Any advice on selling the home with tenants already there?

Question

We may (not fully sure) sell our duplex in the next couple of months. However, we have a tenant in there and are looking for another one in the meantime for the other unit. For those of you who have sold a property with tenants already in place, have you run into any issues during the sale? One of my biggest concerns is making sure the tenants we have now aren’t forced to move out when the property changes hands.

Drew Sygit · Answer

Do NOT allow showings until an accepted offer!

You want to keep showings to a minimum to avoid upsetting the tenants.

Experienced investors know that they only need to see the interior when they do their inspection.

We once had an owner hire a owner-occupied experience-only agent who wanted to FORCE the tenants (duplex) to allow an open house!

Your ads should be targeting other investors as no buyer will be able to owner-occupy it.So, make sure the ads talk about ROI, Cash-on-Cash, etc.

Bill B. · Answer

You will get at least 10% less if it’s fully occupied. You can only sell to an investor who wants a deal. Keep one empty for an owner occupant. They’ll need to move within 60 days and they are your preferred buyer. Ps. This ignores the buyer/landlords that don’t want your tenant they didn’t screen.

Jennie Ballard · Answer

You need to check your state laws. In Texas, the lease continues as written. A tenant in good standing can only be forced out if new owner occupies their unit as primary residence. You will need to have rent and deposit history availble for review.

Ecaterina Katerina Morosan · Answer

I would start by asking where the property is located—specifically, the city and state. Different markets have very different buyer profiles and financing considerations.

Some markets are primarily rental-focused, where investors are more likely to purchase a multifamily property if it is occupied by good tenants and has a strong rent roll. In other markets, particularly for multifamily properties with fewer than four units, buyers using FHA or 5% conventional financing may need at least one unit to be vacant.

So, to answer your question, I’d first determine where the property is located, what the typical buyer profile is in that market, and who the likely purchaser would be.

We sell tenant-occupied multifamily properties all the time, but the advice we give our landlord and seller clients can be very different depending on the market. For example, what we recommend in New York may be completely different from what we would recommend in Florida.

Rebecca Knox · Answer

You know the tenant that is in there best.

I have walked many properties with tenants and have seen good ones but also, there were many that gave us a laundry list of items that needed to be repaired or issues with neighbors, etc. to try to deter us from buying--I think they were worried they were going to have to move or in most cases, that their rent was going to be raised. I think it depends on what area your in and what type of tenant you have. Most buyers prefer to vet their own tenant so I would possibly reconsider renting out the 2nd unit unless you are in dire need of income or you get an amazing tenant at market or above market rent--then in that case, I think it's a bonus but if I was a house hacker planning on living in one of the units, then maybe not. I

If your primary concern is that the tenant that lives there is able to live there still, it would depend on the lease. The lease transfers with the sale so if it's a year, then, at least here in WI, the new owner has to follow the existing lease.

Michael Eskenasy · Answer

If you may sell in the next couple of months, I’d think carefully before filling that vacant unit.

An occupied duplex and a duplex with one unit available attract two different buyer pools. A fully occupied property can be attractive to an investor, but keeping one unit vacant can make it much more attractive to an owner-occupant or house hacker. Depending on your market, that flexibility may be worth more than a few months of rent.

For the existing tenant, start with the lease and your state/local law. In many situations, selling the property does not simply erase a fixed-term lease—the buyer takes the property subject to existing tenancy obligations—but the exact rules vary by jurisdiction and lease terms.

If you sell occupied, get your paperwork extremely clean before listing: signed lease and amendments, rent ledger, security-deposit records, payment history, notices, maintenance history, and tenant contact information. Buyers will underwrite the tenancy just like they underwrite the building.

I’d also communicate with the tenant early rather than surprising them with showings and a FOR SALE sign. A cooperative tenant can make an occupied sale dramatically easier.

The bigger decision here may actually be the empty unit. If you’re genuinely leaning toward selling soon, I wouldn’t automatically trade away your flexibility just to collect another couple months of rent.

Crystal Smith · Answer

The issues we have run into with tenant's in place is buyer access to the unit(s) and/or the tenant unit does not show well. So if you can afford it- have a least one unit vacant for showings and only show the tenant unit once the property is under contract.

Regarding your concern about a tenant being forced to move- When you sell the property the new owner is taking the property subject to any leases that are in place even if it's month to month lease. It's up to the new owner what he will do regarding renewing those leases.

Seth McGathey · Answer

I am sorry but I have to respectfully disagree. As an agent that works almost exclusively with investors, I am constantly doing showings for occupied rentals. It can be uncomfortable at times, but is usually perfectly fine. I actually find it is a great time to connect with the tenant and get a better vibe for if they are a good tenant.

Also, if you accept an offer and then during the inspection the deal falls through because there are things wrong with it the buyer did not expect, you just hurt your potential sale price. Because at that point you are probably at least a week out. So excitement for a new property has passed, and anyone paying attention to the property will think the worst when they find out it fell through at inspection.

So you are in a spot where you are doing 3 of the worst things for selling a property.
1. Limiting your buyer pool because lots of people will not make an offer without seeing it first.
2. Risking extending the sales time if the first deal falls through.
3. Causing fear/speculation on what is wrong with the property.

The best way to sell a property fast, efficiently, and for the best price is to make it as easy and clear as possible.
-I highly recommend doing an inspection and sharing it on the MLS. Buyers think you are generous, you cover yourself from a lot of liability because it is hard to argue you tried to hide anything from buyers, and you undercut their ability to negotiate a lower price after accepted offer because they already knew all the issues.
-Try to make the showings as accessible as possible so as many people as possible are able to see it when it is convenient to them. (Obviously still be respectful of your tenants and give them fair notice, but still try to make it as accessible as possible).
-Provide leases upfront on MLS or at least all the important details by filling out an Addendum R (that is what it is in Wisconsin, not sure about other states) which verifies all the rental details like rent, deposit, etc.

The easier you make it for buyers, the more buyers will consider buying your property. The more buyers want to buy your property, the more likely you will have the ability to negotiate better price and terms that are important to you like keeping the tenants in there.

Drew Sygit · Answer

Can appreciate what you've experienced:)

On the other hand, we've had no issues not doing showings until under contract.

So, wondering if your experience is just a function of "this is the way we've always done it"?What would happen if you tried something new?

Kerlous Tadres · Answer

Leases transfer with the property, so a written lease protects your tenants until it's up. Market it to investors instead of owner-occupants, and you'll usually have a smooth sale, plus the buyer gets instant cash flow.

Any advice on selling the home with tenants already there?

Any advice on selling the home with tenants already there?

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