Selling a tenant occupied property can be tricky but it may not be as difficult or intrusive as you think. Over the years I’ve had the opportunity to learn a lot about the best ways to market and sell a tenant occupied property.
Tenants Have Rights and They Know It! (But You Have Rights Too)
Read your lease to better understand specifics that may apply to your situation. In general, a tenant must be given a 24-hour notice for any intrusion into their space. But, they cannot deny entry if proper notice is given.
Showing rental property with a tenant in place can be tricky. It’s important that the Realtor handling the sale develop a rapport with the tenant to ease their fears and explain processes. If there is a property manager involved the real estate agent will also communicate with the property manager on your behalf.
What Are Your Lease Terms?
Typically, there are two types of leases. Month by month and long term fixed leases. Each are handled different. If you have a property manager in place, that too is handled differently. Read your management agreement to better understand your obligations with the property manager.
Month by Month Lease
In most states you will only need to give a 30-60 day notice to the client that the lease is ending. In most situations, you will not need a cause since the lease is month to month.
Many of my clients like to leave their short-term renters in place if they are marketing to investors. That way, their is a renter in place and a new lease can be negotiated after the sale.
In this situation, think of the tenant and most likely the property manager as a fixture. They run with the sale of the property. Their lease terms and length remain in place unless there is a clause that allows you to terminate the lease early.
Long-term renters usually know their rights in this type of situation and if they have been long-time renters they can be uncooperative about a sale. If you find yourself in a situation where a tenant is uncooperative with showings or entry to the property it may be best to wait until the lease term ends and then market the property for sale.
Selling a Tenant Occupied Property to Different Audiences
Basically, when you sell a tenant occupied property you have three audiences. The tenant themselves if they want to purchase the property, investors, and the owner occupied buyer.
Selling to the Tenant
A smart move when listing the property is to offer to the tenant first. Ask your Realtor if they will allow for a variable commission if they represent both sides in this type of sale. This will allow you to have more negotiating room to offer a “deal” to the current tenant.
In my experience, most tenants will drag their feet about qualification and mortgage application because they do not qualify for the mortgage. Be sure and set a time limit on how long the tenant has to prequalify before you will offer the property on the open market.
Selling to an Investor
Investors are looking for a good deal so if you are listing at or above the comps for similar properties it most likely will not be attractive to an investor.
When marketing to investors know your gross and net rent values. Gross rent is the amount you receive per year from the tenant and the net is that amount less all of your expenses. The investor is going to look at the return on investment (ROI) to determine if the purchase is a smart buy. The good news is that most investors do pay cash for property.
Selling to an Owner Occupant
If you are on a month-to month lease this will not cause an issue. You will be able to notify the tenant in enough time to vacate the property within 30-60 days. However, a leaseback may be needed for a quick sale.
For longer leases, the new owner will need to honor the lease until the term expires. This means that they will not be able to occupy the property immediately after closing. Many times, this type of buyer will exercise the early termination clause if there is one.
Be aware that many mortgages will not allow for a buyer to purchase property with a long-term lease in place. This may eliminate some interested buyers.
For more information on selling an investment property, connect with us!