One of the more difficult challenges a landlord encounters is having to sell a tenant-occupied house. This is especially difficult if your tenant has lived in the residence for an extended period of time.
However, the market fluctuates, personal needs change, and sometimes it simply makes financial sense to sell instead of continuing to rent. Finding a way to explain this to your tenants and compensate them for their trouble can be a delicate matter.
Two barriers to overcome
It’s essential for you to understand the difference between selling a vacant home and selling one that has a tenant still living on the premises. There are probably more differences than there are commonalities.
In particular, you’ll have to overcome these two barriers:
• Disgruntled tenants. The first thing to consider is the emotional state of your tenants. Do you have a good relationship with them and how do you anticipate they will respond? There’s usually one of three reactions in this situation: (1) The tenant is relieved about the chance to end the lease and move on, (2) the tenant regards having to move as a minor inconvenience but decides it’s as good a time as any to find a new place, or (3) the tenant is outraged and feels you have taken advantage of the situation. The first two are easy to handle, and the third you obviously hope to avoid.
• Market hesitancy. Even if your tenant falls into one of the first two categories, you’re still faced with an uphill battle when it comes to selling a tenant-occupied house in a real estate market that mostly consists of vacant or owner-occupied homes. People are often more hesitant to make an offer on a tenant-occupied home because it isn’t always in great condition and there’s a certain number of “unknowns” involved.
Tips for handling the process
If you want to handle the challenge of dealing with potentially disgruntled tenants and market anxiety on the part of prospective buyers, take a look at some of the best tips for handling the process:
• Do your own due diligence. The most important thing to remember is that you want to walk into this situation fully informed. This means doing your own due diligence with regard to whether your property has a good chance of selling in the current market, what type of offers you might receive, and how the financials stack up when compared to the current cash flow you receive through rent. Furthermore, it’s imperative that you evaluate the condition of the structure and decide: (a) whether it’s in a good enough condition to sell, or (b) whether it can be sold as a fixer-upper.
• Do the due diligence for your tenants. In conjunction with your own research, it’s not a bad idea to go ahead and do some of your tenants’ due diligence for them. This means researching comparable rentals, checking on moving costs, and investigating other details that will be very helpful to them when you ask them to move out. Showing tenants that you’ve already done a lot of the work lets them know you were thinking about them as well as removing some of the burden.
• Provide as much of a heads-up as possible. Only after you’ve figured out the details and specifics should you confront your tenants. However, it’s a good thing to give them as much lead time as you can. It’s extremely unfair to come to them on a Monday and say you’ll be putting the house on the market that Thursday. If possible, you should provide at least two weeks’ notice.
• Offer to compensate the tenant. Depending on the type of tenant, offering compensation may accelerate the process and ensure it goes as smoothly as possible. For example, you might cover their moving costs, put them up in a hotel for a week until they find a place to live, offer to pay the first month’s rent at their new place, or implement a cash-for-keys program to make sure they leave the property in good condition when they move out.
• Help the tenant move. Sometimes money isn’t the issue; the hassle of moving is often the worst part. Offer to help the tenant move. This gesture can go a long way and gives you a chance to show concern as well as smoothing the process.
• Expect problems along the way. Above all, don’t expect the process to be easy every step of the way. Difficulties will arise and you’ll have to deal with each one.
Three mistakes you don’t want to make
In addition to knowing how to handle the process correctly, it’s just as crucial that you know which mistakes to avoid. When you’re attempting to sell a tenant-occupied home, it’s never a good idea to do any of the following:
• Violate the terms of the lease. It’s a no-brainer, but landlords can sometimes get caught up in the moment and forget to cover their bases. Make sure you check the terms of the lease to be certain you’re legally allowed to sell the home.
• Surprise the tenant without warning. As mentioned in the third tip, you want to provide as much of a heads-up as possible. Surprising the tenant is a sure-fire way to prevent a cooperative deal from coming together.
• Fail to check the condition of the home. You never want to assume your property is ready to sell without first checking for yourself. You can’t be sure what condition a tenant will leave your rental in, so be sure to check for any major issues.
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Whether it’s answering difficult questions, helping landlords find long-term tenants, or taking care of the many logistical details that come with managing a property, we would love to be your go-to resource.
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