No Vacancies: Navigating Tenants While Selling A Property

October 25, 2016 by Luis Rojo

hire a houston residential realtor
When the time comes to sell your rental properties, you have an important choice to make as owner and manager: do you wait until the end of the current tenants’ contract term to put the house on the market, or do you start marketing your property while tenants are still in residence? While there’s no “right” answer, in most cases – due to the unpredictable time frame from listing to sale – owners choose to list their property for sale while tenants are occupying it.

In order to successfully market your property while it’s inhabited, owners need the cooperation of their tenants, so how you communicate about the upcoming change matters.

Here are six steps you need to take when informing tenants that you plan to put your property on the market.

Arrange with an Agent

Arrange with an Agent

The most important thing you should do before entering into the sales process with an occupied property is speak to a real estate agent who specializes in such cases. Some real estate agents have no real experience dealing with inhabited properties – particularly those in use by tenants – and won’t understand how to navigate the delicate politics involved. You need a professional who not only knows how to smooth over any complications, but who is well versed in tenant rights and legal issues.

Be Straightforward

One of the worst things you can do as a landlord is hedge when discussing important issues because you’re afraid of confrontation. Rather than skirting the subject or speaking evasively, schedule a time to speak with your tenants and tell them directly that you’re planning on selling the property, when you intend to list the house, and what you expect from them during this process. This will improve the process for all parties.

It’s also worthwhile to put the information about the upcoming sale in writing. This can help you avoid lawsuits, as tenants have certain rights once they’ve been in residence for a certain period of time. Documenting this communication and keeping it on file prevents tenants from claiming they were put out on the street without warning.

Know the Law

Tenant-protection laws

Tenant-protection laws vary from state to state, so make sure you know what the rules are in your area. According to Texas law, for example, landlords are required to give tenants one month’s notice before terminating their lease. Because sales generally take at least several months to execute, make sure you keep your tenants up-to-date as to the process, so that they have a good sense as to when that notice is likely to arrive.

Tune in to Your Tenant

In some cases, you may discover that your tenant is hostile towards the idea that you intend to sell your property. And while you may be well within your rights, that doesn’t mean that they won’t work against you every step of the way. Take your tenants’ attitudes toward the sale into consideration as you head into the active sales process. Angry or hostile tenants can sabotage a sale in the blink of an eye, so consider waiting until their lease is up if they’re actively impeding the process.

It’s also worth discussing with your tenants whether or not they might be interested in purchasing the property. Many renters are in a transitional phase, hoping to save until they can buy their first home. For those especially attached to their current residence, this can be the push they need to move from renting to owning.

Don’t Seek Transformation

If you are going to put your home on the market while tenants are still residing there, make sure you don’t expect them to completely transform their living space. While it’s reasonable to ask them to crate pets or run the vacuum before a showing, you shouldn’t expect your tenants to allow extensive painting or other renovations often undertaken when selling a house.

Some real estate agents encourage owners to offer tenants incentives for even the small tasks involved in making a home presentable for showings. After all, when the home sells, you’ll be rewarded – create a system that allows helpful tenants to benefit as well. The incentives don’t need to be big – a small rental discount, a gift certificate for a nice dinner, whatever you think will gain you the necessary cooperation and make your tenants feel that their needs and space are being respected.

What you may want to do if the property requires upgrades in advance of a sale is arrange with your real estate agent and potential buyers to make those improvements before the closing. Draw up a document stating what steps you intend to take, and account for the necessary time to perform those upgrades after your tenants move out. This allows you to gain the greatest profit without preemptively terminating your tenant’s contract.

Consider Your Costs

Many property owners choose to begin the sales process while a tenant is in residence because they’re concerned about losing income while the property is empty. This is a real issue, but it’s important that you look at it from a big picture perspective. Will you be forced to take a lower offer due to the space being inhabited, and not shown to its full potential? Will you limit the number of interested buyers to other landlords? You may be closing out better offers if you allow tenants to remain on site during the sale.

Remember, a higher bid on your home is likely to worth at least 6 months to a year’s rent, depending on your property type, so don’t be afraid to risk moderate losses. You may actually profit much more down the line by accepting losses upfront.

The Green Residential Promise

The Green Residential Promise

At Green Residential, we have over 30 years of Houston area property management experience – and we’re committed to putting that knowledge to work for you. If you’re a property owner considering selling a tenant-occupied property, contact our team today for a consultation. We can help you determine how to best navigate this process and take a profit.

That’s the Green Residential promise – superior service, every time. When it’s time to sell, you want our team by your side.

Luis Rojo

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