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How to Sell an Occupied Rental House

They say nothing is permanent except change. And if you think of it for a moment, you’ll realize it’s true for all aspects of human life with no exception to work. To put it in a context, you may be a successful landlord for years and decide to call it quits overnight. No matter if you decide to get rid of just one of your rental properties or leave the business completely, you’ll end up with the same task – putting your rental unit up for sale.

Usually, the situation is one of the two. First (and better one), if you decide to sell your rental property while it’s vacant. Second (more widespread), if you make a decision to list your rental unit for sale while it’s occupied by tenants. Although the first case is obviously preferable, it turns out the second one is not that bad either. Surprised? Don’t be. Keep reading to learn why.

Is it better to sell a property while it’s occupied or vacant?

Of course, a smart move would be acting consistently. This means not letting tenants in if you feel like selling your property anytime soon. If that’s your case, chances are good that the entire selling process will be fast and smooth for you.

However, life doesn’t always go as planned. Sometimes you realize that you need to sell your rental unit when there are tenants in it. If it is your situation, there are some good and some bad news for you. Let’s start with the bad: in most of the cases, selling a tenant-occupied property takes more time and effort compared to selling a vacant one. Speaking of the good news, there are some tried and true ways to sell a property with tenants living in it. All you need is to know your landlord rights and act accordingly.

Where landlord’s rights begin and tenant’s rights end

The first question you need to answer is simple: are you dealing with a month-to-month or a fixed-term lease? Depending on your answer, the process will be slightly different.

Month-to-Month Lease

If your tenants are renting on a month-to-month basis, have a sigh of relief right now. The month-to-month lease is exactly what it sounds like. It is an agreement that gets expired and renewed on a monthly basis, which means you get a chance to ask your tenants to leave every 30 days.

But be aware of the standard procedure. You cannot just wait till the last day of the month and show tenants the door. You’re legally obliged to give your renters a notice to vacate well in advance. And the tricky part is that ‘well in advance’ means different things in different states. For instance, it is 10 days in Louisiana and 30 days in Illinois. Check out your local state regulations to make sure you’re not acting against the law.

Fixed-Term Lease

Things are getting a little more complicated if you and your tenants have signed a fixed-term lease. In this case, tenants have the right to stay in the rental property until the lease is up. Yes, they can insist on staying until their lease ends. But smart landlords know there’s always a way out.

Check out if your rental agreement includes any specific clauses

Some rental agreements might include a specific clause meant to handle this ‘I want to sell’ situation. For instance, it might say that the lease terminates in 30 or 60 days after the property is put up for sale. Make sure to check out whether or not there is such a point in your agreement. If that’s true, selling your occupied rental house will be easier.

Think of possible reasons to terminate the lease

As a landlord, you can terminate the lease in case your tenants refuse to follow the terms. If your tenants are guilty of any of the following, feel free to give them a notice to vacate:

  • They fail to pay rent on time.
  • They don’t follow the rules you established (good examples are adopting a dog although the agreement says ‘no pets’ or sublease the property when it’s prohibited).
  • They damage your property beyond normal wear and tear.
  • They engage in illegal activities like drug deals or gambling.
  • They become a serious problem for neighbors.

Please, use this approach only if there is a real reason for that. You can’t simply make it up for the sake of kicking your tenants out. Not only is this unethical, but it will also take you down the wrong path in your career.

Sell your property to another landlord

It’s not what it sounds like, but you can sell your property together with tenants. It’s not against the law to sell the occupied property and let tenants stay until the lease is up if the new owner is ready to adopt the role of a landlord. However, this approach is associated with a number of issues. First, it means that your list of potential buyers will be narrowed down to those who are looking for a buy-to-let. Second, you’ll have to settle the issue with your tenants. After all, they’ll have to live in a property for sale, which means open houses and property inspections. And, as you remember, you can’t just let potential buyers without giving prior notice to your tenants because it would be a violation of tenants’ rights.

Consider a ‘cash for keys’ option

One of the most popular and efficient ways to solve the problem with renters is to offer them money in exchange of vacating the property. Commonly referred to as ‘cash for keys’ approach, it can be a magic pill to your ‘home selling’ a headache. Although tenants are under no obligation to agree, in nearly all cases money appear to be a good motivation to leave.

Turn tenants into property buyers

Turn your renters into buyers

Just like your rental house turns into a house for rent, your renters might turn into buyers. As soon as you decide to list your income property for sale, let your tenants know they can buy it too. This can be a good deal on both ends. You, as the owner, won’t have to search for prospective buyers and arrange open houses. Tenants, in their turn, will get a chance to buy a property they like (after all, they once chose it among numerous others) and know (this includes both hidden pitfalls and bonus points). In case your tenants are interested in your offer but cannot get a mortgage, consider a seller financing option.

If Nothing Works, Try One of These Tricks

Nobody said it was easy to sell a tenant-occupied property. Sometimes, although not often, none of the above-mentioned approaches work and you’re left with two options – to wait until the rental agreement is up or try to sweeten the deal.

Offer your tenants a solid discount

If neither ‘cash for keys’ nor your good arguments motivate your tenants to vacate the premises, take it one step further. Offer your tenants a discount on their monthly rent in exchange for their promise to leave as soon as the seller is found.

Help your tenant find a new home

If you’ve been a landlord for a while, you are likely to know other people with rental properties. If it’s true, take the most out of this fact. Recommend your tenants and help them negotiate over price.

Cover your tenant’s’ moving expenses

Another way to help your tenants see the brighter side of moving out is to pay for their moving expenses. Of course, such an offer won’t change the minds of especially stubborn and principled people but can work just great for the rest.

For the Finals

If you need one more piece of advice on the topic, here it is: no matter what you and your renters agree upon, make sure to keep it well-documented. Relying on verbal agreements is one of the biggest mistakes landlords make. Be smart, keep it official.

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