Pros and Cons of Selling your Rental Property While Tenants Live There
Date Written: 12/05/2022
Last Updated: 12/05/2022
If you're a landlord, property manager, or property owner and you've decided on selling your rental property while tenants are still living there, you might be wondering if it's possible. Recently, more Americans prefer to rent, so the likelihood of you having to sell a property with tenants in it is higher than it has been in recent years. According to Statista, in 2021 roughly 44 million individuals or families in America were renting their housing. This number has been steadily rising since 2010, part of a long-term upward trend that began in 1975.
There are no laws at the federal, state, or local levels that prohibit a property owner from selling their property while tenants are still residing in it. However, it is important to honor and respect the tenant's lease. According to Nolo, a legal service company, the majority of state laws provide tenants the right to stay in a rental home until the lease or rental agreement ends, even following a sale.
While selling your rental property with renters is completely legal, there can be some challenges in the process but also certain advantages as well. Before selling your rental property on the market, make a thorough plan that covers everything such as income concerns, selling rental property taxes implications, financing options for buyers, contracts with tenants, and much more. There are a wide variety of options available to you, and there are both pros and cons to selling a property with tenants living there.
The Pros of Selling Rental Properties With Occupants
In the US, selling property can take some time. Even with sales agents, selling a house always takes time for a variety of reasons, such as the condition of your property, location, state of the market, pricing, and buyers’ financial positions. According to Zillow, it takes an average of 55 to 70 days to sell a property in the United States. Selling rental properties may take longer.
Having renters occupy your property while you list it on the market enables you to earn income while waiting for the property to sell. This is especially helpful if you run a rental business with a limited profit margin. Having a vacancy for one or more months may be enough to negatively impact your finances and cause a cash flow problem.
Selling your rental property with tenants has the advantage of constant monitoring and security of the property. While a vacant property is up for sale, break-ins, vandalism, and other unanticipated incidents are more likely to happen. The chance of accidents and crimes happening on your property is much lower when someone is living there. Even if it takes longer to sell, you won't have to worry about anything happening to the property with no one to take care of it.
If renters are still living in the property, you won't have to worry about basic maintenance and upkeep while your property is on the market. Since tenants are still living there, they will take care of the property, maintain the lawn and curb appeal, and keep the house in a good condition so they can live comfortably. You can also use cutting-edge Maintenance Software to help you effectively maintain your property while tenants are still occupying it.
Alternative Financing Methods for Buyers
Since you must honor the terms of the renters' lease and contract, even if the property is sold, they may continue to occupy it until the end of their lease, making the buyer the new landlord of the tenants.
The benefit of having tenants is based on the rent money they generate and the tax for selling rental property. Many prospective buyers may be drawn to the tenants' monthly rent and may be able to use a non-traditional financing option that doesn't need them to use their own money as collateral for a loan. The buyer may be eligible to obtain a mortgage on the property provided the monthly rental payments match the monthly expenses related to the property, including taxes and utilities.
The Cons of Selling Rental Properties With Occupants
Disadvantage on Availability
When showing the house, respecting your tenants’ rights is vital. They need ample time to get the house ready and find somewhere else to be during the showing. Coordinating times makes showing the house with a tenant more challenging and offers limited availability. It can help if you have a good relationship with your tenants and can communicate well together. However, there is still added time.
Limited Amount of Buyers
When you’re selling rental properties with tenants, you’re instantly selling into a smaller pool of buyers. You’re eliminating the majority of first-time buyers who want to move in fast. Few buyers are interested in purchasing properties with tenants, and the majority of buyers who want to live in the property are not willing to wait for the renters' contracts to expire. There are some situations when a buyer can hold out on moving in until a lease expires for a few months, but you'll discover that you're limiting your sale to investors who are seeking out aggressive offers.
Costly and Time-Consuming Renovations
It is more difficult to schedule renovations and repairs if the renters are still residing on the property because you will need to show respect and wait for the tenants to be available. Impacting projects that are typically required for selling a property, like painting and flooring replacement, end up taking longer and costing more money. This will delay your ability to list the property for sale. Lastly, some home improvements are too in-depth to undergo while renters are occupying the property.
Not Ready for Show
It is difficult for tenants to keep a property in show-ready condition while they’re living there. Even though there is a majority of cooperative tenants, they sometimes cannot maintain the high standard required to appeal to potential buyers. In some extreme cases, tenants may purposefully fail to clean the house to turn away potential buyers, allowing them to continue staying on the property.
The Best Way To Sell a House With Tenants Living There
Depending on your needs, the list of pros and cons can help you choose how to handle your property. If you've decided to sell your property while tenants are still living there, the best way is to utilize state-of-the-art property management software for better and effective property management.
ExactEstate is a supreme Property Management Software Company that can help you manage your property with ease while waiting for your property to be sold. From maintenance, security, support, and property management, ExactEstate has you covered. You'll be able to customize your management system to meet all of your unique needs and requirements. The tools and services of ExactEstate will help you properly deal with your tenants and manage your property while listing it on the market.
Get in touch with us today and set up a demo to learn more about how ExactEstate can satisfy all of your demands and needs and ultimately advance your property management system to the next level of success.