Real Estate Marketing & Beyond
Selling a tenant occupied rental house can be challenging but there are several things you can do to make it easier. The place to begin is by reviewing your state and local landlord ordinances for regulations affecting the rights of both you as the landlord and those of the tenant. There are two primary areas of interest with this. First, what is required for you to access your property (buyer showings) when it is tenant occupied? For nonemergency access, most local regulations require at least 24-hour notice to the tenant. The second is how much notice is needed to require the tenant to vacate if it is a month-to-month rental. If there is a lease in affect, you’ll almost certainly have to honor the lease unless the renter has violated a clause that voids the lease. This review can also be a catalyst for adding a sale’s clause to future leases.
Your next move should be having a conversation with the tenant about the selling process. Come prepared with several options to gain the tenant’s cooperation. Lead with your preferred option but have backups ready if you need to compromise or provide more incentives.
Clearly, it’s much easier selling a rental that is vacant but that will cost you lost rental income. Still, it’s worth considering because it typically shortens the time it takes to sell and eliminates a lot of hassles. If it’s a month-to-month rental, you can simply follow the required written notice to vacate, which is typically 30 to 60 days.
If there are multiple months remaining on a lease, you’ll need to offer incentives. These will vary greatly depending on your local market circumstances and the willingness of the tenant to move on. If the person has violated the lease, you might be able to use this to terminate the lease. Otherwise, you’ll probably have to pay moving costs at the least. You may also have to pay for the new security deposit and/or any rent increase equal to the number of months remaining on the lease. In the end, you might not be able to terminate the lease and will have to wait it out or sell the property while it is occupied. The best place to begin negotiating a lease termination is by showing the renter empathy and learning what is most likely to motivate them to move on.
If you are selling an occupied home, you should consider seeking out another investor. Someone prepared to deal with tenants. An investor will want to negotiate a low selling price but will also appreciate having a tenant in place – especially a well behaving tenant with a record of paying on time.
Why not ask the tenant if he or she is interested in buying the home. If they can afford the rent, they should be able to afford the house payments. Lacking a down payment or having less than stellar credit is probably their main obstacle. If you’re in the right position, you could offer some type of seller financing. This opens a wide range of options including a balloon payment in a couple of years.
If those options don’t work for you, you’re going to want the cooperation of the tenant. Again, this usually involves incentives. You can offer a rent reduction for their eager cooperation and keeping the house cleaned up for quick showings. If you want to hold an open house, you should offer to put the renter up in a nice hotel for a long weekend. An alternative or additional incentive is hiring a weekly cleaning service. Point out to the tenant that this can help recover their entire security deposit when they do move out.
For regular showings, a gift card to a restaurant, movie tickets, or similar out of the house incentive can do the trick. But make sure any pets are taken care during these times.
If you’re stuck with a hostile tenant that won’t cooperate and hasn’t broken the lease, you’ll probably have to wait out the lease.
I would like to hear about your experiences selling a rental home. Please leave a comment.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for eleven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.
Great article Brian. Tenant cooperation with showings is always key whether you are trying to sell or simply find your next tenant. I always make sure my leases have a clause allowing at least two open houses for this purpose. It's easier on the tenant if you can group the showings at one or two times instead of random showings for a month.
Also, check with your local REI club if you are looking to sell an occupied rental. Find a realtor or buyer who is looking for a turnkey Buy and Hold investment. Let them know you have an occupied property with a great tenant and are looking to sell. You can often find plenty of interested professional buyers there who aren't turned off by the fact that it's occupied by a renter like most retail buyers would be.
Domenick | AccidentalRental
Domenick,
Thanks for adding more details to the article.
Brian Kline