Selling small multi-family; w or w/o tenants?

Question

When selling a small multi-family property, let's say small sfh in front, duplex in back, would it be better to have tenants in place, or clean, new and empty?

Michael Lemieux · Answer

Thanks all. @Kimberly T. & @Colleen F., hadn't thought of the owner occupied part. I don't think i'd live there but that doesn't mean somebody wouldn't. The neighbors do.

Colleen F. · Answer

Occupied if its livable and the tenants are paying rent. If the SF is likely to attract owner  occupants it is might be ok  if that is vacant. However don't hamper the sale with longer then a year lease.  Sometimes people have the tenants sign extensions and it was just annoying that they did that with our last purchase. It made the leases a bit longer then I would have wanted and we could not raise the rent because of the existing lease

Kimberly T. · Answer

Occupied is better, unless it needs major rehab work, as Anthony said.  Many buyers will need rental agreements that they can show their lender in order to count that additional income to qualify for the loan, so it's better for them if there are already tenants with rental agreements in place.  That said, some buyers may be looking to owner-occupy one unit, or to raise rents if your rents are a little below market, so having the tenants on month-to-month agreements provides the buyer with the most flexibility.  If the buyer wants the tenants on leases, they can always require the tenants to sign the leases after closing escrow.

Karen Lee · Answer

I closed on a three family last June. It was freshly renovated and without tenants. It rented quickly and I actually saw alot more cash flow than I had previously planned on when I purchased. If you buy a place fully rented, how long before you can increase rents due to leases or conditions?

Anthony Gayden · Answer

As a buyer, I would prefer that it is 100% occupied, or close. That way I am experiencing cash flow from day 1 of ownership. Also, I will know what kind of rents the units can attract. When you see a pro-forma and an empty building, you have no clue how the building will perform or what kind of expenses it has.

The only exception to that would be if I was buying a distressed property that needed substantial work. It would be much easier to do the work with no tenants living there.