Tips for selling a rental property?
December 2, 2014 8:08 AM Subscribe
I have a house that I need to sell. It's currently occupied, and the tenants really love living there. I don't want to ask them to move out until I close, both because I need the rent to pay the mortgage until I sell, and because it's just mean to ask them to move out in winter (they've got two little kids). So I'm going to put it on the market while occupied. Are there any best practices here?
But at the same time, I know it's harder to sell a house when there are people living in it. And the process is disruptive to the tenants (photo shoot, viewings, open houses, inspections, etc.). I really want it to sell quickly so I can be done with it. Should I try to sell it as an investment property, with long-term tenants? Or would that make it less desirable to other prospective buyers?
I will be talking to my agent, of course, but if you've been in this situation, and successfully sold a house while it was rented, please tell me about your experience.
But at the same time, I know it's harder to sell a house when there are people living in it. And the process is disruptive to the tenants (photo shoot, viewings, open houses, inspections, etc.). I really want it to sell quickly so I can be done with it. Should I try to sell it as an investment property, with long-term tenants? Or would that make it less desirable to other prospective buyers?
I will be talking to my agent, of course, but if you've been in this situation, and successfully sold a house while it was rented, please tell me about your experience.
in addition to offering it to the current renters (or first-right-of-refusal), it depends heavily on local law and on how you want to market the house -- as a investment property, or to a new homeowner.
Assuming tenants have a lease, the local law will dictate what you can and cannot do, time frames for notifications, etc. A realtor may or may not know those laws, so YMMV.
Generally, probably the easiest way to sell (though not necessarily make the most money) is to sell it as an investment, advertising that it's currently occupied with such and such a lease, rent, long-term, etc.
posted by k5.user at 8:28 AM on December 2, 2014 [3 favorites]
Assuming tenants have a lease, the local law will dictate what you can and cannot do, time frames for notifications, etc. A realtor may or may not know those laws, so YMMV.
Generally, probably the easiest way to sell (though not necessarily make the most money) is to sell it as an investment, advertising that it's currently occupied with such and such a lease, rent, long-term, etc.
posted by k5.user at 8:28 AM on December 2, 2014 [3 favorites]
Please tell the current tenants that you are putting the house on the market, to avoid things like people knocking on their door on Saturday morning and them finding out that way. Trust me, it wasn't pleasant.
posted by fiercecupcake at 8:41 AM on December 2, 2014 [10 favorites]
posted by fiercecupcake at 8:41 AM on December 2, 2014 [10 favorites]
I've been on all sides of this transaction (including being the attorney evicting a hold-over tenant who refused to move out after a sale) and there's no way at all to make everyone happy but it's a pretty regular occurrence and your sales contract/closing will accommodate everyone to the extent possible and required by local law (with or without a written lease, in the US your tenants have rights as tenants). Your agent should be familiar with this and if she's not, get a new agent. Selling the place to someone who intends to keep it as a rental and will assume the lease may be permissible under your lease and is pretty painless for the seller. Whether it makes it easier or harder to sell really depends on the specifics of the neighborhood, the property and the rental market. Selling to an investment company tends to out you (unless you are also an investment company) at a negotiating disadvantage as your walk-away point from the deal will likely be less flexible than theirs.
As you've noted, one problem with showing tenant-occupied properties is that they never stage as nicely as owner-occupied or empty properties. There will also be dozens of small repairs, necessary upkeep (deep cleaning, painting) and the like which make a place less attractive to buyers but are a pain to accomplish with a tenant in the home. In my experience, the tenant usually opts to move out as soon as possible and that sucks for landlords who are generally losing money while the place is unoccupied and unsold. Obviously, you don't have to agree to let a tenant out of a lease early, but in my opinion, it's in the seller/owner's best interests to do so once the place goes on the market unless you are expecting to take a significant loss in the sales price.
Just treat everyone with respect and minimize problems by being upfront with your tenants that the place is on the market and insisting that your sales agent give them decent notice of showings. Be upfront with potential buyers that there are tenants and how long the lease runs. If your tenants lease term is up, you can almost certainly write a new lease with a "termination upon sale" clause, that gives them legally adequate notice and time to move.
posted by crush-onastick at 8:42 AM on December 2, 2014 [1 favorite]
As you've noted, one problem with showing tenant-occupied properties is that they never stage as nicely as owner-occupied or empty properties. There will also be dozens of small repairs, necessary upkeep (deep cleaning, painting) and the like which make a place less attractive to buyers but are a pain to accomplish with a tenant in the home. In my experience, the tenant usually opts to move out as soon as possible and that sucks for landlords who are generally losing money while the place is unoccupied and unsold. Obviously, you don't have to agree to let a tenant out of a lease early, but in my opinion, it's in the seller/owner's best interests to do so once the place goes on the market unless you are expecting to take a significant loss in the sales price.
Just treat everyone with respect and minimize problems by being upfront with your tenants that the place is on the market and insisting that your sales agent give them decent notice of showings. Be upfront with potential buyers that there are tenants and how long the lease runs. If your tenants lease term is up, you can almost certainly write a new lease with a "termination upon sale" clause, that gives them legally adequate notice and time to move.
posted by crush-onastick at 8:42 AM on December 2, 2014 [1 favorite]
Response by poster: Clarifications:
-The tenants have been told.
-They are currently month-to-month, not under a lease.
-They are not in a position to buy the house, unfortunately.
-Yes, I know that the wisdom is to sell in the spring.
posted by rabbitrabbit at 8:45 AM on December 2, 2014
-The tenants have been told.
-They are currently month-to-month, not under a lease.
-They are not in a position to buy the house, unfortunately.
-Yes, I know that the wisdom is to sell in the spring.
posted by rabbitrabbit at 8:45 AM on December 2, 2014
We've been renters whose apartments/houses have been sold three times in the last ten years (that's three different places). I've been through it. So, first, assuming they have a lease, check it and your jurisdictional laws. Where we are, the lease is paramount, and must be transferred to the new landlord, so we were at least assured that we weren't going to be homeless until our lease was up.
The first experience was terrible. It was a 3-unit building, and the landlord (scummy) had a scummy seller's agent who flat out lied about notifying us about viewings (confirmed by the very nice woman who later bought the place). The next two were better given that we had personal relationships with both sellers, and they did a lot to help our experience.
The biggest thing was that they ensured that we had 24 hours notice for any viewing, and to make sure the realtors didn't violate that. It really, REALLY sucks having your privacy violated regularly when you don't have skin in the game, but at least knowing when beforehand makes it manageable. Also, they let us know well in advance that they were selling (like 2+ months), introduced us to the realtors, worked with us on timing of the repairs, etc, and gave us the option of moving out early. Landlords aren't for the most part obligated to do things like that legally, but I firmly believe that on a ethical level they are. Do right by your tenants and give them some agency in the process. And, the happier they are, the more they're willing to make the place look nice and help you in the process when you need cooperation. Guess for which landlords we actually cared and cleaned up our house for viewings?
posted by The Michael The at 8:46 AM on December 2, 2014 [2 favorites]
The first experience was terrible. It was a 3-unit building, and the landlord (scummy) had a scummy seller's agent who flat out lied about notifying us about viewings (confirmed by the very nice woman who later bought the place). The next two were better given that we had personal relationships with both sellers, and they did a lot to help our experience.
The biggest thing was that they ensured that we had 24 hours notice for any viewing, and to make sure the realtors didn't violate that. It really, REALLY sucks having your privacy violated regularly when you don't have skin in the game, but at least knowing when beforehand makes it manageable. Also, they let us know well in advance that they were selling (like 2+ months), introduced us to the realtors, worked with us on timing of the repairs, etc, and gave us the option of moving out early. Landlords aren't for the most part obligated to do things like that legally, but I firmly believe that on a ethical level they are. Do right by your tenants and give them some agency in the process. And, the happier they are, the more they're willing to make the place look nice and help you in the process when you need cooperation. Guess for which landlords we actually cared and cleaned up our house for viewings?
posted by The Michael The at 8:46 AM on December 2, 2014 [2 favorites]
You can work with them to sell the property. I bought a tenant occupied property, she didn't want to move and during the viewing she showed me all the shit that was wrong with the unit. Since I only paid $35,000 for it, I went in with eyes open, but FYI, she was friendly with the current owner, and we ended up being friends.
You may have to discount the rent to off-set the total hassle it is for your renters to show the property. Also, your renters have NO incentive to stage the place to make it look the best. So their kids toys will be in the living room, their torn up recliners will be in the den and they may or may not clean. This will result in a loss of thousands to you when potential buyers make bids.
If you're desperate to get out of it, and you want to move it quickly, give them 60 days notice, and during that time get in there to repair, paint and clean. So that on day 61, it's ready to be staged and marketed properly.
Now, if you're marketing it as an investment property, then having happy renters in place is a bonus.
But it depends on the market and your objectives.
posted by Ruthless Bunny at 9:02 AM on December 2, 2014 [4 favorites]
You may have to discount the rent to off-set the total hassle it is for your renters to show the property. Also, your renters have NO incentive to stage the place to make it look the best. So their kids toys will be in the living room, their torn up recliners will be in the den and they may or may not clean. This will result in a loss of thousands to you when potential buyers make bids.
If you're desperate to get out of it, and you want to move it quickly, give them 60 days notice, and during that time get in there to repair, paint and clean. So that on day 61, it's ready to be staged and marketed properly.
Now, if you're marketing it as an investment property, then having happy renters in place is a bonus.
But it depends on the market and your objectives.
posted by Ruthless Bunny at 9:02 AM on December 2, 2014 [4 favorites]
From a tenants' point of view:
When we left our last rental we moved into a home we purchased and we had enough runway after closing that we gave our landlords a lot of extra notice beyond what our lease required (in an effort to be nice, basically). I now greatly regret that we gave them even an extra day beyond what we were minimally required to do. They basically showed it for 4-5 weeks straight, dozens of different times, before we finally cut them off due to needing to pack and get the move-out done (FWIW this is in a very hot rental market, but they put it up at a crazy price for the condition the home was in). I cannot stress enough how annoying it was to put up with numerous showings, even when the landlords met the requirement for 24-hours notice. I was home on maternity leave with an infant and it was very intrusive and impacted my baby-time considerably, as I need to try to schedule naps/outings to accommodate showings (that often fell through or else ballooned into longer periods than originally planned).
A few things:
- You need to do everything you can to keep prospective buyers/agents/etc from disturbing tenants. We had people knocking on the door and also showing up 15 minutes before a scheduled showing and poking around/letting themselves into the backyard. I let those people know what they were doing was not acceptable and they left without seeing the house at all - not my problem.
- If people have small kids and pets the logistics of getting out of the house for a showing is a nightmare. I think for the first couple of scheduled showings I actually tried to get the house super picked up, dog out, cat secured away. After that I basically stopped doing anything extra and by the end I didn't even leave whatever room I was in when they walked through to show. Point being, the more you inconvenience your tenants the less likely they are going to be to do extra stuff on their end to help make the showings go well.
- despite the weather being fine, the landlords would often linger in the living room/kitchen talking to people after the showing was done, sometimes ranging into just friendly chatting territory. Please do everyone a favor and step outside to finish your discussions - it's still my space, not your office.
- prospective tenants often had questions about average utility costs, etc. If I was present my landlords had no concerns about drawing me in to the conversation to provide data about my bills, electricity usage, etc. I wouldn't have minded giving them this information once, as they put the house on the market, but it was invasive to basically be asked personal information over and over without any thought I might not want to discuss it AGAIN (and they couldn't be bothered to take note of it so they could answer questions the next time). If people asked me, I didn't make an effort to gloss over things like the fact the house is expensive to heat in the winter (no insulation, old windows).
- Sometimes during showings prospective renters found an opportunity to ask questions of me out of the landlord's presence. In those instances I gave my honest assessment of issues with the house and our experiences (some positive, some negative). I was NOT going to gloss over issues for them or try to help them sell the rental to wary tenants. I think they would have had fewer showings if they would have just handled it after we moved out when it was vacant with no tenants.
posted by handful of rain at 9:32 AM on December 2, 2014 [6 favorites]
When we left our last rental we moved into a home we purchased and we had enough runway after closing that we gave our landlords a lot of extra notice beyond what our lease required (in an effort to be nice, basically). I now greatly regret that we gave them even an extra day beyond what we were minimally required to do. They basically showed it for 4-5 weeks straight, dozens of different times, before we finally cut them off due to needing to pack and get the move-out done (FWIW this is in a very hot rental market, but they put it up at a crazy price for the condition the home was in). I cannot stress enough how annoying it was to put up with numerous showings, even when the landlords met the requirement for 24-hours notice. I was home on maternity leave with an infant and it was very intrusive and impacted my baby-time considerably, as I need to try to schedule naps/outings to accommodate showings (that often fell through or else ballooned into longer periods than originally planned).
A few things:
- You need to do everything you can to keep prospective buyers/agents/etc from disturbing tenants. We had people knocking on the door and also showing up 15 minutes before a scheduled showing and poking around/letting themselves into the backyard. I let those people know what they were doing was not acceptable and they left without seeing the house at all - not my problem.
- If people have small kids and pets the logistics of getting out of the house for a showing is a nightmare. I think for the first couple of scheduled showings I actually tried to get the house super picked up, dog out, cat secured away. After that I basically stopped doing anything extra and by the end I didn't even leave whatever room I was in when they walked through to show. Point being, the more you inconvenience your tenants the less likely they are going to be to do extra stuff on their end to help make the showings go well.
- despite the weather being fine, the landlords would often linger in the living room/kitchen talking to people after the showing was done, sometimes ranging into just friendly chatting territory. Please do everyone a favor and step outside to finish your discussions - it's still my space, not your office.
- prospective tenants often had questions about average utility costs, etc. If I was present my landlords had no concerns about drawing me in to the conversation to provide data about my bills, electricity usage, etc. I wouldn't have minded giving them this information once, as they put the house on the market, but it was invasive to basically be asked personal information over and over without any thought I might not want to discuss it AGAIN (and they couldn't be bothered to take note of it so they could answer questions the next time). If people asked me, I didn't make an effort to gloss over things like the fact the house is expensive to heat in the winter (no insulation, old windows).
- Sometimes during showings prospective renters found an opportunity to ask questions of me out of the landlord's presence. In those instances I gave my honest assessment of issues with the house and our experiences (some positive, some negative). I was NOT going to gloss over issues for them or try to help them sell the rental to wary tenants. I think they would have had fewer showings if they would have just handled it after we moved out when it was vacant with no tenants.
posted by handful of rain at 9:32 AM on December 2, 2014 [6 favorites]
Aside from the good advice above, go get very high quality photos of everything taken. If prospective buyers can get a good idea of what the house looks like from top to bottom, you'll cut down on fruitless looky-loos who wouldn't have been interested in the house anyway.
posted by quince at 12:16 PM on December 2, 2014
posted by quince at 12:16 PM on December 2, 2014
You said they aren't in a position to buy, a friend just did a rent to own deal with a difficult to sell property and was really happy with the outcome. I believe the rent was raised above market rate (but they assumed all maintenance) to build up a downpayment and after a two year term the renters were able to get a conventional mortgage. If they had been unable to get a mortgage they would have lost the downpayment money to the owner to compensate for the risk. This requires you to keep the house as your investment however, for the two years.
posted by saucysault at 1:33 PM on December 2, 2014
posted by saucysault at 1:33 PM on December 2, 2014
Ensure that the real estate people follow the rules about the time and notification requirements for showing the house. Random knocking on the door, or a last-minute phone call begging the tenant, are NOT ok.
Between that nonsense - which I put my foot down about and legally forced them to stop - and the people who could NOT keep their hands off our stuff, it was incredibly stressful for me, the tenant. It took us three months to find a place and escape, and I literally STILL have nightmares about people coming in my house when I'm not home and moving everything around. I had a newborn and other small children, and it was *really* disturbing and disruptive, because of course, they'd want us to not be home. Usually at nap time.
posted by stormyteal at 7:42 PM on December 2, 2014
Between that nonsense - which I put my foot down about and legally forced them to stop - and the people who could NOT keep their hands off our stuff, it was incredibly stressful for me, the tenant. It took us three months to find a place and escape, and I literally STILL have nightmares about people coming in my house when I'm not home and moving everything around. I had a newborn and other small children, and it was *really* disturbing and disruptive, because of course, they'd want us to not be home. Usually at nap time.
posted by stormyteal at 7:42 PM on December 2, 2014
Response by poster: I talked to my tenants yesterday. Though I don't think they can afford to buy it, they want to see if they can try to put financing together. They also don't want strangers coming into the house during Christmas season. So I told them I'd hold off putting it on the market until January 15th. If I'm not under contract with the tenants by then, I'll market it as an investment property, which gives them a better likelihood of staying in the house, because they really feel like it's their home and want to stay. If it does end up going on the market, I'll do everything I can to make sure it's minimally disruptive to them.
Thanks everyone for your advice.
posted by rabbitrabbit at 8:10 AM on December 3, 2014 [2 favorites]
Thanks everyone for your advice.
posted by rabbitrabbit at 8:10 AM on December 3, 2014 [2 favorites]
I sold a leased property recently. The tenants were long-time renters and wished to stay that way. So I reached an agreement with them: lowing the monthly rent and we signed a contract giving them a $$ amount when the house sold.
In our case: the house sold for $200k. We lowered the rent by $100/mo for the renter's inconvenience [the renter chose this over having the house cleaned bi-weekly which would have cost us $125/mo] On closing the renters received $2000 [as stated in the contract we signed with them.]
The renter actually helped us sell the house.
caveat: this worked for us+was legal in our area.
posted by Twist at 2:29 PM on December 8, 2014
In our case: the house sold for $200k. We lowered the rent by $100/mo for the renter's inconvenience [the renter chose this over having the house cleaned bi-weekly which would have cost us $125/mo] On closing the renters received $2000 [as stated in the contract we signed with them.]
The renter actually helped us sell the house.
caveat: this worked for us+was legal in our area.
posted by Twist at 2:29 PM on December 8, 2014
This thread is closed to new comments.
I really want it to sell quickly so I can be done with it
So in your best case scenario, they get asked to move out in the winter by the new owner?
Having been a tenant in this situation, I started looking the moment the place went on the market, because who knows what the new owners will want? So a possible scenario is that your property is on the market until spring, but your tenants move out in February. If you're unsure you can sell quickly in a winter market, wait until spring so you lessen the chance of a rent/mortgage gap.
The easiest/quickest option is selling to the current renters. You can offer them a bit of a discount in return for a lot less hassle/waiting.
posted by mikepop at 8:19 AM on December 2, 2014 [6 favorites]