Selling my properties - what do I tell my tenants?

Question

I am selling my SFR rental properties and just got under contract.  We will have inspections then appraisals.  I need to obviously get these scheduled with the tenants.  Just not sure if I should be up front or try to hold off.  What have you done?

Michael Boyer · Answer

I told my tenants as soon as I got an offer (no sign and non MLS sale so I did not have a lot of signals before) and geared their expectations through the process. You need them on board and informed in my view to make the process smooth.

It was a good bit of communication (as they had pets, too, and these needed to be out of the way) but all the texts and emails were worth it for a smooth transition. Standard notice (24 hour, etc) for entry in your area/lease should work for the inspections and such.

My buyer communicated that he wanted to keep tenants in place (they were good payers/no problems) as long as possible (in a fourplex) so it was easier to let them know they were not plans to  boot them out at the end of their lease. You may or may not be able to pass anything along. But that seemed to be the tenants concern (can we stay? should we plan to move?).

They will generally not know how the buyer steps into your place on the leases.

So I gave the buyer copies of all the leases and kept the tenants aware of the process (most renters are clueless about the whole sale process). You would think with HGTV they would know it chapter verse but some just think you get a bag of money and hand over the keys in an hour.

It can be arduous--with inspections, repairs, re-inspections. Even the appraiser wanted some surfaces painted better (in winter--under a heated bubble--fun, fun)...

There is also some inconvenience on the inspection/re-inspection, appraisal, etc for the tenant. My process (closed on the 30th) went pretty smoothly but since we entered units like 4-5 times (more for crawl space and attic units) so I got them all a gift card for cooperating.

But I did see how having tenants onboard can be very helpful. Had one tenant left the barking dog in the house and botched an inspection or mentioned their affinity for cooking meth as a bad joke or something it could have mess up the deal or delayed it some.

Best of luck!

Fred Heller · Answer

I would just be honest with them, especially if it's already under contract. The lease runs with the land, so the buyer must honor it. So that provides some protection for the tenant. Not much help for month-to-month tenants, though. And the new owner could offer financial incentives to terminate the lease early. But the tenants have to agree with it.

Dave Passey · Answer

Hey @Tony Castronovo, as @Vijaianand Thirnageswaram mentioned you will need to give them the 30 ay notice if needed. If you are feeling that ethically you should tell them in advance, then there is obviously nothing wrong with telling the tenant that you are looking into selling the property. Until you are more sure that it will go through you could just tell them that is not a solid plan yet and that you just wanted them to be aware of what was going on.

Tenants usually react in one of two ways. 1) They will want to leave. They may start looking for a place. They may even find one and want to move. If their lease doesn't let them, then you don't have to let them go. 2) They may just stay and see what happens. I find their choice really depends on how difficult it is to find housing in the area.

James Barnhart · Answer

Honesty is always an excellent choice.  I would not ever be sneaky and try to fool a tenant.

We recently bought a home that was rented at the time.  The owner told them that he was selling the place, and the tenants appreciated the "heads up".  I didn't want to rent to them because their rent was WAY too low.  And, I didn't screen them.  So, his tenants found another place and everybody ended up happy.

Tony Castronovo · Answer

@Steve Janiak I am moving into MF

Cara Lonsdale · Answer

If you have leases in place, the fact that you are selling should have no baring on the tenants.  You can notice them now and let them know that effective XX date, there will be new managements/ownership, and that their rent payments should be directed to XYZ.  It really doesn't need to be complicated, and it doesn't really affect the tenants in any way since their leases will all still remain intact.

Tony Castronovo · Answer

Thanks @Guy Gimenez. It’s early in the process. Just got under contract Friday. I was honest with my tenants and reassured them that they are not being asked to move. They are all on term contracts (no month-to-month).

Guy Gimenez · Answer

So much bad information here...be very careful who you get advice from. @Fred Heller is exactly right...the buyer doesn't get to cancel a tenant's lease without cause...the buyer must honor the leases when purchasing. If your buyer is in the due diligence phase and hasn't received copies of all leases, amendments, exhibits, deposits, etc, I would be concerned as this is done at the start of the process, not the end. Regarding accessing the properties for inspections, your lease is your guiding document. If you used the TAR lease agreement, it already addresses this. If you used another lease agreement, you should review it again. Yes, let the tenants know you're looking at divesting of your rental portfolio and will do all you can to make sure the transition is seamless.

Thomas S. · Answer

I tell my tenants as soon as I decide to sell, before I list the property.

Selling my properties - what do I tell my tenants?

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