Selling House - With Tenants or Empty?

9 Replies

First time poster but long time reader. I wanted to get advice from folks who have more experience than me on a question I have about selling a rental in Baltimore City (Patterson Park / Canton area). 

A little background on the house. I purchased it in 2007 as a primary residence and rented out the other bedrooms (3BR/2.5BA rowhouse). In 2013 my wife and I moved out of Baltimore to San Diego and kept the house as a rental since the market still wasn't great in the area. Since 2013 we've had the same tenants in there and they have been great. They pay every month and don't cause any issues. 

Since the market came around we decided to list the house just this past April 2017 since Baltimore isn't a place I really want to be invested. Also, the numbers as a rental don't work great. The house had interest but my real estate agent mentioned many times that the house wasn't selling because of the tenants (they are on a month to month lease at this point). Most people looking at the house are going to be living in it rather than investors looking to keep the current tenants in there. So fast forward to now and the house is still on the market with only one low offer after 6 months. My agent has sold other similar houses on the next block and priced similarly and thinks that the only reason it's not selling is because of the tenants. They do require 24 hour notice to show the place and also are a bit difficult with my agent in terms of showings. Also, they didn't want a lock box which I understand, so my agent has to meet all potential buyers and their agents at the house to do showings. 

This leads me to my question. I'm planning to pull it off the market for winter and then in the spring will re-list the house. Do you think I should give the tenants notice and have the house empty when I re-list it? My obvious issue with this is that I'd be losing $1,500/month in rent while not guaranteeing it's going to sell quickly, if at all. Also, we did try to get the tenants to purchase the property but they just aren't interested in buying a place.

Thanks for any advice you have.

If you want to sell it, and it sounds like it's in a neighborhood of mostly owner-occupied, then it will be best to give your tenants notice that they will need to be out by Spring or whenever you plan to relist the property. You're right that you will have to go an unknown amount of time without rental income to see how fast/slow the property sells.

Are the rental numbers that bad? Is it negative cash flow?

you can try to sell it on here where most of the people looking at it are investors. however, if you are saying the numbers don't work well on it, then I doubt you will have any investor interest. Since you wont have any investor interest, I would think your best bet would be to have the tenants vacate the property then list it.

@Nicole W. Thanks for the advice. It's pretty much break even in terms of cash flow but that's just including PITI and no other expenses. There have been very few expenses since the house was completely gutted and renovated right before I bought it in 2007 so I guess there's a small chance an investor would be interested.. The tenants that are in there have been great so that's a plus.

@Matt Bacenet Thanks sounds like I may need to go all in and get it empty to sell it. 

The numbers - it's listed at $208,900 and I'm getting $1,500/month rent. There's a large tax credit the city gives you if you live in the house but don't get if it's not your primary residence unfortunately.

Depends on if your believe that tenants are the problem. Could be. i wouldnt make an offer on a primary unless it was vacant. Damage, move out nonsense etc could change the house. 

I would offer to convey with buyer’s preference. Let potential buyers make the decision for you.

Originally posted by @Dave Perl :

@Nicole W. Thanks for the advice. It's pretty much break even in terms of cash flow but that's just including PITI and no other expenses. There have been very few expenses since the house was completely gutted and renovated right before I bought it in 2007 so I guess there's a small chance an investor would be interested.. The tenants that are in there have been great so that's a plus.

By the time you put on cap expense estimate/maintenance this property is significantly cash flow negative.  So if you believe that the tenants are the reason the RE is not selling and that it is not your agent simply being inconvenienced by the process of showing the RE then the $1500/month of lost rent is going to be well worth it.

You can find REI in San Diego that cover PITI, vacancy, and realistic estimates of cap expense/maintenance and still have some positive cash flow but it will cost more than your Baltimore property is listed.

In summary, the sooner you sell this place the sooner you can 1) Stop being cash negative 2) better utilize your equity for something more likely to provide a decent return.  If it costs a little to make this happen (probably a minimum of $3K lost rent including the closing time and likely more like $6K average) it is worth it as that equity is not earning its keep and is costing you money in the negative cash flow.

Good luck

Account Closed thanks I agree and think I just need to get the property empty and sell it so I can use the money on something else that does cash flow. 

@Dave Perl , it sounds like you have already arrived at your decision, which is the correct one.  Tenant occupied houses are going to eliminate a large portion of your buyer pool.

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