The short answer is yes! You can sell your property if you currently have existing tenants. However, selling a home with active tenants is more complicated than selling an empty home. Here, we’ll cover things you should consider prior to listing your rental property for sale, and the proper steps that must be followed to ensure a smooth transition.
Be transparent with buyers.
In almost all cases, tenants are allowed to complete the terms of their lease, even if the home is sold. The one exception to this is if your lease contains a lease termination clause on sale or transfer of ownership (which means the tenant’s lease ends when the property is sold). If your lease doesn’t have this verbiage, the tenants are permitted to continue living in the home until the lease expires, regardless of if the home is sold to someone new. Upon the lease end date, the new owner will choose whether they will renew the lease, depending on what they intend for the property. The new owner is responsible for returning security deposits to the tenant.
It is your duty as the seller to inform the buyer of the active lease. Consider sending them the lease agreement so they have a full understanding of the terms they will be required to honor. This can protect you from late-stage sale terminations should the buyer discover that they can’t meet the terms of the lease agreement.
Some rentals will be a harder sell than others.
This is one of the biggest factors in selling a home with a tenant. Some situations and terms of the lease are simply not as appealing as others. Here’s what you should consider prior to selling your rental:
- Tenant and the state of tenancy – are the tenants cooperative, up to date on payments, and properly caring for the property?
- Is the location in a primarily rental area, such as a college town?
- Market value of the home – if it’s a high value property, it’s unlikely that a typical family will want to take on the mortgage and have to wait to move in.
- Lease length – how long until the end of the lease? If it’s only a few months, that may work for buyers looking to move in within a certain timeframe. If you still have two years left, investors may be the only buyers interested.
One more important thing to consider is the condition of the rental. If it needs significant updating or renovating, it is unlikely that you will be able to complete this unless you have flexible tenants. You may be able to offer them accommodations elsewhere while you complete repairs, but most people will not be receptive to having their lives disrupted in this way. In reality, if your tenants are a family with kids in school, a complete kitchen renovation probably isn’t an option. Keep this in mind when deciding if you want to sell now or wait for the lease to expire.
Never force tenants to leave.
Even if you currently have nightmare tenants, you cannot use the sale of the home to force them out unless you have a specific clause within the lease. This will constitute an illegal eviction and can land you in serious trouble both legally and financially.
Keeping interactions with your tenants polite and friendly is the best thing you can do to ensure a smooth sale. Be considerate when scheduling showings or repairs. In short, make this transition as easy as possible for them. If you think the rental could use it, offer to hire a cleaner or landscaper to come to the home. When you coordinate showings, adhere to the terms of your lease. If it states you must give 48 hours of notice to enter, that’s the amount of notice you are obligated to give for showing the home to interested buyers. You might give them even more time out of courtesy. Happy tenants are far more likely to be cooperative.
An option for legally moving tenants out of a rental is offering them cash for keys. However, it’s important to note that this option can be risky. Should you advertise the property as “vacant upon closing” and the tenant ignores the agreed upon move out date, you can be held liable to damages incurred to the new owner.
Selling a home with existing tenants restricts the buying pool.
Buyers who need to move in right away will not be interested in a home with existing tenants. However, investors interested in rental properties will be – particularly if you have model tenants. Buyers who don’t want to move right now but want to jump into the housing market before the prices continue to rise may also be more flexible and willing to purchase a property with an existing lease.
Selling a home with existing tenants doesn’t always have to be viewed as a negative. Other landlords and investors will look at existing tenants as a benefit. If the lease doesn’t expire for some time, marketing the property as an investment can make it stand out to the buyers who will be interested.
Investigate local restrictions.
Currently, one of the biggest changes for landlords has been related to COVID-19. Some cities have imposed eviction moratoriums, so if your tenants are behaving in a way that may usually warrant an eviction (such as consistently not paying rent), there may be restrictions that limit the actions you are allowed to take. If your property is in a rent-controlled area, look up the applicable laws to make sure the new buyers are allowed to end the rental agreement.
Always keep yourself on the right side of the law, as the consequences can be devastating.
Selling a home with existing tenants is possible, but it’s best to be realistic.
The ease of selling a rental property is entirely fact specific. If you have great tenants and the property is in good shape, you have far more options than if you need to renovate or repair. Keep your mind open to other possibilities, such as selling to investors or new landlords, and understand that this might not be the typical sale of a home.
