Let’s assume that you’ve come to the decision that its time to sell your residential investment property. You have the option of putting the property up for sale after it’s been vacated. However, if you have a mortgage and/or other carrying costs you may want to at least attempt to get the property sold with the tenants in place. With this in mind I would like to review some considerations.
1. Offer to sell the property to your current tenants. This is often overlooked but such an obvious first step. The question is, “If they’re capable of purchasing a home, why are they renting?” Well, I’ve seen it happen before and perhaps more importantly, offering that first right of refusal is a sign of respect which may make the next steps easier to navigate.
2. Check the lease. Are you on month-to-month terms or is there time remaining on the lease? Some leases provide for early termination for the purpose of selling the property. Nearly all residential leases provide for the homeowner’s right to enter and inspect the property, typically with 24 – 48 hours-notice to the tenants. Ensure that this right is extended to the owner’s agent and/or other representatives. Keep in mind that you will be hanging your hat on this clause but not typically for the purpose that it was intended.
3. Do you have clean, cooperative tenants? You’ll never know until you try, but in many cases a tidy tenant will help the situation by “staging” the property for you. That is, a clean and well-decorated property will almost always show better than a vacant home. You might consider incentivizing your tenant with reduced rent. I’ve had good luck offering a financial incentive to the tenants for accommodating individual showings. I might even recommend that the seller provide a small bonus for positive feedback such as “clean and tidy” from the showing agents.
4. When should we notify the tenants to vacate? Assuming the tenants are on a month-to-month basis, owners must give them a minimum of 30 days-notice to vacate. If the new buyers intend to occupy the home, it is likely that they’ll want to move in as quickly as possible. To ensure we don’t evict prematurely, I typically negotiate for a longer-than-normal escrow allowing the buyer to resolve their contingencies. The tenant would then only be noticed after details such as inspections and appraisal are concluded. This may sound difficult but, in most cases, it’s just a matter of a 2-3 additional weeks.
5. What if I’m in a long-tern lease? This is a bit more complicated, if it’s urgent consider offering your tenants a “buy-out” of the lease. I recommend this because most owner-occupied, residential mortgages dictate that the buyer must occupy the home within 30 days of closing. You’re effectively cutting out all financed, owner occupied buyers in this scenario which would necessitate marketing to cash buyers or financed investors exclusively. Unfortunately, those types of transactions comprise less than 35% of the market at this point.
In this situation “respect & empathy” are key. It’s hard to have your home up for sale, even harder when you’re not sure where you’re going after it sells. Tenants will almost always find this process to be inconvenient and disappointing; some are just plain scared. I can offer experience and a steady hand if you would like to explore your options. Please let me know if you have any questions. dan@nvhomeconnections.com