Posted over 9 years ago

Tips for Selling a Tenant Occupied Property

 Tips for Selling a Tenant Occupied Property

Now that we are back in a seller’s market in Austin, TX, many of our property management clients are considering selling their rental properties. Texas law requires that an existing lease be honored by the buyer. So, selling a tenant occupied property can be tricky if you are not prepared. Here are a few tips to help you get top dollar when selling a tenant occupied property. 

1. Does the tenant want to buy? – This is usually our first step in selling a tenant occupied property. Many times, the tenant is interested in buying. Approach them first to let them know that you are interested in selling the property. If they are interested, have them get preapproved and under contract. If they cannot get approved for financing or they are not interested in purchasing, they will at least appreciate the fact that you offered them the opportunity first. 

2. Do Not Renew the Lease – If the lease is coming up for renewal, do not renew the lease while the house is on the market. Keep it month to month. You want to be able to have the option of giving a 30 day notice to the tenant to vacate should you sell to an owner occupant buyer. 

3. Market the Property as a Turn Key Investment Property – One of the biggest concerns for cash flow investors when buying a rental property is the vacancy rate and repairs needed in order to rent out the property. Marketing the property as a turn key investment property with a tenant in place can help sell the property to another investor that wants a hassle free investment property.

4. Help the Tenant Relocate – If you sell the property to an owner occupant buyer, assure the tenant that you will help them relocate. Move them into another one of your rentals, if you have one. Or, help them find a new place and give them an excellent rental reference. This will help get them out before your closing date with the new homeowner. 

5. Offer the Tenant a Financial Incentive to Cooperate – Tenants do not usually keep a property in “Ready to Show” condition. In fact, if the property sells and they have to move, then tenants often have more incentive not to cooperate with the sale. They may intentionally not keep the house clean or not allow the property to be shown consistently. We have found it very beneficial to offer the tenant a small financial incentive to keep the property clean while it is on the market and to cooperate with any showings. It doesn’t have to be a lot. It can be a small discount on the rent, or it could be a larger “bonus” when the house sells, but giving them an incentive helps them feel like they are getting something out of the deal, and will payoff to you in the long run when the property sells quicker and for a higher price.

6. Vacate the Property – This is usually our last resort, and only if we have a tenant that does not keep up the property or will not cooperate with showings. It can be difficult to sell a property with an uncooperative tenant. In this case, it is best to just give the tenant notice to move out at the end of their lease, and wait to list it until they have moved out and the house has been made ready and staged. It is financially difficult for anyone to have a vacant property, but the vacancy loss is usually a lot less than the loss that you would have to take sell the property with an uncooperative tenant.

Comments (3)

  1. I agree!

  2. Jeff Clawson: I would expand on your item #2 and also prepare the tenant to the possibility of signing a new annual/fixed term lease once an agreement with a buyer is in-place. Unlike several investors/landlords in our area, we prefer to acquire our properties (predominately multi-family) tenanted with annual/term leases in-place. Mortgagees - conventional or private - like to see written, longer-term, leases in-place. When selling a property, it is fairly easy to get tenants to re-sign a new lease prior to close as it offers them protection against a rent hike in the near term.

    1. Great point, Jeff!  Thanks for sharing.