Best way to sell a tenanted property?

Question

I have a property in San Antonio that I have been wanting to sell for awhile. The tenant is on a one-year lease that expires in a couple of months.

They have not kept up with the rent and are behind by more than a month, but they have been making payments recently. My property manager doesn't want to evict, even though at one point they were so far behind it seemed obvious to me that we would never collect the past due rent. He suggests waiting until the lease expires before taking any action.

I've considered just selling to another investor rather rather than dealing with an eviction, fixing up the property and listing it on the MLS. How would I find an investor to sell to? I get these postcards from "cash for houses" buyers, but I assume they'd be looking for very deep discounts. I'm not sure if I can believe the Zillow estimates, but with the current value listed there, I would be sitting on over $100k in equity with about 50% LTV.

Aaron Bihl · Answer

I would see you could give her cash for keys. If not start the eviction, it can be fairly quick. The one I did that I actually had to evict in bexar county took 3 weeks from start to finish. But cash for keys is always going to be easier and less money and effort.

Wendy S. · Answer

@Nate R.You say she has settled in and considers the place home. How about helping her to see if there are down payment assistance programs or any kind of low income solutions that might qualify her to buy the home?

Nate R. · Answer

The situation seems to be that the tenant is trying to make payments but is struggling to earn enough to afford the rent. She is a single mother on some kind of government assistance (disability, I think). When the subject that we would have to evict for non-payment came up, my PM says she has said things like she can't find another place to live because there's "nothing" (or no other houses) available.I figure one of two things is going to happen 1) There really is nothing available and no manager will accept her application because her income is too low, so we'll have to take her to court 2) She'll find some other option (rooming with others? small apartment?) once we notify her that the lease won't be renewed, so she is likely to skip the last month.She seems to have settled in and considers this place home, and has mentioned wanting to buy it, but I know she wouldn't be able to obtain financing. Maybe if she knew she staying is not an option, it would light a fire under her to find other arrangements. I've sent 30-day notices before. On top of it all, my property manager, who is sympathetic to her plight, is undermining me. I would have filed for eviction myself if he hadn't convinced me to wait a couple months. I've considered trying to self-manage or hire an interim PM but don't like those options either.

Wendy S. · Answer

Aye, I understand.

Nate R. · Answer

I referred her to downpayment assistance from City of San Antonio. However, I doubt she would be able to finance a purchase given her credit.I considered seller financing, but I don't want to deal with collections or foreclosures in the future.

Nate R. · Answer

We're in no-man's land. The lease has expired, but the tenant is still making partial payments. My PM thinks he's helping avoid damage by giving her more time avoiding an eviction.Because of her history, her application with another landlord was denied.Not sure what to do next.

Nic A. · Answer

Curious to know if this is still an open situation or if it's been resolved and how?

Patrick Drury · Answer

@Nate R.If the tenants' lease is up in a few months, just wait till the lease expires and they move out. How many months till the lease is up? Selling a property tenant occupied really only works if they are month-month because it gives the next owner options. They could keep the tenant where they are with the rent, they could raise rent to market by doing no repairs, or give them a 30 days' notice and renovate the property and then sell or re-rent it. Although vacant is always the best.

Nathan Gesner · Answer

Selling property while Tenant occupied is a gamble. They may not be responsive to showing requests. They may sabotage the sale by bad-mouthing you or the property. They may live like pigs or be two months behind on rent. Your best option is to get them out, then sell it vacant so it's easy to show and can be owner occupied or returned to a rental.Selling to another investor means selling at a discount. Just hold on for a couple months, get rid of the current tenants, and sell at market rate. Even if your tenant skipped out on their last two months of rent, you'll still make more by selling it at market.If the tenants are a month behind and they find out you are selling, then they are more likely to skip out without catching up on payments. I don't know the whole picture, but based on what you've shared, I would offer to let them move out now and I will forgive the month of unpaid rent and return their deposit. It's probably cheaper than an attorney, easy on everyone, and you can get the house back to sell. If you don't feel comfortable or they refuse to play, then hire an attorney and start the eviction process.

Greg Scott · Answer

My favorite way to sell a rent property is to sell to the tenant, but that may not be feasible given what you have posted.I've also called those "we buy houses" people. They are typically wholesalers looking to buy at 70% of ARV, which is just a waste of time.I have also tried reaching out to other investors within our group and only once was able to make a sale that way. Most investors I know are looking to capture some equity at purchase and / or want good cashflow. My properties were in good shape and had appreciated nicely so there was often no way for them to get what they wanted at a price I'd be willing to sell. So, in 90% of the cases, I just rehabbed after the tenant left and then sold. That is probably going to be your best bet given the equity you noted.Good luck