Can I Sell a House That Has a Tenant Living in it?
When a landlord decides to sell, this is usually the first question that arises. Yes, you can sell a property while it still has a tenant living in it. In fact, most states’ laws allow tenants to stay in a rental property after it has been sold until the lease or rental agreement expires. However, simply because you can sell with a tenant does not mean you should.
Should I Sell My Property While It Has a Tenant?
Before you put your property on the market, think about the benefits and drawbacks of selling while a tenant is still living there. In some cases, having the tenant stay during and after the sale may be ideal. However, without a crystal ball, the best you can do is weigh the benefits and drawbacks of selling your specific property while it has a tenant in place.
The Benefits and Drawbacks of Selling a Tenant-Occupied Property
When deciding whether or not to sell with a tenant in place, keep the following factors in mind.
The rental agreement.
If the tenant is on a month-to-month basis, all you or a new buyer would need to do to end the tenancy is provide the required amount of notice under state law. If the property is in an area where rent is controlled, you should look into the laws to make sure that the new owners can end the rental agreement. Discuss with your real estate agent whether it makes sense to leave the decision of whether to keep a month-to-month tenant or to terminate the tenancy before the sale closes. If the tenant has a lease, you should think about how much time is left on the lease. A long-term tenant may attract some buyers, such as investors, but it will turn off many buyers who intend to live in the property.
The pool of prospective buyers
Many real estate investors are eager to acquire a property that already has a tenant who is currently paying rent and has a lease or rental agreement in place. If the tenant’s lease expires soon after the sale closes or if the tenant is on a month-to-month basis, the property may also appeal to buyers who want to live in the property but cannot move in right away (due to having to sell their current house or move, for example), or who don’t mind waiting a little longer. However, if you have a tenant in a single-family house that is likely to be purchased by a family looking to move in soon, having a tenant will likely reduce the number of potential buyers.
The tenant and the condition of the tenancy
When selling, your tenant’s personal characteristics will come into play. A tenant who does not keep up with housekeeping, is unresponsive to communication, or is simply difficult will stymie your selling efforts. A neat, clean tenant who responds to communications (such as showing requests) and is willing to help, on the other hand, can be an asset. Keep in mind the financial aspect as well. A current tenant who owes money or pays below-market rent is a hassle that few buyers want to deal with.
What to Do When You Have a Current Tenant Will Hurt Your Selling Chances
What are your options if you decide that selling without a tenant is the better option after weighing the pros and cons?
If the tenant has a month-to-month lease, you can just give the tenant the notice required by state law to end the tenancy. If you live in a rent-controlled area, make sure that selling the property is a legitimate reason for ending the tenancy.
If your tenant has a long-term lease, it may be more difficult to end the tenancy. Your best bet is to try to negotiate with the tenant. A common approach is to offer money in exchange for the tenant’s agreement to modify the lease and move out early. If the tenant accepts the offer, you have two options: have the tenant vacate in time for you to completely clean and possibly stage the property while it’s on the market, or advertise that the property will be “vacant upon closing.”
Negotiating an early move-out with the tenant, on the other hand, could be risky. If the tenant doesn’t agree to the new terms and stays in the house after the closing, the new owner may have to kick the tenant out. The new owner could then hold you legally responsible for all the costs of getting you out.
If the timing works, or if you are unable to reach an agreement with the tenant, you may want to wait until the tenant’s lease expires before listing the property. As the lease says, let the tenant know that you plan to sell and won’t be renewing the lease.
