If you are a landlord selling a rental property with tenants, there are plenty of factors to keep in mind to ensure a successful transaction. Owning a rental property is often a profitable investment. Still, there are times when selling a property is the right decision to make, especially with a volatile market that can change at a moment’s notice.
Any owner selling property with tenants should be wary of this process. If it’s time for you to sell, you’ll want to ensure that all parties are satisfied and avoid potential legal complications. Here’s what you need to know.
Reasons to Consider Selling House with Tenants
There are plenty of reasons a landlord may consider selling a house with tenants still occupying the space. Below are some of the most common factors that go into making such a decision:
- Changes in Market – Some sellers’ markets can see double-digit increases in property values after each year. In these cases, it may be a good idea for a property owner to sell and cash out with some accrued equity. On the contrary, real estate owners may consider a 1031 tax-deferred exchange, where properties held for investment or used in a trade/business can be swapped tax-free for similar real estate. This way, an owner can look at another area with a growing population and rising rent prices.
- Accidental Landlords – Investors can sometimes become “accidental landlords” when they inherit property. In cases where an individual simply doesn’t want to be a real estate investor, they may decide to sell and move on. In these cases, sellers are only responsible for capital gains tax from the time they own the property, and by selling quickly, they will have minimal tax consequences.
- Occupied Properties May Increase Value – According to the National Apartment Association, selling a property that is occupied by a tenant can increase value since there is an existing cash flow.
How Can I Sell My Rental Property with Tenants in It?
There are several factors to consider when selling rental property with tenants, and investors should be fully aware of how these can alter the swiftness of sale, as well as who the property sells to. Some of the most important things to keep in mind during this process include the following:
- Remaining Lease Term – When a tenant’s lease is reaching its conclusion, an investor is given a much larger pool of potential buyers, such as those who are looking to purchase a primary residence. Once a property is under contract and all the inspections and financing contingencies are sorted out, a seller can give a tenant notice that the lease will not be renewed. When it comes to selling a property occupied by tenants with a large amount of time left on their lease, property owners can opt to sell to another investor. Since there is always a strong demand for rental homes, having a reliable tenant in place can be seen as a bonus by many potential buyers.
- Property Type and Location – Any seller should be aware of the market in which their property is located, as well as the other type of properties located within that market. Meaning, if a property owner is selling in a market with a high percentage of renter-occupied households, they may have a better chance of selling to another real estate investor. The percentage of renters within a local market is a big potential indication that people in the area prefer to rent rather than own, and sellers can use this information to their advantage.
- Tenant Behavior – Understanding the behavior of your tenants is critical to facilitating a successful sale. Tenants who are clean and reliable may be more cooperative with showings when their landlord is selling, whereas messy and uncooperative tenants may become a liability. If it seems likely that a tenant may hurt a sale, it may be best to offer an incentive for those tenants to leave before the lease expires.
- Consider Selling to Tenant – Landlords can have the option to sell a rental property to the tenant. They can also consider assisting the prospective buyer with closing costs or first-party financing if the tenant has trouble qualifying for financing or coming up with the down payment.
With all of these points in mind, there is still a very clear-cut approach to selling a house with tenants, which often depends on the type of lease. See below to get a clear understanding of how lease types can impact the sale of an occupied property:
Month-to-Month Leases– In most states, landlords are required to provide a 30-day notice to terminate a month-to-month lease agreement, and this notice can be sent through mail or personal delivery. Note that most states also require a landlord to give a 24-hour to 2-day notice before entering the property for non-emergency situations. Fortunately, landlords can terminate a month-to-month lease without any reason. Finally, some buyers may actually benefit from buying a tenant-occupied property with this type of lease, as they can either extend it or start a new one with another tenant.
- Long-Term Leases – In these cases, landlords can either wait until the lease expires or offer an incentive for terminating the lease earlier. Also, if a tenant is violating any aspect of the lease, landlords have the right to terminate it early with proper notice.
Get More From Your Rental Property
As a leading company in property management in Greensboro, NC, SLT Properties strives to provide quality services for both property owners and tenants looking for rental homes. If you’re interested in selling rental property with tenants, contact us today to learn more about how we can help you facilitate the process.