Key Points:
What are the costs and benefits of selling your property while your tenants are still living there?
Tenants have rights, regardless of who owns the property.
Selling with a tenant in place may reduce up-front expenses (such as vacancy costs), but your buyer pool will be reduced.
Communication is key!
Sometimes an owner - for a variety reasons - comes to the decision to sell their rental property. We’re often asked the question - “should I try and sell the home with the tenant still in place?”
You can certainly list the home for sale with a tenant in place… but you should be aware that there are some important considerations to think through if you’re going to do that.
First, the sale of your rental property is subject to the terms of the lease or rental agreement.
That means that any buyer of your property “inherits” the tenant on the terms of their current rental or lease agreement. The new owner must honor all of the terms and conditions of your existing lease.
If your tenants are on a fixed-term lease, they have the right to stay in the home for the duration of that lease - even after the sale. In California, the lease supersedes any sales contract.
So, if you’re planning on selling in the near future, you may want to avoid long-term leases, which can inhibit your ability to sell the property, and it also limits the new owner’s use of the property.
For month-to-month agreements, you can terminate the rental agreement with a 30- or 60- day notice, depending on the duration of their tenancy.
What are the benefits?
There are benefits to listing a home with a tenant in place. The biggest benefit is that you won’t lose rental revenue while the home is on the market.
Furthermore, make-ready costs are minimized, because you don’t have to move the tenant out, and oftentimes you won’t have to make any repairs or renovations before the sale.
What about costs?
In our opinion, the costs outweigh the benefits. The biggest cost when selling a tenant-occupied property is you will have a reduced pool of prospective buyers. Most of the buyers interested in your property will be investment buyers - a small segment of the overall market pool.
Also, owner-occupied buyers are often scared away by the fact that they will have to deal with the tenant in place. That adds a layer of complication that a lot of people won’t want to deal with.
Furthermore, tenant cooperation will be essential. Tenants don’t have a vested interest in the home being sold; it can be difficult getting tenants to cooperate with agents who want to see the home. You will also need to stay on top of cleaning… sometimes it’s helpful to offer a cash incentive, or a discount on the rent, for the period the home is being shown in order to encourage the tenants to be helpful.
Communication is key
Open and honest communication is key. Keep your tenants informed as to what you’re doing… transparency helps to maintain a positive relationship and encourage the tenant to cooperate throughout the process (especially if you’re going to list it while they’re still living in the home).
Thoughtfully coordinating showings is important… yes, you have the right to have it shown with 24-hours’ notice, but consider the tenants when you schedule a showing (especially on evenings and weekends).
Conclusion
Our lease agreements require that the tenants cooperate with a sale, but in practice their presence can complicate things. Unless the tenant keeps the home really nicely, is highly cooperative, and you have a great relationship with them - we recommend giving them a notice to vacate, and patiently wait until they have vacated to list your home for sale.
Big Oak Property Management has extensive experience selling rental properties in this area - both vacant and tenant occupied! There are many possible pitfalls and snares to avoid, but we have an excellent grasp of the complications that come from selling investment properties. The rental market is always strong, and we have a strong buyer pool of investors who may be interested in your property.
Let Big Oak Property Management serve as a resource for you - we can help both buyers and sellers in California. We specialize in El Dorado County - Placerville, Cameron Park, Camino, Pollock Pines, Diamond Springs, Shingle Springs, El Dorado Hills, and Rescue.
Give us a call - we’re happy to help in any way we can. (530) 644-4585.
