Selling a property with tenants can present unique challenges and opportunities for real estate investors and homeowners alike. Let’s explore the strategies to make the sale process as seamless as possible while maintaining positive tenant relations.
Option 1: Wait for the lease to expire
Pros
Allows time for updates: If you can wait until your tenants move out, you’ll have the opportunity to clean, make any cosmetic updates, and generally enhance the home before listing it. This can help you achieve a higher sale price.
Can alleviate timing issues with closing: In a hot real estate market, your home might sell faster than anticipated. Depending on lease terms and state regulations, you could face challenges evicting tenants on time. Listing an unoccupied home allows you to accept the best offer without worrying about timing issues.
Cons
Mortgage carrying costs: Every month without tenants means you’re responsible for the mortgage payment. If preparing your home for sale, listing, accepting an offer, and closing takes several months, you’ll bear the full carrying costs during that time.
Option 2: Sell with Tenants in the home
Pros
Built in Staging: When a home is furnished, buyers often find it easier to envision themselves living there. If your tenant has maintained the home well and decorated it attractively, it could make the property more appealing to potential buyers.
It’s attractive to investors: Having tenants already in place can be a significant selling point for buyers looking at the property as an investment. It saves them the hassle of finding tenants themselves!
Cons
Disgruntled tenants can make showings difficult: You’ve just informed your tenant that they need to move out, and now you expect them to maintain the home in show-ready condition and accommodate showings and open houses? This can be challenging, and unpredictable tenants may affect how well the house presents to potential buyers.
Review Lease Agreement to determine legal options
Regardless of the path you choose, the first step is to review the lease agreement with your tenant and familiarize yourself with your state’s notice-to-vacate requirements. Your real estate agent can be a valuable resource for understanding local legal obligations and providing tips for a successful sale with tenants in place. What actions you can take and when will largely depend on the specifics of your lease agreement.
Month-to-Month Lease
Send a letter to your tenants informing them of the lease termination date and their move-out date. Most states require either 30 or 60 days’ notice, so be sure to check your local laws. Whether you can show the property while they are still residing there will depend on the terms of your current lease agreement.
Fixed-Term Lease
If the lease has an early termination clause, you can end the tenancy with appropriate notice. If not, you’ll need to wait until the lease expires. The exception is if the tenant has not paid rent or breached any lease terms, in which case you might be able to terminate the lease early.
Offer your tenant a chance to buy
If your tenant loves their home, they might be interested in buying it. It’s perfectly fine to discuss this option directly with them. However, if they show interest in purchasing, it’s important to work with a real estate attorney. There are several ways these transactions can be handled:
- A lease-to-own agreement with a one-time, non-refundable option fee that grants tenants the right to purchase the home within a year at a predetermined price. During this period, they continue to pay rent.
- A lease-to-own agreement that is structured so a portion of the rent goes toward a down payment.
- A seller-finance agreement where you, as the property owner, act as the lender instead of a bank. The tenant agrees to make payments to you over several years, often culminating in a balloon payment. The main advantage for the seller is earning interest on the loan. To utilize this option, you must own the home outright, without a mortgage.
Curious about selling your property? Read more at Selling Your Home with The #KodySoldMyHome Team