Here are some tips and tricks to selling your rental property with tenants still in it. Maybe you own a single family house or maybe a large apartment building. Do you empty the property before putting it on the market or sell it with tenants in place? This is a question I often get from owners. Here are the pros and cons:
- You are still making income on your property while it is for sale.
- The buyers can see actual lease amounts that they can get for the unit(s).
- Scheduling showings can be more difficult as you need to coordinate with tenants.
- If the tenants are messy or have bad housekeeping, this can turn off buyers.
- Some tenants will not leave (and you can’t force them to) for the showings which can be uncomfortable for the buyers and their agents.
- If you have not raised rent to market, the current leases in place can deflate the valuation of your property.
For single family rentals, I always advise landlords to empty the property and give the property any needed refresh and cleaning to put your best foot forward. The highest value for a single family home is to an owner occupant, so I typically quote that you will take a 20-30% discount on the price if you try to sell a single family home with a tenant. Most owner occupants will not consider taking on a tenant even for a short time and most investors want a discount off retail.
Multi-family property sales can be easier. Often you can empty one unit to refresh and clean, take nice photos and then schedule first showings on that unit only. You are putting a much better foot forward during the sales cycle. Show the remaining unit(s) on 2nd showings.
I wrote about prepping your investment property for sale years ago. I thought I would expand on that post. If you can’t or don’t want to empty the entire property or a unit, here are some tips and tricks to selling your rental property with tenants. I have also included some photos of properties on the market that I have see; this is what NOT to do!
Plan and prepare for the sale.
- Unlike your personal home, often rental properties have deferred maintenance and deferred cleaning. Don’t rush to get the property on the market until it looks as presentable as possible. While it would be nice to do a full kitchen or bathroom remodel, that might not be possible. I am referring to making sure that the easy things are done.
- Is the yard cleaned up?
- Is there left over furniture, materials or trash in the basement?
- Does the exterior need to be washed or cleaned?
- Maybe you need to paint an occupied unit to make it more presentable?
- If your property looks like this, resolve this before putting it up for sale!
- Do you need to ask the tenants to clean up their unit?
- If you are selling in the spring or summer, can you put some weed killer down and fertilize the grass to improve the curb appeal?
- What about your common area doors. Are they falling apart or filthy?
- Should you update that 10 year old lease that one of the tenant’s has? Do you even have all of them? What about raising the rent?
- Have all your leases, last year income statement and year to date income statement ready in electronic format. I see so many MLS listings that have no information on what rent or expenses are. Realtors are generally lazy and will not call to get that information. Better to put it out there right away.
- Make sure your rental license is up to date.
- Pay down all the utility bills that you are responsible for.
What are some ways that you can make the sale period go as smooth as possible for your tenants?
- If possible, schedule showings for when the tenants are at work. Or do a 3-4 hour block of time on Saturday where the tenants can be gone and don’t allow showings at other times. See what your tenants would be willing to do.
- Pay your tenant to keep the house neat. I have seen some agents give the tenants $500 at closing if they help sell the house by keeping it looking good and $500 if they agree to leave when showings happen.
- Talk to your tenants about the process and timeline. Most tenants generally expect they will have to move when the house is sold. This may not be the case. Explain what you believe to them.
- Explain how the rent and security deposit will be transferred to the new owners.
- Have your listing agent work directly with the tenants. This cuts down miscommunication where the agent calls you, you call the tenants and then something gets missed in the translation.
- Once the closing has happened, make sure to reach out to your tenants with the contact information for the buyer. So many times I have seen owners buy a property and 30 days later, the tenants have no idea who to contact!
Selling your rental property with tenants in there is not difficult, but it does take planning. Expect it could take 1-3 months to get ready to list.