Sell home with tenants or without ?

Question

Hello

I am planning to sell my multi family home within next 3-6 months. Current tenants are vacating end of this month. Would it make sense to find tenants now and sell home with new tenants? Or keep it empty before selling ? Appreciate your inputs.

Thanks

Shawn Mcenteer · Answer

@Peter Morgan I agree with @Jacob Lapp in terms of how I prefer to purchase a property.  The answer will vary to personally strategy of the investor purchasing so for myself I want to find a property I can add value to, tenants will slow that process down.  If your property in top condition and you have tenants paying fare market value rent keeping them may work for you.  If your property is due for updates and value add, I personally feel it will be more  enticing vacant.  If its turnkey, make sure you have quality documentation regarding the screening process and results for current tenants.  Does that make sense?

Jacob Lapp · Answer

@Peter Morgan

Personally I am much more interested in multi families with no tenants. (And as a buyer will pay more for them)

In my market I can list a decent unit and within 2 days or less have a pool to choose from.

If you listen to podcasts or talk with other investors the majority of their headaches come from inheriting tenants.

This inheriting tenants thing right now is especially scary if I didn’t vet the tenants myself and their ability to pay/history.

A lot of times sellers sell because of said problem tenants and this is almost never disclosed.

Lastly for you as a seller you could be collecting below market rents and the 1% rule might not apply to the listed price (compared to what market rents would be) so you’re listing agent is able to speculate on market rents (with comps) if it’s vacant to justify listed price. Where that can seem like a stretch if your collecting $700 and market is $1400.

AJ Singh · Answer

@Peter Morgan

Your multifamily with tenants paying market rent will sell as a stabilzed property at the highest GRM

Your vacant multifamily will sell as a value add asset at a bargain price

My vote will be to rehab interiors, lease to tenants at market rents and enjoy a good exit price as long as you have made up your mind to sell

Jennifer T. · Answer

As a buyer myself of "buy and hold" rental homes, my preference depends on the tenants!  If it is market rent and they are tenants with a great pay history, that's an asset to me.  But it seems like that is rarely the case.

I've twice purchased homes with inherited tenants that I knew were already problems (pre-pandemic), ie a detraction.  I used that as part of my negotiation to get a lower sales price.  Because I was taking over that "problem" for the seller.  Back then, it was fairly quick and easy to evict people.  The sellers could have gotten thousands more money for their properties if they had just evicted the bad tenants.  It made no sense to me but, for whatever reason they weren't going to file evictions so, thanks for the cheaper properties.

If you do decide to rent it out to another tenant, I'd suggest you keep the lease month-to-month.  That way, the potential buyer could at least a little bit have the best of both worlds.  Keep the tenant if they want to.  Or serve a Notice to Vacate after the sale, if they don't.  Plus, especially with the nightmares some areas are facing right now with evictions, you want to make getting a potential bad tenant out of there as fast as possible.  Either for yourself and/or the new owner.

That is a risk you would be taking in placing a tenant.  A non-payer or even they just make showings more difficult because they're annoyed about it.  Even with good vetting, bad tenants can slide through.  I'm stuck with one of those right now.

Here's another thought.  Is this in an area where you would be allowed to run an AirBnB and it would make sense?  That might be a great way to earn some extra income until you are ready to list the house.  Though keeping in mind the cost to furnish it.

Drew Sygit · Answer

Most investors would prefer to buy a turn-key property - meaning with tenants.

Smart investors will want to validate the leases though, to make sure they aren't buying or overpaying for the seller's problems.

So, make sure you have leases, ledgers, bank records to show corresponding deposits, utilty records and other expenses, and probably your tax return for the property - all scanned to a Dropbox folder, so you can share after you sign a purchase contract.

Andrew Eherts · Answer

Hi @Peter Morgan this is really a judgement call. Our property management firm has sold homes tenant-occupied only to have the tenants booted out at lease expiration. Some investors and property managers require that they underwrite their own tenants so they are in control of their risk without necessarily trusting the screening skills of the previous owner/management. Others want something turn-key and occupied. You are really catering to two different potential buyer pools and your choice may isolate one over the other. If you err on the side of tenant-occupied, the new owner can just not renew them at expiration if they want to put their own tenants in. So not much of loss on their part unless the lease has 11 months left.

I am interested to see what others have to say. There are pros and cons to each. I can say from the tenant's side, tenant-occupied sales can be invasive and difficult for them between appraisers, inspectors, repair requests, etc. We just went through one of these, and they are definitely going to get screwed when it comes time to renew even though they (graciously) bore the constant appointments and were very accommodating.

AJ Singh · Answer

@Peter Morgan

I am not sure about GRM application to duplexes. we invest mainly in quad or over 5 units..A realtor can anwer your question accurately.

Peter Morgan · Answer

@AJ Singh

GRM applies for a owner-occupied multifamily with only two units? Just wanted to know if the only unit

available to rent is unoccupied with tenants is that going to be a big deal before selling?

Michael Plante · Answer

LOVE this answer

Aj Parikh · Answer

I would keep it vacant while selling. Usually new landlords prefer to get new tenants.

Sell home with tenants or without ?

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