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Selling a Property with Tenants? Here’s What You Need to Know

If you’re planning on selling a home, there are many details to consider. Selling a home that’s currently being rented to tenants can add an additional layer to the process, giving the property owner even more to deal with.

Selling a property while a tenant is living there is perfectly legal. However, the lease you signed with your tenant protects their right to live there until their rental term is up, regardless of when a potential sale occurs. This can lead to issues for property sellers, as it adds an additional complication for potential buyers. As the seller, you must disclose to potential buyers that there are tenants occupying the property, and a legal lease agreement is in place. In turn, you must also disclose to the tenant that the home was listed.

Things to Consider When Listing Rented Homes for Sale

Purchasing an investment property to rent to tenants is a great way to invest capital and potentially earn a steady income. However, having tenants in the property can make it difficult to sell, even when you work with the top real estate professionals.

Let’s take a look at some of the most important details to consider when putting up currently rented houses for sale.   


Your Tenant’s Terms

If you’re in a long-term lease with a tenant that won’t end anytime soon, you will likely only be able to find a buyer who is also interested in using the property as a rental. 

In this case, having a tenant already in place might even entice such a buyer. If they are able to avoid the effort of finding a tenant upon purchase, you may have some leverage in this situation. 

However, interested parties that want to live in the home will likely not be willing to wait for the tenancy to finish. This is especially true if there are many similar homes available in your area that don’t have the added complication of a current tenant who is mid-lease. 

If your tenant is on a month-to-month lease, however, you have a much better chance of making the timelines work with both your tenant and the new buyer. All you’ll have to do is make sure your tenant is given the required amount of notice which is 60 days before they move out and the buyer assumes possession.


Cash For Keys

What is cash for keys? It’s a concept some savvy buyers and sellers will use as an incentive to offer the current resident to move-out of the home. This incentive is used by both buyers and/or sellers of a given property. The process starts with the current owner of the home offering the tenant a cash amount to agree to move out and terminate their lease. There are a few cases in which this can take place. The first is when the buyers want to reside in the property themselves, and aren’t looking to use the home as an investment property. The buyer can offer the tenant a cash amount an an incentive to move out. Sellers can also offer cash for keys. In order to have a more fluid sales process, sellers will often offer cash incentives to tenants to move out in order to market the property for top dollar. Lastly, property owners who are looking to bring their property up to market value can also use this incentive. This is seen often times in older properties that have appreciated in value, but have long-term tenants in place who are paying significantly under market rent. In some cases, it’s hard to obtain market value with a lease and rental controls in place throughout Southern California. Homeowners can offer a cash amount to tenants to move-out in order to place a new tenant at market value. In all cases, an agreement needs to be in writing, stating the amount agreed upon to terminate the lease and a date in which the tenant should be expected to move out. This method can take time and negotiation, but buyers who are serious about wanting the home to themselves, or sellers who may want to increase their property value can do so at their own expense and willingness of the current tenant.

Relationship with Tenant

Whether you manage your property yourself or use the services of a property management company, your tenant’s relationship with their point of contact will make a huge difference in whether you’re able to list your property during their tenancy. If your tenant hasn’t taken good care of the space or isn’t cooperative with the sales process, it may turn away interested buyers. If you have a good relationship with your tenant, scheduling showings will most likely be a breeze. As long as you are communicative on times, days, and current situations, your tenant will most likely be much more willing to work with you on scheduling times to show the property. 

If you don’t have the best relationship with your tenant, you’ll want to make sure you find a way to meet in the middle as showings are crucial to selling the property. Find common ground, keep them in the loop, and be courteous of how this process affects them as a tenant. Finding common ground will benefit in the success of your sale in the short and long run.

Property Type

The type of property you’re selling makes a big difference when it comes to having tenants currently on a lease during the sale. The location of the property can also make having a current tenant more or less attractive to potential buyers. 

For example, if the property you own is located in a college town where buying investment properties is extremely common, you will likely be able to find a potential buyer who doesn’t mind having a current tenant upon purchase or even prefers it. 

Your chances of finding a great buyer will be even higher if the home is priced appropriately according to local market value. Do some research about the current value of similar homes in the neighborhood and weigh those numbers against the pros and cons that a current tenant might pose to a potential buyer.

Is Selling a Property with Tenants a Good Idea?

You certainly can sell your investment property to a new buyer while a tenant is still living there. The question is, should you? The answer to this question lies in your intentions behind selling your property. 

If you’re aiming to list your home above market price and sell for top dollar, you’re unlikely to find a buyer who is also willing to wait for a tenant to end their lease and eventually move out. Generally, buyers like this are planning to move into the home and want to do so right away. Overall, homes without tenants show better and give you the option to professionally stage the property. This allows you to market your property at the top of the market and display the home in its best light.

If you’re looking to attract other real estate investors to your property, having a current tenant shouldn’t be a problem as long as they have taken great care of the property and are cooperative with the sales process.  

Get Your Real Estate Questions Answered by the Luxury Real Estate Professionals

Selling homes is always complex, and extra details like current tenants can make it even more stressful. The team members at AllView Real Estate are experienced in both residential and investment sales as well as residential property management. They can navigate all types of home sale situations, and even manage the coordination between tenants, the seller and prospective buyers at all properties that they manage.

From residential, multifamily and commercial real estate to investment properties of all kinds, the professionals at AllView are here to help you optimize your sale and find the perfect buyer. Connect with us online or call us at (949) 400-4275.

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