Are you comfortable selling your rental with the tenants in it?

Question

Have you thought about the benefits of selling your rental with the tenants in it?

-consider selling to an investor (turn key investment)

-consider selling to the tenant

Thoughts?

Penny Clark · Answer

@Tracy Minick, We recently sold a rental property with tenants in place and I have represented owners selling their rentals with tenants as part of the package. For it to work and be attractive to an investor, I'd recommend these tips:

- Keep rents close to market rate

If you're in a seller's market, try to restrict showings to serious investors - those who have financing lined up and are willing to make an offer subject to inspection

- Provide tenant some flexibility for show times - for example a time window for weekday and a weekend. . Offering a small cash incentive to keep place tidy for those appointments is helpful.

- Provide investor with outline terms of lease and a rent roll. Do not provide tenant personal information until close of escrow.

- Provide utility cost information

- Provide receipts of completed work for upgrades or improvements

Even if you decide to sell with tenants in place, issue your tenants proper notice. This serves two purposes: It provides your investor buyers an option to keep existing tenancies active or start fresh if they decide to act on the notice . It also provides a reminder to your existing tenants to present your property and their tenancy at its best if they wish to stay.

Nathan Gesner · Answer

It can be good or bad. Really good tenants at market rate will help sell the property. Mediocre tenants that aren't responsive to showing requests or that are renting below market will hurt the sale. Bad tenants will kill the sale.

Thomas S. · Answer

Having tenants in a SFH will normally reduce your buyers market considerably. It will also attract investors that will not pay as much for a SFH as a home buyer would be willing to pay. Tenants in a multi unit is fine but I would never attempt to sell a SFH with a tenant. In addition a SFH would normally require sprucing up, paint at a bare minimum, to prep for sale which is not practical with a tenant in place.

Bottom line is a SFH with a tenant in place will not sell for as high of a price or sell as easily.

Scott P. · Answer

I've sold more than once with tenants in place.

I have the Sale documents for one recent sale scanned and redacted to upload here on BP except I've misplaced the original purchase document from 1996 or so. As soon as I make a trip to the attic to look for it I plan to share it all as a set, maybe in the "investor diary" section.

I didn't refer to it as a "turn key" at the time.

I've considered/discussed selling to tenants but none have taken me up on it. I've had people inquire about rent-to-own through the years but at those times I wasn't interested in selling. So i haven't tried that.

Having tenants in place is a "pro" or "con" depending on what a Buyer is looking for. With a duplex, I'd say the best situation would be to have one tenant in place and one side open with qualified applicants ready to go so that a Buyer would easily have the choice to move in the open side or have me (or the Buyer) put a tenant in place. With larger multis I'd think the more tenants in place the better off the Seller would be. With an SFR a tenant in place might be good for an investor but a tenant in place might knock a Seller out of the market for people buying a home for themselves unless the potential Buyer was actually an investor who had the foresight to buy with personal type financing knowing they would BRRR and move in a year or more.

Account Closed · Answer

Tenants in place make it more attractive to an investor.

Account Closed · Answer

Sure. I would sell a property with tenants in it. Why not?

Would I buy one with tenants in it???

Depends. If I wanted to rehab, I would want it vacant. If it was in good condition, tenants in place is great.

Of course all bets are off if the tenants are horrible.

Quincy Lockett · Answer

@Tracy Minick

I’m listing a 2 flat next month and I just emptied both units for this very reason. 1) Many live-in buyers want to choose their future neighbor.

2) Many investors want to choose their future tenants.

3) Scheduling the walk-throughs are 100% easier with empty units and potential buyers can view the units in a clean, organized state.

4) Often tenants kibosh potential sales because they are afraid of potential rent hikes or lease cancellations from new owners.

P.S.

Of course this is easier with smaller multis and if you can afford to leave it empty while it’s listed. You can always fill the units as time passes if your finances get tight.

Robert Shedden · Answer

@Rob Bianco I do agree with you to a certain extent. If they are good tenants, leaving them in place is a good plan. However, the last fourplex I bought, I had the option to have the property manager put a tenant in place or leave it vacant. Judging from the quality of the other three tenants he put in place, I told him to leave it vacant. Also, he had no incentive to find a good tenant, as I was not planning on using his services.

Taylor Chiu · Answer

@Tracy Minick

We have sold with tenants in place before. The local market was hot enough that we sold without doing showings prior to going under contract. If that’s an option, it’s appealing since you don‘t have to disturb the buyers until you have a serious buyer.

Rex Celle · Answer

@Tracy Minick My RE strategy is to specifically target and acquire properties with tenants already in place for cash flow purposes —vacant properties are not attractive to me at this time. I would say that the main benefit for investors who are selling properties occupied with tenants is the ability to liquidate and leverage their current assets to fund other RE opportunities. In my experience, there are not many investors like myself looking for properties that are already occupied with tenants. Therefore, I would say that if you find an investor willing to take over the property with the tenant, make sure to negotiate a good deal where it’s a win win on both end, as buyers like myself are not easy to find Which is why you see occupied properties on the market for over 100 days on average.

Are you comfortable selling your rental with the tenants in it?

Are you comfortable selling your rental with the tenants in it?

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