A rental property with existing tenants is a substantial source of extra income. But if you sell it, there is a lot to go through.

Whether you want to sell your house because you inherited it, need the cash, want another property or wish to get out of the landlord business, it’s a long process full of complexities and considerations.

To sell a vacant property includes standard procedures: you work with a real estate agent, list it, have open houses, and hopefully sell it in a timely manner. 

However, things are different, if you sell an occupied house. There are challenges to consider and to prepare for. Keep in mind to plan carefully in advance, communicate with your tenant, and be ready for compromises to guarantee a quick house sale. You have reasonable options to go for and make the sale a success.

So, at Quality Property Care, we urge you to read ahead to discover the best and legal approach to sell a property with sitting tenants in our detailed guide

Can You Sell a Property with Tenants in It

Is it possible to sell an occupied house? That’s the first question that arises when a landlord wants to sell. The answer is yes! Law allows you to sell a property with renters in it. 

But, let’s review both the pros and cons of it:

Pros of selling a property with tenants:

• The new owner knows the tenants’ history from you. As a new landlord, he doesn’t need to search for the tenants’ references or deposits. That’s because you already have them on file, which you submit to the new landlord.
• A tenanted house is attractive to a buyer who looks at the property as an investment. It’s a great financial profit, and it saves the new owner the hassle of yet finding new residents.
• According to statistics, the risk for an accident is lower in a tenant-occupied home compared to a vacant house. Occupied properties deter thieves and decrease the possibilities of vandalism.

Cons of selling a property with tenants:

• A tenanted home is challenging to show. Most renters don’t enjoy any strangers that walk around their home. So, they make the property showings awkward or put unacceptable and impossible restrictions on them.

Or, even if tenants are helpful and cooperative, there are other issues related to open houses. During a tenancy, it’s harder to schedule showings or have repairs, tenancy cleaning (or just regular cleaning for that matter) and updates in the property to prepare it for them.

• Selling a house with renters with it means a smaller pool of potential buyers. This causes real estate agents to value your property lower.

Notify Your Tenants About the Sale

According to law, it’s not mandatory to inform your residents that you’re about to sell the property. But it’s common sense you do that and keep in good terms with them. A great tip is to meet your tenant in person. So, why not ask them to see you for a cup of coffee? 

Be respectful and informative and talk them through the sale process. Hear and answer their questions, too.

Offer Your Renter a Chance to Buy

Remember that your tenant is a potential buyer, too. If they enjoy the house a lot, it is possible they are the one that buys it. 

So, approach them about that option. If your tenant agrees, then hire a real estate attorney to manage the entire process. 

A seller financing arrangement is a convenient deal both for you and the tenant. It’s a transaction where you serve as a lender and your tenant makes payments to you over a fixed period (a couple of years) toward the purchase of the home. Make sure you own the property free and clear, without a mortgage, to take advantage of this type of sale.

If that arrangement is not an available option for you and your tenant, then let them get their own financing to complete the buying.

Types of Rental Agreements

Another prospect to sell your occupied property is to have your tenants vacate it. The advantage of selling a vacant house is that you open up to the entire home buying market. The property becomes attractive to a wider audience and provides more potential buyers.

Here, the most important factor to consider is the type of lease you have with your tenant.

• A month-to-month lease. It’s the best possible rental agreement for this situation. What you need to do is just give your tenants proper notice to move out. Send them a mail or a letter 30 days before you want them out, but comply with the rent due date. That it’s a month-to-month agreement lets you to not explain your decision to sell. This is a “no cause” termination.
• A fixed-term lease. Your options are more complicated with this type of rental agreement. The fixed-term lease means that renters have legal rights to stay in the property until it ends. And a change in ownership doesn’t change that. So, the only way to sell a vacant house is to wait for the lease to expire. This shows a much longer selling process.

However, there are valid reasons by the side of the tenants, which let you terminate the agreement. For example:

• Irregular rent payments;
• Violation of a non-pet clause;
• Property damage;
• Illegal activities in the property, etc.
• An “early termination” clause.  An “early termination” clause in your rental agreement oblige tenants under particular circumstances to leave the property no matter that their lease hasn’t expired. Such a trigger can be exactly selling the house. Here, the clause says that renters have, for example, 60 days after closing on the sale to leave the property.

How to Deal with Tenants Who Don’t Want to Leave

What if none of the options above is convenient and your renters refuse to move out?

Then, go for the “cash to keys” strategy – pay them to do so. It’s an expensive but viable choice when you’re in a hurry to sell. What’s the appropriate amount of money to offer? Take the difference between higher rents elsewhere in the area and the rent they pay you and multiply it by the number of months left on their lease. Or, some renters might insist on the monthly rent they pay you again multiplied by the months left. Also, offer to cover their moving costs and half of what they need to pay to move into a new home (first month’s rent and a security deposit).

Remember renters have zero obligation to accept your offers. Then you need to wait for the rental agreement to expire.

To Conclude

So, there you go. 

You now know what are the options for selling a property while tenants still live there. Analyse each one carefully and decide which is the most appropriate for your situation, regarding your tenants and your relationship with them. Remember to respect that it is still their home to guarantee a smooth and painless sale process.