Real estate is booming. Over 5.64 million homes traded hands in 2020. Furthermore, constructors built over million homes from the ground up.
Many real estate investors buy rental properties and look for tenants. Tenant rent payments cover the mortgage. As real estate investors raise rent prices, fixed mortgage payments stay the same.
This investing model has generated many millionaires. However, real estate investors also buy properties to sell them in the future. Some investors wonder if selling a property with tenants is possible.
Some investors balk at the idea while others happily embrace it. Selling a property with tenants presents advantages and disadvantages. In this article, we will explore the benefits and pitfalls of this strategy.
Selling a Property with Tenants: Is It Possible?
Legally speaking, landlords can sell real estate with tenants in the building. Most states allow a tenant to remain in the property after the sale. The only exception is if the lease expires beforehand.
You must notify your tenant about a property sale. This notice will make the tenant consider other properties.
As a courtesy, you can offer your tenant first dibs at buying the property. Even if the tenant cannot afford to buy the property, this gesture shows respect. Maintaining a solid relationship is vital to ensure a smooth selling process.
You should also explain to the tenant why you need to sell the property. Selling a property with tenants is stressful for landlords and tenants. Explaining your reasoning will help with landing in the tenant’s good graces.
Can you Sell a Property with Tenants On Your Own?
Technically, you can sell a property without any help. You can find potential buyers and do all of the marketing. However, this is extremely unwise.
Instead of selling real estate on your own, reach out to local real estate agents. Agents know the area’s demand and sale prices. They also know potential buyers from previous property sales.
Real estate investors thrive when they find great deals and capitalize on them. Agents assist with the selling.
Real estate is a business. Delegating tasks allows you to focus on your talents.
If you don’t have enough time for an agent, you can turn to a cash offer company. Some companies will offer you cash to buy your property. These transactions are quicker than the traditional agent route.
Who Buys These Properties?
Some buyers will want to live in the property. They like the property, but they don’t want the tenant. Most people think of this type of buyer.
However, some buyers welcome the tenants. Real estate investors need tenants to generate cash flow. The recovery from a vacant month takes several months of rent payments.
A tenant on the property solves this problem. Real estate investors know a tenant occupies the property. A tenant on the property is less work for them.
Selling a property with tenants increases your buyer pool. You will attract more investors.
Before selling to investors, run the numbers on your property. How profitable is your property? Is rent priced competitively, or is there an opportunity to raise the rent?
While investors care about aesthetics, they prioritize the numbers. A beautiful property with poor numbers will scare away any investor. Aesthetics matter more to the aspiring homeowner.
The property’s location determines the buyer pool. College towns and other investor-friendly areas will attract more investors. These listings often attract investors, but you will also come across aspiring homeowners.
Who Is the Tenant?
The quality of the tenant impacts the property’s value. A disruptive tenant behind on rent payments will not attract investors. They will likely remove the tenant after the lease expires.
However, a reasonable tenant who pays on time will attract investors. A great tenant saves a new investor from vacancy expenses and looking for leads.
When pitching the property, you must also pitch the tenant. The tenant’s ability to pay rent determines the quality of the investment. If the tenant is behind and has an expiring lease, use that factor as your selling point.
Conduct Property Showings on the Tenant’s Schedule
Show the property to investors when the tenant is not on the premises. This setup will make it easier to pitch the property and showcase it to potential buyers.
If you want to sell a property, notify the tenant and ask them what times best work for them. The tenant will let you know when they will leave the property so you can showcase it.
Some lease agreements contain details on showcasing the property to potential buyers. Tenants and landlords must work out the details to ensure a smooth buyer experience.
Some landlords incentivize tenants with lower rent payments during the showings. The tenant saves money for the scheduling inconvenience. If you give something to a tenant, they are likely to reciprocate.
Selling a Property with Tenants Saves you from Vacancy Costs
Some real estate investors will happily take a property with a reasonable tenant. As mentioned earlier, they want protection from vacancy costs.
However, selling a property with tenants also protects you from vacancy costs. If it takes three months to sell a vacated property, you pay the mortgage for three months. Each month a vacant property remains unsold, it bites into your lifetime profits.
Landlords will avoid vacancy and promote the property by negotiating with tenants. The extra hurdles can save you thousands of dollars as you promote the property.
It’s also possible you do not find any committed buyers. You might even change your mind and not sell the property. During this scenario, a tenant in the property significantly helps with monthly expenses.
Maintain the Property
Tenants will care less about maintaining a property they won’t call home for long. The landlord is responsible for maintaining the property, so buyers like the way it looks.
You can hire yard and cleaning services when the property is on the market. These services will give the property a better look.
Tenants may maintain the property to a degree. However, most of the responsibility falls on the landlord.
Pay Attention to the Housing Market
The nature of the housing market affects every property. Real estate investments with tenants also follow this trend.
In a seller’s market, you can attract more buyers. Buyers will make more compromises to purchase your property. If houses are scarce, homeowners will grumble less about a tenant on the premises.
A buyer’s market creates the opposite scenario. With many houses on the market, buyers can assess many choices. Sellers may feel pressure to make compromises to assist the buyer.
The housing market shows how buyers and sellers feel about real estate. Knowing how the buyer feels will help you become a better seller.
The Homeowner Dilemma
What happens if your buyers want to own the home? In this scenario, housing a tenant presents a disadvantage. Aspiring homeowners don’t want to deal with the tenant.
If the lease expires soon, inform your tenant that you will not renew the lease. Giving them proper notice gives your tenant enough time to find a new residence. Landlords should assist the tenant in finding a new home.
If the lease does not expire soon, you have several choices. Some landlords negotiate with the tenant.
Landlords can pay the tenant to leave the premises or forgive delinquencies. Landlords can also utilize court action and evictions to remove delinquent tenants.
This extra payout clears the property for an incoming homeowner. You can list the property as “vacant upon closing” to attract homeowners.
However, this strategy contains a critical flaw. If the tenant does not leave the property upon the sale, they need to get evicted.
This responsibility will fall on the new homeowner. The new owner can hold you liable for all eviction costs.
Seasoned real estate investors know how to save on eviction costs. A new homeowner doesn’t know the workarounds. They may spend extra money on the eviction process. This scenario is a headache for everyone and can lead to high costs for the original landlord.
Selling Real Estate Is Complicated
Selling real estate is not easy. Selling a property with tenants adds extra components to the process.
We take the stress away from selling real estate. We buy houses in North Carolina regardless of their condition. You don’t have to worry about repairs, cleaning, or anything else about your home.
You can request a free cash offer to see how much we’ll pay for your home. You are not obligated to sell. See how we can make selling real estate easier for you.