Can You Sell a Rental Property With Tenants In it?
Rental properties can be a great way to invest in real estate. They can appreciate in value and provide a constant flow of cash in the process. But unfortunately for many rental owners, bad tenants can quickly turn a rental into a nightmare, especially when trying to sell.
Why would you sell a tenant occupied property?
Most property sales are structured to convey a property vacant and free of any tenants. But there are occasions in which a property owner might wish to sell a property with the tenant in place. Here are a few scenarios:
1. The home is being sold as a performing turn-key investment.
When a rental property is bringing in more income than it is costing, it is considered “performing.” Some potential buyers looking for investment properties specifically desire performing rentals in “turn-key” or rent ready condition, to them it’s a selling point. To qualify a home would need almost no maintenance, be updated, and be bringing in appropriate market rents.
2. The owner needs to sell for financial reasons but the tenant has a lease.
A lease agreement is a binding contract between a landlord and a tenant. Most leases are fixed term leases. This means that the contract is valid for a specific period of time. If a seller needs to sell their property while it is bound by a current and valid lease, their only option may be to find a buyer willing to honor that lease, as breaking it may not be possible.
3. You have problem tenants who won’t leave and you don’t want to deal with the hassle.
When a tenant falls behind on the rent, they become a nuisance, or their lease expires it may seem like a logical next step to evict them from the property. However, in Florida, like many other states, an eviction is a long and drawn out legal process which may involve attorneys and hearings. Many landlords don’t want to deal with the expense of evicting a tenant, nor repair the potential damage that a bad tenant may have done to the home.
Is it legal to sell a tenant occupied property?
Yes, it is legal (at least in Florida) to sell an occupied property. Though with some restrictions. The main restriction is that any active lease must be conveyed to and honored by the buyer for as long as the tenant abides by the lease and pays rent. Additionally, the fact that the property is tenant occupied must be disclosed to the buyer, as they will not have full possession of the property after purchasing, since the tenant maintains some of those rights.
How do you sell a tenant occupied property?
A tenant occupied property can be sold like any property by listing with a real estate agent. However, before you contact an agent to list your property you should consider a few details:
- What kind of tenants do you have? Are they good tenants or bad tenants?
- What kind of condition is the home in? Can you make repairs with the tenants in place?
- Do you have a current lease, or is the tenant month to month?
- Do you have a record of payments?
- Do you have documentation about the security deposit?
- Do you manage the property personally, or do you use a property manager?
If the property is near turn-key, has good tenants, a current lease, and you have good records of your tenants payments and deposits, listing may be a good option. You will likely need to discuss with your tenant to coordinate photos, open houses, and an easy transition.
However, if the property is in bad condition, or if the tenants are behind on rent or aren’t responsive, it will be difficult to find a buyer on the open market. Nobody wants to take over your headache. If you find yourself in this situation you have a few options:
- You can wait until the lease ends and sell the property vacant after you’ve had a chance to make repairs.
- You can sell as-is to a real estate investor with the problem tenant in place.
If you can afford to wait and make repairs, the first option will typically yield a higher sales price, but the long term costs of waiting may surprise you. Otherwise most real estate investors are willing to take on your problem tenant, handling the evictions and repairs for you after the sale, in exchange for a discounted price.
Whatever you decide to do with your tenant occupied property, be sure to follow all applicable laws and regulations around selling tenant occupied properties. You may wish to consult with a real estate attorney for additional information. But remember, it is possible to sell, even with nightmare tenants!