A rental property can be a lucrative long-term investment and an opportunity to collect passive income. However, managing a property investment takes time and energy, and you might be unable to keep up with your responsibilities as a landlord. When the time comes to move on, you can sell your home even if it is currently occupied by tenants. This commonly occurs when people decide to move, retire, or liquidate their property investment. 

Selling a home with tenants is possible, but it can be a little more complicated and will change your pool of potential buyers. Learn more about the process of selling a house when you currently have a lease or rental agreement in place.

Can You Sell a House with Tenants?

Yes, you can sell a rental property with tenants and you don’t have to wait for their lease agreements to end. There are two ways to go about this.

First, you can let your tenants know about your intent to sell and ask them to vacate the property within an appropriate timeframe. You may want to review the existing lease agreement to see if they are protected through an early termination clause. You may need to pay a relocation fee or early termination penalty if you terminate the agreement.

The next option is to sell the rental property with the tenants in place. You can market the tenants as an asset to potential buyers because they will immediately be able to collect passive income as soon as they close on the home. The buyers will likely have to acknowledge any lease agreements in place and won’t be able to change rental rates and fees until the rental period is up. 

As the property owner, you can decide whether you want to ask your tenants to leave or let them remain in the house. However, even if you ask your tenants to stay, they might decide to move out because the future of the home is uncertain.

Benefits of Selling a House with Tenants

Landlords often view existing tenants as liabilities who could potentially slow down the home sale. However, there are certain benefits of selling a rental property with tenants. Here are a few reasons why you might want to honor the rental agreement and keep your tenants on-site. 

• You easily identify your target buyer market: You don’t have to market your home to individual buyers and families. Instead, you can reach out to investors and other landlords who might want to expand their portfolios. 
• Investors might appreciate the immediate income: Every month a property sits vacant without tenants, investors lose income. Some prospective buyers might appreciate that you already have tenants in place and will be happy to honor the lease agreement. 
• You won’t have to complete the tenant move-out process: Selling your home could be easier because you won’t have to complete the move-out process with your tenants. You won’t have to clean up after their messes and ensure all of their lease agreement paperwork is complete and security deposits are returned. 

Your tenants might also appreciate the ability to stay within the home. If nothing changes in the rental agreement, they can remain on the property until it expires and the new owner drafts fresh documents.

Risks of Selling a House with Tenants

Honoring your tenant’s lease and keeping them on your property might be a good option for some homeowners, but it isn’t ideal for every situation. Here are a few risks that come with marketing your home with renters in place. 

• You shrink your buyer pool: You might only be able to market your home to potential investors instead of standard buyers. 
• You need to keep your tenants’ rights in mind: This could limit your home sale timeline and any potential new agreements that your buyers propose to your current renters. 
• Selling with a delinquent tenant in place can deter buyers: Investors usually want to take on responsible tenants instead of adopting problem renters who may need to be evicted. 

The types of tenants and rental property you have will determine whether you want to keep your renters in the home or wait for them to move out before listing the property.

If you think you will have more success selling the house to families and individuals instead of investors, it might be better to terminate the lease or wait for it to end.

How to Sell a House with Tenants

Once you decide to sell a rental property with tenants, you can move forward with a clear plan. Not only do you want to get the most for your property, but you also need to act legally and ethically to support your renters.

If you aren’t sure how to sell a property with tenants, talk to a real estate attorney. They will let you know what rights all parties have before and during the listing process.

Notify the Tenants

The first step when selling a house with tenants is to notify them about your intentions. The sooner you talk to the people renting your property, the sooner they can make plans to move out if they need to. Even if you plan to market your property to other investors as a source of rental income, you will want to let your tenants know about the home sale so they can be prepared for a change in ownership. 

Finding a new home takes time, and your tenants might look for a different rental if they’re unsure about the new owners. Plus, your tenants will need to be aware of the listing, especially if you intend to schedule showings and open houses while they are still residing in your home. 

Clear communication is one of the best ways to ensure an amicable parting and cooperation through the sale process. Let your tenants know when you are under contract and the target closing date. Provide detailed instructions if you need anything from them. 

You can alert tenants about the home sale even if their lease agreement and living situation shouldn’t be affected. 

Understand Tenant Rights and Leases

Before you start the move-out process and begin working with real estate agents to sell your rental property, you will want to review the tenants’ rights in your city. 

The simplest way to sell a house with tenants is to wait for their lease to expire. You can let your renters know that you will not be renewing the lease and ask them to vacate the property when their rental period is up. From there, you will have complete access to the house once it is vacant.

However, not every home sale is that simple. You may have to terminate the lease of your tenants or alert them to the change in ownership. 

Here are a few questions to answer as you review your local tenants’ protections to make sure you respect the people renting your property:

• How many days’ notice to move out do I need to provide to my tenants? Most states have a 30 to 60-day notice period.  
• How much time am I required to provide ahead of a showing or open house? As a courtesy, try to provide at least 24 hours notice. 
• Do my tenants receive a lease termination payout? Also, will they receive the security deposit back?
• Do I owe them a relocation fee because I terminated the lease early? Some states require this.

Remember, the property might be a source of rental income to you, but it is a place that your renters called home for a long time. The news that they need to move out could be hard to bear, especially if they have lived in the place for multiple years. 

Hire a Real Estate Agent

Once your tenants are aware of the situation and you have decided whether they should stay on the property or move out, you can start meeting with real estate agents to sell your rental property. It doesn’t matter whether you are selling your own home or an investment that you purchased a few years back, it is still important to interview multiple real estate agents and choose the best one. 

In this case, you want to hire a Realtor who has worked with investment properties before. Look for agents who are familiar with marketing properties with tenants to prospective buyers and investors. Not only will they know how to promote your home to the best possible groups, attracting interested parties, but they can also navigate the delicate situation of scheduling showings and open houses with existing tenants on site. 

If you are selling a tenant-occupied property, you either need to assure potential buyers that your tenants are moving out or market your house to investors who are eager to find houses that already have tenants in place.

Market the Property

Transparency is key when selling a tenant-occupied property. If your existing tenant doesn’t want to move out, talk to your real estate agent about marketing your home to other investors who are interested in honoring the lease and continuing to use the home as a source of rental income. 

Your agent should know how much of the lease agreement can be disclosed. They should be able to share the monthly rent payments and any agreements related to utilities that you have in place so investors have an idea of their income levels. Your agent can also share the duration of the lease so potential investors know when they can change the terms or look for new tenants.  

Some potential buyers might be happy to take on the investment property and adopt the existing lease. These are investors who are looking for stability and might not want to take on major renovation projects at the moment. This would result in minimal changes for your tenant, who could continue living in the space.

Coordinate Showings and Inspections

Marketing a rental property is more complex than selling your own home because you have a third party that needs to get involved in the showing, open house, and inspection schedule. Not only do you need to find a showing time that works for your potential buyers, but you also need to alert your tenants. 

Some renters might be helpful during the showing process and flexible with showing times, while others might have limitations on when your buyers can enter the property. For example, if your current tenant works the night shift, they might not want to be woken up at noon for a showing. Tenants with small children or pets might also have limits on when potential investors can enter the home. 

It is important to strike a delicate balance between being gracious to existing tenants and getting your work done as the property owner. If your tenant is willing to work with you on showing times and inspection schedules, the process will go smoothly. However, if they are difficult, you may need to assert your rights to move the home sale forward.

Negotiating with Buyers

Once you have interested parties who want to purchase your home, you will receive bids that your real estate agent will review with you. Negotiation is part of any real estate sale or purchase, but this process could be more intense if you are working with other real estate investors. These are professionals who want to get good deals on properties, which means they might offer lower bids than you expect. 

When you list your house, have a minimum sale amount that you are not willing to go below. If an investor makes an offer lower than your floor, you can counter with a higher number or reject the bid. The investor will either counter with their second offer or walk away from the deal. 

Your real estate agent will do their best to advertise your home and attract multiple offers. If you receive multiple bids, you can choose the best one or be more aggressive in your counteroffers. However, if your house has been on the market for a long time and offers are scarce, you may want to work carefully with the offer you do receive. 

Real estate is all about supply and demand. When demand is high, you can negotiate aggressively. When demand is low, you might be limited in demands to potential buyers.

What to do When Tenant Refuses to Leave?

If a tenant refuses to leave, you may have to start the eviction process to force them off of your property. This can be a last resort if you have already discussed your moving plans with them and tried to be reasonable about the home sale process.

This is another instance when you can talk to a real estate attorney or other legal professional to guide you through serving eviction notices and forcing the tenant out. 

No one wants to serve an eviction notice to a tenant, but that could be a reality if they become delinquent on their rent payments and refuse to leave the property after you terminate the lease and offer a fair relocation fee.

Poor tenants can prevent home sales and drive away buyers. You don’t want this liability to reduce your property values and prevent you from selling the house.

Don’t Let Tenants Interfere With Your Home Sale Goals

If you currently have tenants living in a property with an existing lease, you can still take steps to sell your home. It’s possible to market your property to other real estate investors and bring in a new landlord to support these existing tenants.

Review your state and local laws to make sure you are acting ethically and supporting your tenants, then move forward with the home sale. Your tenants could make the selling process easier if other investors are eager to take on occupied properties. 

If you were a landlord selling your home, turn to FastExpert to find a trusted real estate agent. You can read agent profiles and find people who have experience with investment properties. The right Realtor can make this process smooth. They will advertise your house to prospective buyers who would be an excellent fit for your current renters. Try FastExpert today and see how we can streamline the agent hiring process.

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