So you’re thinking about selling a property that is tenant occupied? After going through a few dozen of these transactions I’ve developed an approach that hopefully will save you time, money and sleepless nights!
For starters, put yourself in the tenant’s shoes. You’re paying rent, keeping the home clean, minding your own business, and all of the sudden you get the call that the property is going to be sold. Typically, your first reaction is to push back. You might feel betrayed, misled, confused…
Knowing that, here are my suggestions for making the most from your tenant occupied property.
Wait Until It’s Vacant
This isn’t what most owners want to hear, but think about the implications of having someone in the home that has zero desire to have it sell. Canceled showing appointments, a messy property, and accessibility issues are just a few of the common issues I’ve encountered. For that reason, I would first suggest approaching your tenant about buying the property. Maybe the thought hasn’t crossed their mind.
That said, I’ve seen many an owner hanging on by a thread hoping that their tenant is going to purchase the home after they’ve spent 8 months trying to get financing. If the tenant can’t get financing squared away in 60 days +/- then my general opinion is to move to plan B.
Rules Of The Game
For starters, make sure that you have the tenants written approval to put a lockbox on the property. This should be part of the normal process for a good Realtor. Ensure that your tenant is receiving proper notice for showings (12 hours). I found a good primer on the Florida Landlord/Tenant Statutes here.
If you have an active lease, realize that it survives the sale. Basically, the new buyer would have to abide by the rules of the lease. This can be a big detractor to buyers looking for a primary residence. They can’t move in right away, and in some cases, lenders will not allow this.
We all operate in some way, shape, or form based on incentives. Find the right incentive to compel your tenant to accommodate showings and keep the home in pristine condition. And, no, this doesn’t automatically mean you have to whip out your checkbook and start adding zero’s. I found a great blog post by Dan Ariely (world-renowned behavioral economist) on the subject: The Trouble With Cold Hard Cash.
You probably know a thing or two about your tenant at this point. Likes and dislikes. Interests and issues. So, put some of that knowledge to work. Maybe you send flowers and chocolates, or make a car payment, or arrange a nice dinner. You’ll figure it out! But, as our good friend Dan pointed out, going that extra mile may actually save you $$$ in the long run.
Working With Investors
Maybe you’re an experienced investor. However, more often than not, it’s the accidental landlord (previous residence turned rental) that is wanting to sell an occupied home. I’m going to blunt for a moment.
What you think is a “good investment” probably isn’t.
I’ve observed all too often a lack of accounting for the actual costs of real estate ownership when it comes to spinning numbers. What the owner deems to be a “break even” endeavor because the amount of rent is equal to their mortgage payment, simply isn’t breaking even, or if it did last year it probably won’t next. Beyond that, managing rental property is WAY too much effort to just break even! For a more detailed conversation on the subject check out: How to Purchase Investment Property.
Now that we have that out of the way. The point is this. An investor, more than likely, will pay less for your home than an owner-occupant. There’s nothing wrong with selling for less if you have alternative goals (i.e. selling quickly, no hassle, AS IS, etc.), but as they say, “you can’t have your cake and eat it too.”
- Communicate with your tenant often during the process (or ensure that your listing agent does).
- Find the right incentive.
- Try to limit showings to specific days/times.
- Get everything in writing.
- Once under contract, try to limit contact between the tenant and the new buyer. I’ve seen this issue get ugly a few times!
We could go on and on with this list… If you’re considering selling an occupied property or send me an email. Even if I don’t help you list it, I’d be happy to do some Q&A to make sure you have all of your bases covered.
Originally posted 2016-12-12 09:00:13.