Should I wait to sell until my tenants’ lease is up or should I try and sell with tenants in place? We’ll weigh the pros and cons of each situation and provide advice on how best to get your rental property sold quickly and efficiently. Remember, you must always honor the terms of your lease and a lease is not terminated on sale of the property.
Pros of Selling A Home With Tenants in Place
Selling a home with tenants in place allows you to generate rental income during the sale process. If your rental operates on a thin margin, one or more months of vacancy may be enough to put you in the red. If you vacate the home and it does not sell quickly, you may find yourself in a cash flow crunch.
Eyes on the home
Tenants provide the benefit of daily eyes on the home. The risk of something happening to your home while vacant is much higher than when it is occupied. Leaking or broken plumbing, vandalism, and other unforeseen calamities occur more often while a home is vacant. If your home must be vacant and you are not in the area to check on it, hire someone to check on it weekly.
Once tenants are made aware that you are selling the home, they can do the necessary upkeep and light maintenance associated with keeping a home ready to show. They mow the lawn, collect the mail, and keep the house clean for showings.
Non-traditional financing options
When you sell a home with tenants in it, you are automatically selling into a narrower pool of potential buyers. The upside to having tenants is tied to the income that they provide. Potential buyers may be able to utilize a non-traditional financing option wherein they don’t have to use their income to qualify for a loan. The monthly rental payments, if equal to the monthly costs associated with the property (taxes, utilities, etc..), can be used to qualify the buyer to take out a mortgage on the home.
Timing of the end date
If your lease ends in the winter (in Michigan), you may be able to extend the lease into the spring so that the home does not stay vacant during the winter months. The home is in greater jeopardy of unforeseen maintenance issues during these cold months.
Cons of Selling A Home With Tenants in Place
Less Pride Of Ownership
Tenants have no vested interest in your home selling and generally won’t do much to keep the home in tip-top shape for showings. While most of the tenants we work with during a sale period are helpful and cooperative, there is seldom the level of sparkle shine that a home needs to be appealing to potential buyers.
Renovations Take More Time And Are More Expensive
If the tenants are still living in the home it is harder to schedule updates and repairs. The extended time and effort that goes into projects like painting and re-flooring add extra costs to your renovation process, delaying your ability to put it on the market, and some renovations may not be possible at all with tenants in place. If your home is already in good condition, then getting minor repairs done during the tenancy is possible, but major projects will be a hassle.
Scheduling Showings Is Harder
Tenants have rights that must be honored regarding showings. This makes it more difficult to show the home during their tenancy. If your lease has terms for showing to potential buyers and lessors during the lease period this will be easier, however, you still will be able to show the home less often so your chance of receiving an offer decreases.
A smaller pool of buyers
You are eliminating most first time and owner-occupied buyers that need to get into a place quickly when you sell a home with tenants in place. There are instances where a buyer can wait a few months for a lease to end to occupy the property, however, you will find that you are mostly limiting your sale to primary investors who are looking for aggressive deals.
Best Strategy for Selling Your Rental Property
We have sold for more than 100 rental property owners over the last several years. Most of the time we find that coordinating the sale around the lease end date is the most effective way to go. Here are the steps we suggest you take to sell your rental property in a timely, efficient and profitable manner.
- Make a plan for selling the home in advance of the tenants leaving. Notify the tenants that you plan to sell the property, schedule a walk through to determine condition, and make a list of needed updates and repairs. If you are out of the area, contact us and we will be happy to evaluate the property for you.
- Get a free home evaluation to determine which repairs will add to the value of the home and what you should expect your net proceeds to look like when the home sells.
- Hire and schedule contractors to get the work done in the weeks immediately following the tenants’ move-out. We can usually get the home on the market within 1-2 weeks of it being vacant if the renovations are underway upon the tenants’ move-out.
- Price the home right and back it with an aggressive, proven marketing campaign to get it under contract and sold quickly.
This is a proven plan that we use over and over with our investment property sellers. If you are an out of town seller, we can coordinate the sale of your rental property from end to end without you having to even visit the area. This is a service that our client’s value and we are happy to explain how this can work for you. Just give us a call or drop us an email.
If you are a reluctant landlord and have been carrying real estate for years that is only marginally profitable or may be operating at a loss when calculating all the hidden costs, the market is now at an all-time high in our area and this may be the perfect time to divest profitably.