When selling a house with tenants, there are problems that arise.
- How are you going to show the property with tenants living there?
- Are you going to tell them about the sale?
- At what point in the process will you spill the beans to the tenants?
- What is the easiest way to sell a house with tenants in it?
- The list goes on.
Let’s jump into those 4 strategies so you can be prepared to have a sale go smoothly.
#1: Wait Until After the Buyer’s Inspection Period to Inform the Tenants of the Sale
You might choose to wait longer in the process to tell them if you don’t have a great relationship with them, but even a great tenant is probably best left in the dark until the buyer has committed with non-refundable earnest money. The last thing you want is telling a good tenant you are selling only to have them move out, and then the buyer backs out of the contract either due to an actual inspection problem or the sheer fact that your tenant jumped ship! Even if the buyer wants and hopes the tenant will stay, they are likely aware that ownership changes can spook up to 50% of tenants.
But let’s go back to the common scenario of selling a house with tenants, or even perhaps a duplex. You might be wondering how to show a property with a tenant in it — after all, most buyers will want to verify the condition on the inside. Possibly the most ethical way to do this is to tell them you are doing an inspection with a representative of yours. Be sure to inform your buyer to dress down a bit so as to appear similar to a tradesman. Other times we’ve looked at properties to buy, the seller has told the tenant they have an insurance agent needing to do a walk through.
#2: Sell Towards the End of the Leases or Convert Tenants to Month-To-Month Leases
Your buyer will need to honor whatever agreement you have in place with the tenants. If the lease expires soon, your buyer can choose to renew the lease or give the tenant 30 – 60 days notice to vacate. It’s easier to sell a property when your buyer has options to make their new rental work best for them!
#3: Carefully Leverage the Power of Cash
Of course, selling a house with tenants isn’t always that simple. What if you really need to sell soon due to outside circumstances or even due to the problems with the rental property itself? With little impact on your bottom line, you can offer your tenants cash to vacate the property by a certain day with the property in clean condition. Two weeks is plenty of time to find a new place for a tenant who is getting half to a full month of free rent! This works for a bad egg tenant or a good one, and happens to be an effective tactic when eviction is on the horizon!
The logistics of the situation take care of themselves: If the tenant is gone and the place is clean, you meet them to exchange keys for cash. If they are still there on the due date, they don’t get paid!
Another strategically effective use of cash is to pay tenants to help you show the home. This is most often used in cases where the tenant is aware of the sale. You can either give them $20 per showing or offer them a part of the proceeds of the sale if they consistently keep the house neat each time you have a prospective buyer walk through. However, regarding the latter, keep in mind that “cash now” is much more powerful to most tenants than “cash later if”. These folks tend to be in a different financial lifestyle than you!
#4: Get Your Paperwork Trail in Order When Selling a House With Tenants
Before buyers start calling, be sure to put together some documentation to assure them the asset will actually make them money. A notebook or spreadsheet with monthly expenses and rent collected is great, but do yourself one better and have actual proof of the numbers, particularly rents collected. Dig up the last 3 – 6 months of tenant payments, such as cancelled checks or a bank statement showing their ACH direct deposit (the absolute easiest way to collect rent!). If you collect in cash, it’s harder to show proof.
While you’re at it, selling a house with tenants will go over better if you can win the buyer over with additional documentation for various expenses. Secure a copy of the tax bill. If you pay utilities, pull the last few bills to show the buyer. Did you make any large investments in the property while you owned it? Gather up your invoices for that $6,000 roof or $5,000 HVAC replacement! What’s your insurance premium? And the real test of time: Send them your tax return for this property!
Make it easy for the buyer to choose your rental by eliminating unknowns and variables. You can assure your buyer just how high rents are and how low expenses are by showing documentation!
For the landlords out there that aren’t able to show all this documentation, stay with me. This next bit is for you.
Your approach is going to be different. Remember, your buyer wants to want to buy your property, they want to believe it will make them money. You can play that in your favor by brushing off the paperwork side of things. Let them know you don’t keep records but it’s made you money over the years. If the tenants are behind on rent, don’t spend any time discussing that, talk about how long they’ve lived there, or how much higher market rents are in that area. And most importantly, if the tenants are no good, don’t tell the buyer all the ugly details! Keep it short and to the point. The truth is, especially early on in the sale, the emotional effect on the buyer of learning that the tenant just went to jail yesterday and isn’t coming back going to cloud their judgement more than it will cloud their profits.
In conclusion, selling a house with tenants is a complicated process, but if you use these four strategies, you will be set to sell it quicker, easier, and hopefully with more money in your pocket at the end of it!
And if all else fails, you can fall back on Skyline Home Solutions. We buy rental properties on a regular basis, and boy do we have stories of surprises after purchase, but it doesn’t bother us! We can buy your property as is, close on the date of your choose, and we’ll cover any and all fees! Give us a call at 615-933-1777 or let us know the details and we’ll contact you!