How To Sell A Rental While The Tenant Still Lives There

It's a tricky thing to sell a rental property while the tenant still lives there for sure! I say "tricky" but not impossible. While it is common to see a lot of vacant properties for sale that have been previously occupied by a tenant, it is not always necessary to wait to sell the property until the tenant leaves.

First Things First

There are a few things to consider before putting the property on the market. First, you need to know the terms of your lease with the current tenant. If the lease is nearing the end of it's original term then things will be pretty simple. You can list the property for sale and let all prospective purchasers know what date the property will be vacant and ready for closing and transfer of title.

Talk To The Tenant

Yes! Please talk to the tenant. Once you understand and remember how long the lease will run, set a time to meet with the tenant. Let them know that you are thinking of selling the property. The first and obvious question would be to ask the current tenant if they might be interested in purchasing the property. There are benefits to both of you if you do it this way. First, the tenant never has to deal with showing the property. Then you can decide if you want to pay a real estate broker a commission (negotiable, of course) to handle the transaction and all of the required paperwork. Please don't try to do this on your own to save money. It is very similar to a divorce situation. We've all heard stories where a couple agrees to do their divorce without the help and cost of an attorney. What starts out friendly can turn ugly very fast over simple little details. Real estate transactions are not much different. Think about how stressed you've been when buying and selling your own properties both for investment and personal reasons. Then imagine how the tenant/buyer could end up acting when things get stressful. Same goes for how you might act during the process. It is always good to have someone to handle the transaction for you in a legal and professional manner. The agent will be able to advise you on what similar properties have sold for in the area and that info alone is quite valuable. Never go on things that you hear around the neighborhood or what you find on Zillow when deciding what a properties value should be. Let a licensed broker do that for you. You and your bank account will thank you in the long run!

Offer Incentives

If the current tenant isn't interested in buying the property then you will need to make arrangements to show the property.  The rules in Arizona state that a landlord must give at least 48 hours notice prior to entering the property. When an agent wants to show the property they know and understand that they have to honor that time period. You can however work out an arrangement with the tenant to compensate them for cooperating with all showings. Let's say that someone wants to see the property with only 6 hours notice, if the tenant will make the home ready for the showing and allow it, you might give them a little bonus or reward. Think of things that the tenant might be interested in; Starbucks cards, movie tickets or even cold, hard cash. Same goes for staging the property. You'll want the home to look nice for all showings. Agents don't expect perfection but if you're competing with properties that are vacant or owner occupied and perfectly staged, this is important. Communication is the key here. Be sure to talk to the tenant and also have your real estate broker talk with them as well. The tenant needs to feel secure about how showings occur and how people will gain access to the property.

Target Other Investors

If the property is going to be occupied for a long term and you need to sell it can certainly be done. There are many real estate investors who would like to buy a property that already has a tenant in it. Lenders who make loans on investment properties love it when a tenant is already in place and paying rent. Tenants love landlords who sell their properties to other investors. It keeps them from having to move as well as having to show the property to a bunch of looky-loos.  We can market the property to an investor and then they simply take over "ownership" of the current lease or leases if it is a multi-family property. The deposits get transferred over to the new owner's account at closing and all normal prorations are taken care of by the Escrow Company.

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Know The Rules Before You Start

The Arizona Residential Landlord and Tenant Act spells out all of the requirements of you as a landlord an those of the tenant. Click here to download a free copy to review. Once you've done that, give me a call at 480-382-7622 so we can set a time to meet and make a plan for your property. I'll help you assess the value, work with the tenant and I can make recommendations for the repairs that might improve the value of the property. I'll work with you to set a timeline for the property and then we can also discuss what you plan to do when the property is sold. Will you put the proceeds into another property? If so, we can talk about the possible tax ramifications and options such as a 1031Exchange. Lots of things to think about but I am your resource for buying and selling investment properties in the Phoenix Scottsdale area. Let's talk about how to make this work for you!

Thinking of buying an investment property? Condos are a great way to get started on your investment portfolio. Feel free to  contact me to get more details on how to get started.