Property investment is a smart way to attain financial security. Snapping up a good deal and either flipping it or renting it out to tenants while property values rise can mean a nice chunk of cash.
Property investment becomes a little riskier, though, when obstacles get in the way of that payday goal, such as the aforementioned tenants.
Once you invite others to live on your property, they also become a significant consideration for the future of that property. That’s right—the very tenants who made it possible to hold onto that little diamond in the rough might very well hold you back from cashing in when the time comes.
Luckily, there are ways to navigate the tenant-landlord relationship through this challenge. Read on for some helpful tips on selling an occupied house with tenants living in it.
Can You Sell an Occupied House With Tenants?
The short answer here is that yes, it is possible to sell a house still occupied by tenants.
There are exceptions based on your location. However, in most states, tenants generally maintain the right to stay in the property through the remainder of their lease. So you can’t evict them illegally or use shady tactics to force them to move against their will before the lease is up.
Still, it’s your property to sell if you wish. So long as you respect and adhere to the tenant’s rights, you can sell it despite the property having inhabitants.
That said, there are certainly some complicated logistics behind this statement. You’ll want to review local and federal tenants’ rights ordinances to avoid committing any violations.
The landlord-tenant relationship is also a vital one and one that you may wish to maintain long-term, or at least keep healthy and workable. With that in mind, talking to your tenant about your desire to sell should be first on your to-do list.
The tenant might be willing to move before their lease is up. On the other hand, they might clue you in on some reasons why it’s an inconvenient time for them.
Either way, the option to sell is still on the table. However, open communication with your tenant could help you make some practical and time-sensitive decisions that ultimately prevent a ton of hassle later. An intelligent
Along the lines of avoiding legal violations, you should also go through your lease with a keen eye. Particularly in situations of long-term tenancy, there might be provisions in the lease — both in your or the tenant’s favor — that you are entirely forgetting.
Even if you have the legal right to sell, per local housing laws and tenant boards, a clause in the lease could still prevent you from doing so. Always double-check first before you make any serious moves.
How to Sell an Occupied House With Tenants
As noted above, the lease agreement dictates your options when selling the home you’ve been renting out to tenants.
That said, there are various types of leases (mainly fixed-term and month-to-month), which means there are also various paths you can take here.
Tenants With Fixed-Term Leases
Selling an occupied home is more straightforward with tenants on fixed-term leases.
Basically, the options are waiting to sell until the lease is up or selling to a buyer willing to take on the tenants themselves. The type of buyer you find might also impact the situation.
A) Wait Until the Lease Is Up to Sell
Putting your plans to sell on hold until the tenant’s current lease is up is the simplest solution.
Your tenant might become annoyed and frustrated that the option to renew isn’t available. However, there’s no legal basis for them to argue against and try to prevent you from selling. The end of the lease is the end of your contractual obligation to them.
There are also logistical reasons why the most sensible route is waiting to sell until the lease ends. It will ease any stress about coordinating repair work and showings of the property around your tenant’s schedule. Plus, you’ll be able to easily keep the house in ready condition in a way that you wouldn’t be able to should someone be living there.
There’s so much a tenant can do, whether intentionally or not, to disrupt a sale. So, waiting until they’re gone, and you’re clear of your responsibility towards them, removes many real estate roadblocks.
B) List With Tenants in Place
People’s timelines change, yours included. There are various reasons you might not want or even be able to wait for the lease to expire to sell and need to act fast.
Selling in during the lease term doesn’t mean that you’re violating any rules or doing your tenants an injustice. It just means that your circumstances, for whatever reason, require a more urgent transfer of property ownership or title transfer for real property.
Though slightly more complicated than listing an empty place, listing your house with the tenants still in place is an option that both accommodates your needs and honors your tenants’ as well.
Be prepared, though, for the potential of your tenant to have an adverse reaction to this decision. They may have legitimate concerns about what this means for the future of their tenancy, whether that be a rent increase or the new owner not renewing the lease for next year. They also might worry about invasion of privacy during showings or being accountable for damage to the property.
Regardless of their concerns, your reasons for bumping up the listing timeline are probably also valid and urgent. Open communication between you and the tenant about your needs and reasons for listing can go a long way to resolving any tension and avoiding more significant issues that might arise.
C) Sell to a Cash Buyer Directly
Another thing to consider is your ideal buyer. If you know for a fact that your buyer also intends to use the property as a rental, then that might help assuage some of your tenant’s fears.
Similarly, selling directly to a cash buyer eliminates most of the red tape that tends to irritate tenants, such as people traipsing through their apartments for inspections and assessments of all sorts.
With a cash buyer, like CowleyhomeBuyers, the only change a tenant faces is who to make the check out to on the first of every month.
Tenants with Month-to-Month Leases
Unfortunately, when the tenant has a month-to-month lease, your options are a little messier for getting the go-ahead to put your house on the market. What options you do have, however, are listed here.
There’s no expiration date on the lease, which means you have to actively come to an agreed conclusion on it with the tenant. You’ll have to renegotiate the terms, likely with some added benefit to the tenant, which could get costly and time-consuming for you.
Reduced rent or a couple of subsidized months usually do the trick as good incentives and commonly done ways to functionally “buy out” the tenant from their lease.
Alternatively, depending on the state or region, you might be able to terminate the lease. Although some rent-controlled cities and states vary on this, in most places, no specific reason is necessary for the landlord to terminate a month-to-month lease, so long as you aren’t acting on housing discrimination.
You’ll want to make sure you still follow the proper protocol for terminating a lease, though, which always involves a minimum required amount of notice (e.g., the thirty-day notice standard). Even the fastest, most direct cash sales usually take longer than thirty days to close, so this should still leave plenty of time for you to sell and your tenant to find new housing.
You also might have to serve the termination notice in a specific font and typeface or on specially formatted letterhead. Be sure to consult your area’s statutes or else risk a deficient termination notice that doesn’t hold up in court.
What to Do if Your Tenants Don’t Want to Leave?
The reality is, no matter how much communication you strive for with your tenants, they might still be very resistant to leaving. They might like the school district, be unable to afford moving costs, have relatives nearby who need them in proximity…the list goes on.
You should expect at least some amount of resistance when broaching the topic of moving to your tenants.
Like anything else, communicating with them might solve a lot of the hesitancy. Here are some suggestions on options you can offer to your tenants in light of a move.
Offer to Sell to Them First
The house is your property, but it’s also their home. Your tenants might have developed an attachment to the place, especially if they have lived there for a long time. Whether it be for reasons related to family, finances, location, or otherwise, the fact of the matter is that the house works for them in ways that other houses don’t.
This history actually makes your tenants the perfect candidates to buy the property themselves, in many cases. It saves them the headache of looking for a new place and paying for moving costs, and it saves you the expense of going through more formal listing procedures. Win-win.
If they aren’t financially able to purchase right away but expect to be in the future, there are rent-to-own or owner financing options. These financing options would give them the time to raise credit or cash for a loan while still providing you with a reliable buyer.
Offer an Incentive
Your tenant might be willing to move—with the right nudge. If they see the move as something that could benefit them financially, their level of cooperation will likely improve.
There are many inventive options out there to help sweeten the deal. Letting them out of the last month’s rent, offering to pay for the first month somewhere else, or reducing the current rental amount are great ways to get them on board.
Their reason for being disgruntled about the sale might also come from the hassle of you showing the house. In this scenario, you could offer to pay for a professional cleaning service or compensate them for the time they have to be out of the apartment.
Your tenant will likely be a lot more cooperative if the burden of the selling process isn’t falling on their shoulders.
What to Do if Your Tenants Are Causing Trouble?
There’s no way to avoid conflict entirely when asking tenants to move.
However, if they are actively causing chaos to stall the sale, especially if they engage in criminal activity, you might have grounds to outright terminate the lease. As long as their behavior goes against the terms and agreements included in the lease, then you have every right to break it legally.
It is not to say that you should go and seek out lease violations to accuse your tenants. Just if there are some glaring issues, such as intentional property damage or withholding of rent, then you’re no longer beholden to having them stay through to the end.
Selling an inhabited property with tenants is always complicated. Just because it’s in the cards for you to sell, it doesn’t mean that your tenants are necessarily in a place to pack up and move.
However, there are many real estate routes you can take to make the transition smooth and beneficial for all involved. These include renegotiating terms, incentivizing the tenant to move out, or, the best option, selling to a buyer who will continue to honor the lease.
No matter which direction you go, communicating with your tenant from the get-go is crucial if you want to maintain their trust and cooperation.