If you want to sell your house with a tenant for the highest and best
price, even the best tenant can be a detriment….
Why? It takes a lot of work and devotion
to get the house show-ready and keep it that way during the entire listing
period. Most homeowners lack the motivation to keep their own house show-ready
and they even have the motivation of monetary gains to entice them. Tenants
have nothing to gain for their inconvenience so their participation may be less
than enthusiastic. By having a tenant, you limit your market to mainly
investors because you are not only selling the house, you are selling the
tenant with it. Anyone buying your rental property automatically becomes a
landlord, like it or not, until the tenants lease expires. So what are your options for selling a rental
property with a tenant?
WAYS TO SELL YOUR RENTAL PROPERTY
WAIT UNTIL
THE TENANT’S LEASE EXPIRES AND SELL
THE PROPERTY:
This is the best option if you can afford it. It costs more
because you’re not receiving rent, but it gives you the greatest chance to sell
quicker at a higher sales price. You can sell the property to investors and
homeowners alike so you’re not limiting yourself. Without the tenant, you also
have the luxury of fixing up or refreshing the property to make it look its
best and when unoccupied. The home can
always be kept show-ready and you won’t run the chance of having the tell-all
tenant wanting to tell prospective buyers everything they don’t like about the
house.
SELL YOUR HOUSE AND YOUR TENANT:
This option is the cheapest but the
most difficult. You will need the cooperation of your tenant to sell your house
with the tenant still living in it. You can’t sell it to someone who wants to
buy a house to immediately move into because they must uphold the tenant’s
lease. You have to sell it to someone who either doesn’t mind waiting for the
lease to expire or to sell it to an investor who’s looking for an income
property. If you do sell it to an investor DO
NOT UPGRADE ANYTHING. You can get a higher price by freshening up things like
paint, carpet, roofing shingles, etc. Don’t upgrade appliances, just make sure
that they look clean and are working properly. Don’t upgrade the Kitchen, Bathroom
or anything expensive. Upgrades make your house cost more and investors do not
want to pay that extra cost when they are looking for a rental property. All
investors base their offers on the income the property produces so upgrading
Stainless Steel Appliances and Granite Countertops would be a poor decision on
your part if you were going to sell the home to an investor. Also, remember: “Tenant’s Rights”. The
tenant(s) must be notified at least 24 hours in advance of any showings (Refer
to your lease).
SELL THE PROPERTY TO THE TENANT:
This option is a shot in the dark because most renters rent
because they can’t afford to buy or they simply don’t want to. If you’re not in
a hurry to cash in on the sale of your home, you may consider owner-financing
but odds are if your tenant can’t find a bank willing to loan them money,
there’s probably a good reason for it. Be
prepared to take back the house when they fail to keep up the payments.
GETTING YOUR RENTAL PROPERTY
SHOW-READY
Keeping the home show ready and having strangers entering the
house at various hours each day is a lot of trouble to ask of your tenant. The
yard has to be kept pristine and the house should always be neat and clutter-free.
Lots of homeowners fail to live up to show-ready standards with their own home
so imagine how hard it will be to motivate your tenant when he knows that his
tenant days may be coming to an end when the house sells, not to mention the
tremendous invasion of privacy your tenant can expect for the months that
follow. Be sure to communicate
everything with your tenant and introduce them to your real estate agent so
that everyone knows what to expect. If the tenant is naturally sloppy, you
can expect that the house will not show well and you may want to just wait
until the lease expires.
MAKE YOUR TENANT YOUR PARTNER
If your tenant has something to
gain from the sale, they may be more inclined to promote the sale rather than
detract from it. Regardless, it’s a lot to ask of a tenant and the tenant
should receive some form of compensation for helping to sell your house. Maybe offer a discount of rent while the
house is on the market.
ARE YOU REALLY LOSING MONEY
LEAVING THE HOUSE UNRENTED DURING THE SALE?
The answer
is probably not. Having a renter makes the house primarily appeal to landlords and
anyone wanting to live in the house will not be interested in dealing with a
renter, even if it’s on a month-to-month lease. By doing this, you basically
reduce the pool of potential buyers significantly. A reduction in potential
buyers also reduces the potential for a higher sales price. The amount of rent you’ll receive while the
house is on the market could be much less than the overall drop in the sales
price. At the end of the day, you’ll either breakeven in rent-vs-price drop
or lose money depending on the market, condition of the house and cooperation
of the tenant.
WILL HAVING A TENANT MAKE IT MORE
VALUABLE TO AN INVESTOR?
The only
way that your property would be more valuable is if you could demonstrate that
they were a great tenant and your reasons for selling were external to the
property at hand. It is easy for an
investor looking at your home to assume that the tenant is the reason that the
landlord is wanting to sell. There is no telling how well the landlord
screened their tenant or how faithful that tenant is at paying rent. Also, the
said investor would not know what kind of baggage they may be inheriting
depending on the seller’s property management style versus theirs. Was the
owner a softie and his tenant habitually walked all over him and would expect
the same thing with a future landlord?
It’s in your best interest to show your tenant’s lease, rental application and
a copy of every rent check to the prospective landlord. The more paperwork
you can show the better your chances of getting a better price. It’s important
to show the landlord buyer that you are a capable landlord who picked a good
tenant and that you’re not over your head wanting to get bailed out of a
horrible situation that they will be inheriting. Being bailed out comes at a
price and that price is usually a lowball offer.
Source:http://www.agentharvest.com/blog/the-risks-of-selling-a-rental-property-with-a-tenant/
