Owning a rental home is an excellent way to generate income, but selling the property can be a complicated situation. While a typical home sale involves negotiations between a buyer and a seller, the sale of a rental property also includes a third party: the tenant.
Selling your rental property may be more difficult than selling a traditional house, but in some situations, there are upsides to listing a home with tenants in place. You should understand the benefits and challenges of selling an investment home as well as the best strategies for a successful sale.
Can You Sell a Home With Tenants in Place?
In most cases, you can sell a house with tenants in place. However, you and the buyer must honor the rental agreement, which means the tenant can stay until their lease expires. Rent controlled and rent stabilized properties may have different regulations, so you should consult your local laws to make sure you know your and your tenant’s rights.
If your tenant’s lease is expiring soon, another option is to simply not renew the agreement. Then, you can put the property on the market after they move out.
Benefits of Selling a Tenant-Occupied House
Although most buyers on the market aren’t looking for a tenant-occupied home, having tenants in place could work in your favor in some unique cases. Here are two potential benefits of selling a property with tenants in place:
Marketable to Investors
A long-term tenant who’s current on their rent can be very appealing for investors looking for rental properties. With a tenant already in place, the investor can save on marketing costs and start generating income immediately. If you live in an area with a lot of rentals, you’re more likely to find investors interested in the home.
Good for Buyers With a Long Timeline
You might find a buyer who wants to occupy the home but can’t move in for several months. Maybe they’re still in the process of selling their current house, or maybe they’re preparing in advance for a long-distance move. If the tenant stays for a few months after closing, the buyers can generate some rental income while they prepare to move in.
Challenges of Selling a Tenant-Occupied House
Selling a tenant-occupied home comes with plenty of challenges, too. Here are three of the biggest obstacles you may encounter when selling your rental property:
Small Buyer Pool
Most buyers are looking for their primary residence, so they won’t be interested in a home with tenants in place. If your tenant is on a long lease, your buyer pool will automatically be much smaller than usual.
Difficulty Scheduling Tours
Scheduling an open house or showing around your tenant’s schedule can be challenging. Not only do you have to coordinate with your agent and the prospective buyers, but you also have to give your tenant advanced notice of the showing and make sure they can vacate the premises.
Can’t Stage the Home
You have much less control over the condition and appearance of the property when it’s occupied by a tenant. Staging can make a big difference in buyers’ overall impression of the home, but with tenants in place, you may have to show the house as-is.
Strategies for Selling a Home With Tenants
Here are eight strategies to help you sell a house that’s occupied by tenants:
1. Negotiate to End the Lease
In most cases, ending the lease early will be the easiest way to sell a rental property. Try to negotiate a deal with your tenant to encourage them to move out early. For instance, you could offer to cover their moving expenses or pay their security deposit for a new apartment. You could even offer a cash buyout of their lease.
2. Make Sure Rent Is Current
If your tenant is staying in the home, make sure they’re up-to-date on their rent. A tenant that’s behind on rent is a red flag for real estate investors. You could offer to forgive your tenant’s delinquency in exchange for them moving out early.
3. Accommodate Your Tenant When Scheduling Showings
It’s important to be respectful and accommodating to your tenant when scheduling showings. You don’t want a disgruntled renter causing any problems as you try to sell the property. Let your agent know if certain days and times are off-limits for your tenant, and give your tenant at least 24 hours of notice before showings.
4. Ask the Tenant to Leave During Showings
If possible, your tenant should leave the premises during open houses and showings. Maintaining a kind and respectful relationship with your tenant is key. You could offer them movie tickets or a gift card to a local restaurant so they can enjoy themselves while they leave the house.
5. Help Your Tenant Find a New Home
Your tenant may be willing to end their lease early if you help them find a great new place to live. If you know other property managers or real estate investors in the area, ask them if they have any vacancies. Write a letter of recommendation for your tenant or offer to be a reference for them.
6. Hire Cleaners
To get your property as ready for the market as possible, ask your tenant if you can pay for a professional cleaning service to deep-clean the home. Not all tenants will agree to this, but some will be thrilled at the offer for a free cleaning service.
7. Focus on Curb Appeal
You may not be able to make all the improvements you want to the interior of the house while it’s occupied, but you could hire landscapers to work on the exterior of the property. Curb appeal matters, and investing in a landscaping service can pay off.
8. Offer the Tenant the Opportunity to Buy
If you have a good relationship with your tenant, you could approach them with the opportunity to buy the house before you put it on the market. This can save you a great deal of time and effort, too. However, both you and the tenant should still work with real estate agents to make sure the process goes smoothly.
Selling a Property With Tenants: The Bottom Line
Selling a tenant-occupied home can be complicated, but there are several steps you can take to minimize your challenges along the way. Most landlords either wait for the lease to end or navigate an early lease termination before putting the property on the market. If you do list a home with a tenant in place, be flexible and maintain good communication with your tenant. A happy tenant who’s current on their rent could even work in your favor with some investors.
