Selling With Tenants

Has the time come for you to sell an investment property? For our clients in this position, the question is “Do we try selling with tenants living there or wait until the property is vacant?” There’s no clear right or wrong answer. Selling with tenants has its pros and cons, as does selling a vacant property. Here’s a quick dive into how to handle the situation, as well as some of your options.

Caveat – if the home you are selling is in the District of Columbia, contact your Realtor first to walk through all of your options. TOPA (Tenant Opportunity to Purchase Act) Laws in DC make the process a bit more complicated.

Break the News

As soon as your plans are firm, schedule a conversation with your tenants about your intent to sell.

Before you meet in person, review the lease you have in place with them. Is it month-to-month or for a fixed term? Check the laws in your state regarding how much notice to vacate you are required to give (your Realtor can help with this part). In most states, tenants are supposed to receive either 30 or 60 days’ notice to move out. In Virginia, for example, landlords must give three months’ notice on a yearly lease and 30 days on a month-to-month agreement (you can check your state’s rental laws here).

If the lease is fixed-term (such as one year), it may include an early termination clause, in which you can vacate your tenants with proper notice. If it doesn’t, you’ll have to wait until their lease ends. However, if your tenant has failed to pay rent or violated any of the lease terms (such as subleasing or breaking the no-pet rule), you may be able to terminate the lease early.

Be sure to offer your tenants a chance to buy the property first. The tenants may buy the home using traditional financing or by working with you for seller financing, which you can learn more about here. You may be pleasantly surprised at your tenants’ willingness and ability to buy the home!

Selling with Tenants- What are the Options?

While the options for selling with tenants are very straightforward, the decision isn’t always an easy one. You can either:

• Wait until the lease expires and list the property vacant OR
• List the property with tenants living in it.

Here are the pros and cons of each scenario:

Wait and List the Property Vacant

PROS

• You’ll have time to make repairs and updates.
• The property will have more exposure – agents can show the home at any time.
• You won’t need to “kick out” your tenants if the home sells quickly.

CONS

• You’ll have to carry the mortgage yourself while it’s on the market (no rental income).
• Vacant homes can be harder to sell.
• Staging the home helps sell the home faster but there are costs associated with it.

List with Tenants Living in the Property

PROS

• The property will show better since it is staged.
• Tenants in place show that the home has rental potential.
• You won’t miss any rental income.

CONS

• Tenants control access to the home (more on this below).
• You are dependant on your tenants to keep the home in show-ready condition and approve showings.
• Rented homes may not show as well (think ugly furniture, messes, pets, etc.)

Listing with Tenants

Have a discussion with your tenants about your (and your Realtor’s) expectations — as well as their responsibilities — while the property is on the market. Typically, tenants are expected to:

• Provide as much access to the property as possible
• Approve showings quickly
• Keep the home clean and in show-ready condition 
• Agree to open houses
• Report unscheduled showings to your Realtor

It’s important to note here that the real estate rule of thumb is that a listing receives the most showings during its first week on the market. Work with your tenants to ensure that they allow the property to get maximum exposure that first week. We cannot stress this point enough!

Decide with your tenant how much notice they’d like before a showing. Two hours is typical. Discuss if they have any times they absolutely cannot allow showings (such as baby’s nap time). Do all you can to keep these blocks to a minimum.

If you do opt to sell with tenants in the home, consider sweetening the deal for them. To persuade your tenants to cooperate with your listing plans and showings (and keeping the house clean!), consider offering them reduced rent for a couple of months. You could also offer to cover part of their moving expenses.

The Bottom Line

Without a doubt, selling with tenants is a tricky scenario. You may wish to wait until the property is vacant to list it, which has its pros and cons. If you choose to sell with your tenants in place, keep the lines of communication open and expectations clear. You may want to consider offering your tenants some sort of incentive to keep the home looking great and allow as many showings as possible. And of course, before you do anything, give your tenants the option to buy the home themselves!

Need to sell an investment property? Let us know. We would love to help you navigate this process.