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robmandu's avatar

Suggestions for selling a rental property with a tenant?

Asked by robmandu (21306points) January 19th, 2012

I might want to sell a rental property I’ve got. The current tenant has about a year left on the lease.

This is problematic because potential buyers who want to live in the house themselves would, of course, want to walk through. My tenant doesn’t really have any incentive to assist with this process and might not want to participate, making showings difficult.

Or we could limit prospective buyers to only those who would keep it as an investment property… to continue renting it out. But the conventional wisdom there is that those kinds of buyers only want to buy a great deal, driving the price down.

Have you sold an occupied rental property before? How did you overcome these challenges? What others came up?

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11 Answers

marinelife's avatar

You can offer the tenant an incentive to leave and show the property vacant.

You can tell the tenant that you are selling. I am supposing your rental contract requires them to accept showings, etc.

SpatzieLover's avatar

@robmandu I don’t have your lease in front of me, however I’d bet it states you may give 24 hours (or less) to enter as long as you’ve given notice.

All you’ll need to do is give written notice of times/dates you’ll be showing the property.

We show occupied units all of the time. It’s quite common.

If you think your tenant will intentionally make this problematic for you, then that will need to be accomodated for. A video and photos can be taken for those that are “just looking”. For those that are truly interested, you schedule a follow-up appointment.

I’ll answer more later when I have time

robmandu's avatar

To be clear, I haven’t talked to my tenant… never even met him. All contract and payment is thru a property mgmt company. And yes, the lease agreement does require the tenant to allow showings.

So… obviously, I will need to talk to the tenant here in the short term and discuss expectations.

But just because I have a contract that says the tenant must allow showings doesn’t mean he actually will, nor that the property will actually be clean & tidy for those showings. It is his legal residence after all and there’s very little I can do to force him to help. Going to court to mandate a stubborn tenant’s cooperation is failure.

Remember, the tenant is facing the prospect of having to move far earlier than originally planned and must accommodate strangers walking the house for no obvious benefit, only stress.

@marinelife… you suggest offering an incentive… but like what exactly? Cash? Percentage of final sale? Bonus if final price is above a certain amount?

@SpatzieLover… I’m probably overthinking all this. I’m just trying to not be surprised by difficulties I should be able to manage. Are tenants typically helpful with this process?

Judi's avatar

What state are you in? In California, the new owner would have to honor the lease to the end of the term. If this is the case in your state, you may want to wait until the end of the lease term to put it on the market and let your tenant stay on a month to month basis.
The idea with the most risk but the highest possible return would be to wait until the lease is up, don’t renew the lease, vacate it and make any necessary cleaning and repairs. You will probably get a higher price without the extra baggage, but you risk having it vacant and losing money for several months if it doesn’t sell right away.

Seaofclouds's avatar

@robmandu Is there a provision in your lease that talks about your right to sell the property and how much notice you must given your tenant in the event of a sale?

hearkat's avatar

I’m confident that realtors deal with this often, so ask around in the process of interviewing the agent you want to represent you.

We are currently in a rent-to-own lease—you might want to see if the current tenant would be interested in purchasing the property for themselves.

marinelife's avatar

@robmandu I was thinking of the price of a security deposit or a few hundred dollars to move.

nikipedia's avatar

Do you have any reason to believe he’s going to give you a hard time? If my landlord asked me to keep the place nice because he’s going to sell, I’d be happy to, especially if he offered to pay for a professional cleaning service.

HungryGuy's avatar

You need to give the tenant advance notice that you’ll be entering the apartment. Depending on your state/country, that can vary from 24 to 48 hours in advance. But once notice is given, the tenant can’t refuse to let you in. Your building is worth more to investors if it’s fully rented, so don’t encourage the tenant(s) to leave.

Perhaps you can meet with the tenant and explain that a new owner can’t change the terms of the lease or raise the rent in the middle of the lease, so the tenant should have nothing to fear from the change-of-ownership. Maybe even give the tenant a break in the rent for a few months if he cooperates by keeping the apartment in “show” condition at all times.

Judi's avatar

@HungryGuy , I agree to some extent, but if it’s a house, unless it’s in a neighborhood where there are not many owner occupied homes, a rental might not be
the highest and best use” of the property. It might be worth more if it’s sold as a single family owner occupied residence..
Ask your realtor (if they know anything about rental properties) what the current cap rate is for residential investment homes. Have them also give you a competitive market analysis based on an owner occupied home. Do the math and see which way to market the property will net you the most., keeping in mind the potential rent loss if you market it as owner occupied.

YARNLADY's avatar

Find the best way available to get rid of your tenant – buy out their lease or whatever is required.

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