of the sale of your property. Be advised that some tenants will try to accept your payouts and may still require you to evict them. It is why we always advise to pay them after they have moved out.
Sell the Rental Property To the Tenant
I’m sure you’re wondering why someone would consider doing this. Sometimes, your tenant loves the property and the location so much, they would find it extremely difficult to move. If this is the case, why not just sell the property to them?
This can be the fastest and easiest way to sell your rental property with a tenant. To be honest, it’s not one most people think of either. You know the tenant can make monthly payments and love the house, so this provides options that most won’t consider. Here are a few ways you may be able to proceed with the sale:
- Rent-to-own. This is an umbrella term for many different ways to give you the same result. In this option, the buyer EVENTUALLY buys the house. They secure a price on the property and rent it out until the time ends with the ability to buy it. Some options include the rent to be the down payment while other options may include a fee. You can read more about them here.
- Seller finance agreement, AKA Seller financing. With seller financing, you would act as the bank. The tenant would provide a down payment and make monthly payments to you and you would have a mortgage or deed of trust on the property to ensure payments.
For either of these ways to sell untraditionally to your tenant, we would advise having an attorney to help as there are numerous legal factors to process and work through.
Terminate the Lease
This one may be the most difficult. You may find it easier if the tenant has not made on-time payments or breaks the lease in any way, or if they are on a month-to-month lease. If for some reason, the tenant has not followed the terms of the lease, you can provide notice to rectify. If they do not rectify within the approved time, the lease terminates and you may start the eviction process. This can be lengthy and cause undue stress for both you and the tenant. This is not the method we would recommend to most.
In some leases, there is also the ability for the new buyer to terminate the lease with proper notice. We would advise you to seek further counsel and look at the terms you have in your lease.
Do Nothing and Sell With Tenant In Place
When selling a property with a tenant in place, you can address this in 2 ways. Use a Realtor to sell your house with a tenant or sell to a cash buyer/investor. Let’s go over both options.
List Your Property and Sell With A Realtor
As mentioned before, listing and selling with the tenants in place may provide problems for selling. By listing and selling with a Realtor, you may net the biggest return. The problem lies in waiting to see how long before the sale closes as well as the terms of the sale. Most investors will still expect a discount if having to deal with the tenant and anyone looking to buy the property to live in it will have to wait for the tenants to leave. This can create quite a dilemma for you. It can also lead to wasted time sitting on the market with more management of an unwanted property.
Sell to A Cash Buyer/Investor
By selling to a cash buyer, or investor, they will buy the property as is. That includes the tenants in place. This may be your best option if you want to sell your property with tenants in it. This means not only not having to deal with the tenant but not having to make repairs or fix anything.
Furthermore, some investors may actually like the fact that they have tenants in place. It would mean not having to find a new tenant and they could start collecting rent right away with the ability to cash flow in their sights. They may be looking for high cash flow or a good return on their investment. If you can provide this, you will easily find an investor buyer for your property.
If selling to a cash buyer or investor sounds like the easiest, quickest, and best way for you selling house with tenants, just fill out this short form below and we’ll get started on helping you get rid of that unwanted headache.
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How to Easily Sell A House With Tenants
As we have said, selling an occupied property with tenants can be difficult. Please recognize that they are doing you a favor and can make the sale even more difficult than you can imagine. So here are 7 tips to help make the process easier. And it all starts with good communication.
Notify the Tenant Of the Sale
It’s probably best to do this in person. Informing them of your desire to sell early in the process will go a long way toward easing their worries. And you might have even found a buyer before you even try. Be apologetic about the inconvenience and talk to them about your hopes during the sales process.
This would also be a good time to get everything out in the open about showings, expectations of the tenant for property condition, as well as any rebates you may provide. You would be able to answer any questions and provide receptiveness to their concerns.
Provide Written Notice
By providing notice after the meeting to recap, you in a way have created a revised contract with the tenant. This may be very beneficial when it comes to allowing for showings and maintenance of the property required for the sale of the property. Be sure to include expectations of the sale process, agreements on showing expectations and notifications, and any additional agreements to the change of the lease.
Seek Legal Counsel
Every state, county, and even city has different legal requirements and expectations. Renters are not required to break the lease for you to sell your property, or even vacate the property to show it. If there is no reason to terminate the lease, then you must follow the terms of the lease. This is why it’s important to seek legal counsel.
A real estate attorney will be able to provide you with proper guidance on how to avoid problems while selling your property to tenants. They can also advise you on the legality of the changes to your lease both parties have agreed to verbally. If there are concerns or issues with your tenant that could get you in hot water legally, they can advise you how to fix them to avoid going to court.
Maintain Your Property
You’ll need to keep your property in top shape, not only for your tenant but your future buyer. Follow the rules of the lease to repair and maintain the property as expected. Schedule repairs as soon as possible according to your tenant’s convenience. Consider hiring a handyman or cleaning service if there is too much to maintain or repair, or if your tenant isn’t adequately maintaining the property to maximize your sale.
Work With Your Tenant
Asking tenants to vacate the property for a showing can be an annoyance. These are common things you can do to help alleviate any burden on the tenants. Schedule showings according to their availability and avoid putting “For Sale” signs on the property. You can even go as far as helping them find a new rental property by asking a real estate agent or any other landlords you may know.
Keep Up With The Financial Requirements
You’ll need to make sure that your tenants are paying rent on time. This makes sure that the future buyer won’t start with a headache from the tenants not paying rent. But, first and foremost, you’ll want to ensure that you’re making the necessary payments for the property. This ensures no issues with the title or any encumbrances that could delay the sale or even stop the sale.
Communicate With the Tenant Throughout the Sale
Updating your tenants throughout the process about the new buyer’s needs, including seeing and inspecting the property can go a long way. The best touch may be to introduce the tenants to the new owner, or even the property manager if they won’t be interacting with the owner. It will allow them to start to ask questions and find out the expectations the new owners will have.
Schedule the Sale When Best For Transferring the Lease
When transferring a lease, you will receive all of the requirements and covenants of the tenant. That includes the security deposit and rent for the month. That means, scheduling for the end of the month or the beginning. It will make it easiest for the new buyers to take over without the tenant having to worry about the changes for at least a little bit of time.
Selling a property with tenants can be intimidating and after seeing everything you have to worry about, can feel overwhelming. You can elevate all of the worries by selling to a cash buyer. As we said, not only do you get to sell the property as is, but you can sell it with tenants. At SILT Real Estate and Investments, LLC, we can offer a fair cash offer to buy your property with tenants. And we can even help you close on your schedule, making the transfer of tenants easier.
Start by filling out this short form about selling your occupied property with tenants. If you have questions or just want to talk to us about your situation, you can contact us here or give us a call at (708) 425-3801.