How do you sell a property with tenants in it?

Question

I have one condo  in VA that I am managing myself locally (Month to Month lease with 60 days notice) and I also have a SF in Florida that's being managed by a property management firm (1 year lease).

I am planning on selling them sometimes next year, because I think I would like to use the money to invest in other higher types of properties.

I actually only have experience in purchasing but not selling... It's crazier now that I have tenants in both. Can someone give me some pointers as to what are the steps I should take to make these transactions go smoothly?

Bill S. · Answer

Ok while Bill Gulley mentioned if the tenants are not neat and clean with nice things you take a hit on price because it doesn't show well. Assuming you do have good tenants provide them with incentive to cooperate after all it is a huge headache to show a place. You might schedule specific times for showings but give then an additional bonus if they will do 1 hr notice to show. I usually do a bonus after it closes rather than reduced rent because that puts the incentive for them to see it close. Also let them know the new owner may want them to stay so they wouldn't have any moving costs. At any rate, the agreements in place remain in place with the sale of the property. Disclose the rental agreements with potential buyers. With some good luck you can continue to collect rent and sell the property.

Jean Bolger · Answer

I recently sold my late mother's condo. It went quickly to a retail buyer, for full price- and actually I attribute a lot of that to the tenant. She had it beautifully decorated and very clean. Frankly it looked a lot better than when anyone in my family lived there!

I did offer her first option to buy the place but she didn't take me up on it. I also made it a point to assure her that we would arrange the closing schedule so it would work for her as far as moving in to her new place;  that bought a little good will.

I suppose this was mostly a lucky break though, and not the average experience.

Bill Gulley · Answer

Yes, I agree William, you could have good, understanding tenants that will cooperate with you and cooperation can be bought too. The marketing time will need to be factored into the plan as well.

But, I have horror stories of tenants who initially seemed agreeable and later turned on the owner, so it is a risk to consider, but it can certainly be worked out too. I'd just rather have an empty dwelling on the market. :)

Darren Sager · Answer

I make sure all my leases state realtors can show the house from 9 am to 8pm every day should the house ever be put up for sale or it needs to get rented.  They agree to have a lock box put on a courtesy call that the place is going to be shown.  If they don't agree to that I don't rent to them.

Colleen F. · Answer

I would say aside from what has already been mentioned it depends on who you are marketing to.  For the condo, if the condo association has a limit to the number of renters in the building and you plan to sell to an investor then keep it rented if the right to rent would transfer with the condo. If  the percentage of condos that can be rented in the complex isn't limited its a non-issue.

Telling the tenants this far in advance might not be a good idea if you have good tenants. The only telling I might do now is to mention casually to the condo renter that you may sell in the next couple of years and see if they have interest.

Tenants can make it tough to show units especially if they have a good deal. We bought a NJ house that was rented to the step-daughter.  I think we got it only because we were the most persistent. We waited on the porch for an hour until she got home to let everyone in for the scheduled showing because they couldn't show without her home.  If you get a hint that it will be an issue to show terminate the lease.

On the other hand not all tenants are bad in this respect and we bought apartments recently where the tenants were immaculate when  we viewed the place (and still are awesomely clean) so you can't paint all tenants with the same brush.  Ask yourself how long have they been there? how difficult are they normally?

Bill Gulley · Answer

Selling a condo? I'd have it empty. There are so many issues with trying to sell an occupied property that I doubt I could address them all. With an occupant, your target market will be investors, empty you'll open that up to owner occupied folks, a much larger market. Since  you're month to month, I'd give notice in the Spring giving them plenty of lead time and if they move out put it on the market, otherwise go to your expected vacancy date.

Tenants can make it very rough to market a property if they choose to, they usually don't want to move, or at least move on your schedule. :)

Michael Seeker · Answer

Since these are both single family investments, it sounds like your best bet would be to sell to a retail buyer.

Depending on the quality of the tenants, you may or may not want to have them moved out before listing the property.  If they are good tenants with nice furniture and that keep the place clean, I would suggest working with them to stay in the property until it sells.  In order to do so, you may have to offer them discounted rent or some other incentive for them to not pick up and find a new place ASAP.  If the tenants are a mess or uncooperative, then you'd be much better off having them leave when the lease is up and either staging the homes or listing them empty with nobody occupying them.  In either case, there's no benefit to not sharing the fact that you want to sell with the current tenants.