Selling a Rental Property with an Existing Rental Lease | Guest Post

How you manage to sell a rental property with onsite tenants will greatly be based on the tenants themselves, as well as your local state, county and city ordinances. Here's what you need to know.
Steven Pastores

Selling rental property with tenants onsite can be both a blessing and a curse. Quality existing renters can help to alleviate income gaps for both yourself and a new owner, help manage and mitigate any existing property concerns, and make for a smooth transition in management. Poor quality renters can cause damage, prevent needed repairs or remodels, create expensive eviction proceedings and even prevent a new owner from taking up residence.

How you manage to sell a rental property with onsite tenants will greatly be based on the tenants themselves, as well as your local state, county and city ordinances. Here's what you need to know.

Selling a Rental Property with an Existing Rental Lease

Selling rental property with an existing lease can be a great way to incentivize a buyer, enticing them with well-behaved tenants who maintain the property and pay on time. In most cases, landlords will be required to honor any existing lease agreement until the term expires so tenants with significant time left on a lease will feel secure.

If you have happy, clean tenants, you'll also have built-in staging for your pictures and listing. In addition, friendly tenants may be a boon to helping show your property on a more frequent basis and in providing a solid background on the area and its appeal. These tenants may even be potential buyers.

Selling a Rental Property with an Existing Month-to-Month Lease

A month-to-month lease makes selling your property much easier than if your tenants were still on a lease. All that is required is to give the written notice required by your local jurisdiction and then the property will no longer have a tenant.

This process gets a little more complicated if you wish to leave the existing tenants for the new buyer, or if you wish to show the property before the tenants have moved out. In the first case, the new buyer's rights may be somewhat restricted by local rent control and landlord-tenant laws. Make sure the buyer is aware of their rights should they choose to purchase the property with existing monthly tenants and that your sales agreement has all the legal stipulations that may be required to relieve your liabilities. Even if not eviction, you will need to follow local legal practices to make sure you correctly notify the tenant of any potential sale and change of ownership and/or management.

If you wish to sell the property without the tenant, you may want to wait until the tenant has moved before listing. In order to show your house or building at its best potential, you will want pictures that show a clean and well-maintained home. A tenant who is losing their housing may not be inclined to help provide these better pictures and will also be able to restrict the times and manner of your home showings based on tenant privacy laws. Most landlords find it easier to simply wait the month required to begin cleanup and photography.

Selling a Rental Property with Tenants Due for Eviction or Who Owe Back Rent

COVID-19 has added some wrinkles to rental management that were uncommon before 2020. Many owners may now be in the position of selling a rental property that is currently housing tenants due for eventual eviction or who owe significant portions of back rent. As you might expect -- these situations will not be a strong selling point for the average buyer, but you still might find the right audience and selling may mitigate significant losses for landlords from unpaid rents.

Some owners are selling to the occupants of their properties. While a simple way around real estate listings, this likely isn't an option if the tenant is financially struggling. Owners have been able to list these properties at will, however, even during the height of the pandemic. While each location is different, owners can give notice such as a 60-day written notice in Washington state with the intention of selling.

In order to make showing and the rental process easier, landlords may consider incentivizing a reluctant tenant to help improve the property prior to sale. The landlord can pay for interior cleaners and exterior landscape services. For a willing tenant who is simply behind on rent, a landlord may also offer to forgive a few months of back rent and help provide them with a reference to obtain a new place during better times.

Selling a rental property with an existing tenant isn't always a guarantee, but by no means is it a deal-breaker for owners. Use the tools available to make a win-win situation for all for the best outcome.

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