Can I Sell My Rental Property With Tenants In It?
May 16, 2022
As a landlord, selling a rental property is difficult enough without having to worry about an existing tenant. Tenant-occupied properties can add many complications to the already complex selling process.
Not following the proper procedures when selling a tenant occupied property could delay the sale, make a real estate transaction fall through, or even allow legal action to be taken against you. Landlords need to act based on the tenant’s rights and the state or local landlord tenant laws. It’s also important to consider the buyer’s intentions in the sale. Do they want tenants or do they want a home to live in? In this blog post, we go through the several ways you can handle selling a rental property with tenants.
Review The Lease Agreement
A lease is a contractual agreement between a landlord and a tenant that gives the tenant the right to live in a property for a certain period of time. A rental agreement is a similar document, except that it is typically shorter in duration than a lease. Either contract is legally binding, and they outline the landlord’s and tenant’s rights and responsibilities. There’s no way around a lease or rental agreement without at least one party violating the contract or both parties consensually terminating it. This can bring about many complications if you decide to sell a rental property with an existing tenant.
Whether it’s a lease or a rental agreement, there are generally two types of agreements used to stay as a tenant in a property.
- Month to month
Month to Month Lease
A month to month lease is an arrangement where a lease agreement expires and renews after each month. Any alteration or termination of the agreement needs to be given with at least 30 days notice depending on your state or local laws. Although if the tenant has been staying there for a long time, it may be wise to give them more time to move out as they could feel attached to the property. The agreement can be ended by either party at any time, and neither is required to give a reason.
Month to month leases can be a written or oral agreement. However, it’s difficult to enforce the guidelines of a lease when it’s not in writing.
A fixed-term lease is the most well-known type of agreement used between a tenant and landlord. Fixed term leases are long-term agreements that usually last a year. They contain responsibilities for the tenant along with the landlord and are not easily terminated. If the tenant is following all the guidelines in the lease then they can stay for the entire duration, even if that’s through the sale of the property.
There are, however, ways to get a tenant out of a fixed-term lease before the contract ends.
1. Wait Until The Lease Ends
The safest and most recommended way to sell a house with tenants is to wait until their lease term is completed. Selling a vacant property allows you to avoid the fees or legal troubles that could come with having a tenant throughout a property sale. Although, there is a drawback to waiting for a lease to end.
If you have multiple tenants, the leases for the various renters may end on different dates, leaving you waiting on one tenant’s lease to expire while the other rooms may be empty. Meanwhile, the landlord will be responsible for making payments on the mortgage without the assistance of as many renters.
However, having a vacant property makes it easier to make renovations or upgrades because you won’t have to go through the process of getting approval from each tenant. Before deciding to wait until all tenants’ leases end, calculate the costs of keeping the property longer versus the added effort of selling with tenants in place.
2. Sell To An Investor Who Wants Tenants
Selling a tenant occupied property may actually benefit you in the sale process. Home buyers are not looking for a property with tenants in it, but some real estate investors actually prefer properties that already have tenants because it lightens the workload of having to find new tenants. In the sale of a rental property, the preexisting lease is transferred over to the new owner or landlord. The number of investors who are looking for properties with tenants is low and may make selling more difficult but it’s still an option.
Tenants can also give investors a better picture of what they can accomplish with the rental property and how much profit they could potentially make. Although, a tenant who is messy, behind on payments, or does damage to the property will send the opposite message to investors, making selling a lot harder.
3. Negotiate An Early Move Out
If you need a tenant to vacate early, the next step is to terminate the lease as soon as possible. This process may be costly but in some circumstances can be warranted. In order to negotiate an early move out, the landlord must get the permission of the tenant to terminate the lease early. Typically, it’s effective for landlords to offer something of value to the tenant in return for leaving early. This could be monetary compensation, covering the security deposit along with the first month’s rent of the tenant’s new place, or paying for the moving costs of the property.
Remember, the tenant has the right to refuse any proposed termination of their lease, which would mean that you’ll likely have to wait until the lease is up.
4. Use an Early Termination Clause
An early termination clause is an added section to a lease that defines the reasons, procedures, and fees in regards to terminating a lease early. The reasoning, procedures, and fees of an early termination can be anything as long as the tenant and the landlord both agree to it. Typically, an early termination clause will have a required 30, 60, or 90 day notice period.
In addition, many landlords charge a fee for the termination, which can be two months’ rent or a specified amount of money. If you decide to include an early termination clause, make sure that all of your tenants are aware of the clause by reviewing it with them.
Dealing With a Problem Tenant
Problematic tenants can make life as a landlord difficult. If they happen to be the tenant occupying the property that you’re trying to sell, it can make the selling process excruciating. Most landlords will try to avoid selling a property with problem tenants but in some cases, it may be the best decision.
The first step in dealing with a problematic tenant is finding out more about them and what issues are concerning them. A better understanding of your tenant will make them easier to work with when you host open houses and need access to the property. You can even try to help resolve the issue that is plaguing them if possible. It’s best that the tenant is not present during open houses. It’s also advised to encourage the tenant to keep the property in good shape for the potential buyers. An unruly resident at an open house will put off buyers and can ruin your chances of selling.
If the tenant still refuses to cooperate with you and impedes on the property sale, then it may be necessary to figure out a way to either terminate the lease early or incentivize the tenant to cooperate. This is when compromises and monetary deals may come into play. For example, you could offer to give the tenant a discounted monthly rent for a period of time in exchange for cooperation.
Notice of Eviction
The other method to dealing with a problematic tenant is to terminate their lease early. If the tenant has failed to live up to the responsibilities agreed to in the lease contract, then that makes them eligible to be evicted. The eviction process varies by state but it’s usually a long one. It begins with the landlord delivering an eviction notice to the tenant after the tenant fails to pay rent or violates a stipulation in the lease agreement. The notice period varies by state.
For example, there is a requirement of a 3-day notice for eviction in Ohio. Eviction should be the complete last resort for selling a property with a tenant. The process is costly, time-consuming, and can be stressful.
Selling The Rental Property To the Tenant
People tend to build sentimental attachments to places that they’ve called home for an extended period of time. Homes can be full of memories, comfort, and a sense of safety. Because of this, it’s not uncommon for tenants to become interested in purchasing the property if it goes on sale. Before investing your time and energy into finding a potential buyer in the nearby area, you could instead approach your tenant with the option to purchase the property. They may take the offer which would save you a lot of time and stress.
Need a Good Real Estate Agent? Work With a Negotiator
Real estate agents make the process of selling a house simple by taking the immense workload off of the shoulders of property owners and onto the shoulders of professionals trained to handle it. However, not all real estate agents are created equal. Finding a great real estate agent that will work in your best interest and get the job done as efficiently as possible is a task in and of itself.
Luckily, there is a new type of real estate organization that streamlines your search for a high-quality real estate agent. This organization is called the Negotiators.
Negotiators are handpicked from amongst the top real estate agents in the country that have all proven their ability to go above and beyond for their clients. By hiring a Negotiator, you’ll have someone on your side who has a wealth of experience, real estate expertise, and an unrivaled work ethic working to get you the best deal possible.
Contact your local Negotiator if you want to work with a great real estate agent.