How do I sell my home with a tenant in it and before lease ends?

Question

Hi BP - I'm a new investor and still learning a lot so would appreciate any insight you have. We live in Chicago and own a condo that we have rented for almost 3 years to very good tenants. We had intended to hold the property for another 5-8 years because the part of Chicago we are in continues to appreciate and develop. We see rents increasing but also don't see our tenants leaving anytime soon. That said, with COVID-19 coming the market seems to have actually improved because inventory and rate are low. We sense the market will eventually drop and we could use the cash so are considering selling in the next 3 months so that we can capitalize on the market and since we lived there 2 of the last 5 years would not need to pay taxes (I think that's true).

How would you go about that conversation with a tenant? Would you try to show and sell the property with the tenant in it for a discount on rent? Or would you just try to buyout the remainder of the lease? If they refuse to help at all till end of lease do I have any recourse? Lease ends at the end of September and need to sell by October.

Chris Ganz · Answer

I would say try to sell it with the current tenants in under lease. I purchased my current multi unit with pre existing tenants, and it has been a great experience.  There have been no issues what so ever, and it really just made the entire process much easier.

Mike McCarthy · Answer

@Dave Van Winkle have you considered marketing it to investors/landlords? A house with a long-term, on-time-paying tenant could be a good tactic. ‘Turnkey, just start collecting rent checks!’

It depends on your market and location, but it’s something to consider. There are a lot of investors looking right now.

Jonathan Klemm · Answer

@Dave Van Winkle - I'll start by saying I really like @John Warren suggestion to start off by offering the tenant an opportunity to purchase the property - Genius!

At the end of the day, tenants are people too so my strategy is always to be upfront and transparent about whatever my intentions were.

You are running a business and not every part of running a business is fun.  If you are worried about these types of conversations I'd recommend outsourcing them to someone on your team who is okay with them, then you aren't the bad guy.  Good luck!

Matt B. · Answer

Yeah I agree with @Steve Morris.

you could first offer it to them and see if they are interested, in the case they are unable to buy, you could just sell it as an operational investment property (with 3+years of stable performance with the same tenants)

worst case scenario just try buying out the rest of their lease

Steve Morris · Answer

Like with apartments, buyer assumes existing leases and honors those.  Tell the tenant, nothing changes per the terms and length of the lease.

Buyer has to honor the lease since it pre-dates the sale.

If you really want the tenant out, then, as seller, it's up to you, maybe cash for keys.

However, if you're honest, it's not that tough a conversation.  Just tell him you're selling the place.

John Warren · Answer

@Dave Van Winkle this is always the tough conversation! The first thing is to get a price together and offer it to the tenant. 99.9% of the time they won't/can't buy it, but that starts things off on the right foot. Next, tell them straight up what is going on and work out a deal with them. It doesn't have to be a huge discount, but you can throw them a small amount off for being cooperative with planned showings. Tell them that you will make sure they have plenty of notice. A lot of this is just people skills and treating people the right way and 99% of the time the tenants are ok with things.

Where is the property located? The market is interesting. Very hot in some sectors but not in others.

Dave Van Winkle · Answer

Thanks to everyone who responded. It was all helpful and made the conversation much easier with my tenants. I shared with my tenant and they responded well. Though they won't be buying the place, we reduced their rent a little bit and they are happy to show. Goes up for sale this week so hoping we can sell for a good price and quickly!

How do I sell my home with a tenant in it and before lease ends?

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