How does one sell a rented SFH?

Question

I have owned a 1961 built home in Golden Colorado, walking distance to Colorado School of Mines. It has never been vacant, and rents for a good rate to college students. I never have advertise it, as like now, I have students asking me already for next year.  It rents from August to July. I invested in a "scrape off" with a few other people. It is building a four plex, and now its getting close to completion and we think we want to keep one of the 4, as a rental, in a great location in Denver.  They will come on market the end of October, or November and interest is already high. I want to sell this rental in Golden and 1031 it, into the new rental in Denver.  Any suggestions BiggerPockets, on how to sell a house that is rented?

Jeremy Oaster · Answer

@Rick Owens I’m trying to be as unbiased as I can on this one.

Unless you need to dump it right away and really don’t care what you get for it, I would avoid using any of the online companies and use your realtor.  They have a time and place, but most companies will charge between 10-12% in fees on top of a reduced sales price (and I can back that up if needed). If you just have to get out of it, use Zillow.  But know going in it’ll cost you.

Robert L. · Answer

Selling a house with tenants in it is much more of a pain because of arranging times with the tenant and avoid maximum inconvenience.  If you want to deal with arranging times with the tenant and your potential buyer and saving the commission and dealing with the hassles, then sell it yourself.  If you use a realtor, then she can do all that hard work.

OR you can work out a deal with the tenant that if he will cooperate and show the house that he gets a commission/referral fee--this will ensure he will speak positively about the house and gets you out of the "showing house" business.

Rob

Bob Okenwa · Answer

@Robert L.

It is illegal in pretty much every state (as far as I know) to pay referral fees/commission to unlicensed individuals in real estate transactions.

Noah Mccurley · Answer

@Rick Owens

Just be straight in the advertisement. Market it towards investors on investor centric marketplaces (eg BiggerPockets).

I’ve also heard of people in the same situation as yours going to small turnkey companies in the area and asking them to sell it to one of their customers and they split the deal whatever way they see fit.

Matt M. · Answer

You mentioned "we." While you did this short term investment with them, do you want to share a long term investment property with them? I'd keep the Golden rental to myself over the new place with partners.

Tony Gunter · Answer

@Rick Owens

Don’t do it!

You have control over a vacant house for sale. You can control the experience and presentation of the property. If your going to sell it, make it ready for sale and get it sold. If your renting it, rent it. However keep the activities separate as you don’t have control otherwise.

Robert L. · Answer

@Bob Okenwa, correct.  Unless you are a principal in the transaction or a licensed agent, you cannot SELL the house for a commission.  However, an idea is to tell the tenant that you pay him a gift card for the inconvenience of scheduling showings.  He's not actively selling the house.

@Rick Owens , if you're not comfortable doing your marketing and dealing with these buyers, hire a good agent and let him/her deal with all the logistics!!!

Bill S. · Answer

@Rick Owens so the easiest way and the way that gets you maximum exposure is to list it with an agent and make them deal with the tenants. Now that will cost you, but in general, the cost of an agent is returned by the higher sale price due to the more extensive marketing achieved through the MLS. There are options for lowering the cost of an agent as well but being tenant occupied will make it harder.

As stated, the leases stay with the property so basically someone is buying an occupied property (rental unit). Perhaps that is the highest and best price for the property but usually, single family homes that someone can purchase to live in themselves sell for more money than homes that are occupied by renters. To simplify, you would get the best price by getting students out, sprucing it up and selling to someone who would live their themselves. Now without doing a property specific analysis, it's hard to say if this would be the case for you.

The questions you didn't ask but I am offering my 2 cents on. A 1031 exchange cannot be done to a property that you own an interest in prior to the "purchase". You can't buy a property from yourself to avoid capital gains. Your situation seems a bit more complex but you should definitely consult a qualified accountant and attorney to make sure your plan works.

Finally, if you offered me your property in Golden vs the 1/4 of the new build in Denver. I would take the Golden property hands down every day of the year. The value of your new construction is stagnant at best for the next 2-3 years and probably 5+ years given the current trend in Denver real estate. Sure there is demand for your unit now but it's new. As soon as someone lives in it, it's not new and will not command new prices. It's unlikely you can rent it for the same rent ratio as the Golden property.

Raise the rents on the property in Golden. That much demand means your rents are too low. I have a friend paying $800/month for a room in Gold, if that offers some perspective.

Rick Owens · Answer

Thanks Robert L, appreciate the suggestions.

Rick Owens · Answer

Thanks. Wasn't sure how best to advertise it for sale.  just list it on Zillow you think or through my realtor?

How does one sell a rented SFH?

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