Selling a Property with occupied tenant?

Question

I am selling a property this summer that my tenant will still occupy during the listing period. Does anyone have any advice on how this topic? Thanks.

Jake Thomas · Answer

@Scott Szurek that cap rate is not favorable for an investor to buy this property for a straight investment. It sounds like a better fit for a retail buyer. I would list it right at the 30 day mark if allowed and explain the tenants will vacate on or before this date (whatever it is) in the listing so buyers are aware. Also work with the tenants to make sure the property is picked up during showings. Dirty houses are a huge turn-off for buyers. If you know the house will sell quickly after tenants move I would just wait till they are gone and clean it up and sell it. People like vacant houses because they know they can take possession immediately. If you think this may sit a while because you are pricing it at the tip top of the market then list early so you don't lose marketing time. A vacant house doesn't make you any money obviously but is harder to sell with tenants still present.

Jake Thomas · Answer

@Scott Szurek well first if you are selling a multi-family property aimed towards and investors this is no big deal. If you are selling a single family home that has a tenant with an active lease to a retail buyer this can be a hassle. Also,it can be seen as an obstacle most buyers won't want to deal with. Most retail buyers think the tenant will never leave if they buy it and have to evict them even if the lease is month to month. They just want to buy a house and move in with no hassles. Overall it can hurt the sale price. If you are marketing this towards a investor with a good tenant paying attractive rent and the price makes sense you won't have a lot of issues. It all comes down to what your intentions are. More info would be helpful.

Account Closed · Answer

You can't ask a tenant to leave against their will in Michigan if they are on a lease simply because you sold the property.  The lease runs with the land--so to speak.  Your buyers will have to be aware of this.  You could negotiate a deal with the existing tenants to terminate their lease earlier if you find a serious buyer, i.e. buy them out of their lease at some amount that makes it easy for them to move.  Or, you could do an addendum to the  lease that releases them from the rest of the term of the lease and converts it to a month-to-month. But, if they are not so great tenants, they may be less than motivated to move as it may be very hard for them to find a new landlord that will take them.  In either case, they'd have to agree to it.  I'd seek an attorney to draft the addendum or any other agreement to ensure it is binding and enforceable in case the buyer has to go to court.  (If I were the buyer though, I'd stipulate that the tenants must be out of the property before proceeding to close.)  Of course, you could sell it as an income property.  The GR rental market is hot at the moment.  Seek out a qualified broker with real estate investor experience to give you their opinion.  Another option would be to partner with a property management company that would manage the tenant for the new buyer until the lease is up...then the new owners could take full possession.  Good luck!

Marc M. · Answer

@Scott Szurek, I have two rentals in Ann Arbor. Where is your property located?  PM me...

Best,

Marc

Kyle Holsey · Answer

Yes , Just be sure to get approval from your tenant first hand and let them know that you will be showing the property to potential buyers . Im in Detroit and from my experience this always helps for a smooth transaction . Hope this helps good luck!

Jessica Baez · Answer

I'm guessing the tenant laws in Michigan are different. In NC, the tenant can legally occupy the property until the end of the lease term. The only way they'd have to leave sooner is if they didn't pay the agreed upon rent or they weren't abiding by the lease terms. The new owner would simply be their landlord until the end of the lease term. I would list it while its occupied, if someone is looking for an investment property, they'd get to avoid the hassle of renting it out. They have a new home and renters already in it.

Scott Szurek · Answer

It is the latter, a single family home with an active lease until 7/31/2016.   I am able to  "list" the property 30 days before they leave.  There is a formal legal agreement that they will leave on or before this date.

Should I just wait until they are officially out to list it? Or try to sell it as investment property? The current cap rate is ~5.85%.

Selling a Property with occupied tenant?

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