Navigating the sale of a rental property with tenants requires meticulous planning and communication. This guide equips landlords with essential strategies and legal insights to ensure a seamless transaction, respecting tenant rights and optimizing the sale process for all parties involved.
Key Takeaways:
Deciding to sell your rental property requires careful consideration, especially when tenants occupy it. Whether you’re drafting a notice of intent to sell the property or navigating the complexities of California landlord-tenant laws, it’s crucial to approach this transition with clarity and respect for your tenants’ rights.
Can you sell a rental property with tenants living in it?
Yes, you can sell a rental property with tenants in residence, but it requires clear communication, adherence to tenant rights, and possibly offering incentives for cooperation. It’s known as selling with a tenant in residence, and there are many things for landlords to consider before listing the home. Ensuring a transparent and respectful process is essential for a smooth transition.
Does this mean selling a rental house with tenants living there is impossible? No, but you must be organized and clear with the tenants to avoid potential anger or legal complications.
In this guide, we’ll cover everything landlords need to know about the process, from providing notice to tenants about the sale of the property to understanding the implications of a 120-day notice to sell in California. Plus, we’ll include a template for a notice of intent to sell, simplifying this crucial step. With these tools, you can make a successful, smooth sale!
We host a weekly video series called “Ask A Property Manager,” and in episode #44 below, Eric and Andrew discuss selling an occupied rental property.
The audio is a little rougher on this one, but the content is good. Feel free to skip to the 1:00 mark to hear them discuss this topic.
You can also find many great resources on selling a rental property at RealEstateInvesting.com . Just check out their Resources section.
For more information on how to sell a rental, especially if it’s occupied, check out this video:
Our sample letter to notify tenants of the sale of the property is crafted to help you communicate effectively, ensuring tenants are well-informed about the upcoming changes and any incentives you’re offering for their cooperation.
Dear ______,
This letter is to officially notify you of my intent to sell the property at the address of __________.
I intend to sell the property occupied, so the next owner will assume your lease. To make this process as smooth as possible, I’d like to try to answer any questions in this letter.
In the state of ______, it is required that I provide ___ hours of notice before showing the rental property to any prospective buyers. This will allow you time to have your residence clean and presentable.
I will do my best to exceed those minimum requirements to give you additional time before a showing. I will (email, text, call, or send a letter) to notify you of these showings.
These will be guided showings so prospective buyers will not be alone in the rental. That being said, before showings, it’s a good idea not to have any small valuable items lying around.
I appreciate your cooperation through this process, and upon the sale of the rental property, I will transfer the lease and security deposits to the new owner. At this time, I’d like to provide you with a ____ bonus for your cooperation through the sale of the property once closing is complete.
Please let me know if you have any questions.
As you can see, this notice is relatively straightforward, but it gives the tenant a great deal of information that they are sure to be curious about. What exactly, then, is the information that you should include when writing up your notification?
When selling a property with tenants in it, you should always include the following breakdown of information:
Basic Identifying Information
Start with the date, the tenants’ names, and the property address. This identifying information is necessary to ensure the tenant gets the proper form specifically created for them and their property.
What Will Be Happening
Next, let the tenant know what will be happening. Will there be showings? When will the property go on the market? Is there anything they will be responsible for doing while the property is on the market?
The tenant will likely have many questions about the process from this point forward, so it’s best to give as much detailed information about how you will handle showings and marketing upfront.
Of course, the tenant can contact you with more questions if need be, but it is better to give them as much information as you can as soon as possible so that they do not become stressed or overwhelmed when receiving this notice.
Showing Notice
Let the tenant know how much notice you are legally required to give them when you schedule a property showing . This will give them an idea of what type of notices and situations they can expect through the sale process.
Bonus Incentives
Including a bonus for your tenants throughout this process is far from a requirement, but some landlords find that giving some additional relief to the tenant throughout the sale process helps ease the transition.
In one of the more thorough explanation sections later in today’s interview, we’ll introduce some example bonuses you may want to try out during y our next tenant-occupied property sale.
For more tips on how to sell your tenant-occupied rental property, check out this video:
Understanding tenants’ rights is fundamental when planning to sell a property they reside in. This includes recognizing their position upon receiving a notice of sale of property and adhering to specific regulations, such as the required notice period and tenants’ security deposit handling.
As you know, state and federal laws often put restrictions in place to protect tenants.
When it comes time to sell a tenant-occupied property, there are some tenant rights you need to keep in mind to ensure that you are not breaking the law at any point.
Let’s start by reminding you that every piece of information we give in today’s article is subject to local laws and restrictions. While we aim to provide information that can be helpful to landlords in any area, there are always some variations in the law.
Before taking action, familiarize yourself with local and state laws regarding tenant-occupied property sales. It is up to you to ensure that you know what the current codes are.
In California, for example, a “120-day notice to sell” is a legal requirement for landlords intending to sell their property, ensuring tenants have ample time to seek alternative housing. This regulation is part of tenant protection laws to prevent abrupt eviction due to property sales. However, its application may vary based on local laws, tenancy types, and lease agreements. Landlords must comply with this and all other notice requirements by thoroughly understanding both state and local ordinances and may benefit from legal consultation to navigate these legalities effectively.
Some tenants will assume they must move out because you are selling the property. In most cases, that is not the case, and you may not be legally allowed to ask them to move out. If a tenant is in a long-term lease and you are selling during the lease, finding a buyer who will take over the lease may be necessary.
The exact lease and sale situation will determine whether or not the tenant will need to move out.
For example, tenants on a year-long lease can only be forced to move out early if the property is going to be moved into by you, the owner, or by a direct family member who is purchasing the property. Even in this case, local laws may require you to allow the tenant to finish their lease.
If, however, the tenant is on a month-by-month lease , the lease can be ended with property notice of the upcoming. Depending on how long the tenant has rented the property, this can range anywhere from 60 to 120 days.
Leases permit tenants to stay on a property, not to rent from a specific owner. Even if the house sells quickly, legal tenants do not have to move out immediately.
Exception: Sale Termination Clauses
If you are considering selling your property soon, consider adding a sale termination clause to the lease. In this case, the tenant is made aware of your desire to sell, and you can ensure that you can sell the property without a tenant if the new buyer is not interested in keeping a tenant.
While you are marketing the property, you cannot change the utilities. This means no cutting off the water or electricity while you make the sale. Remember: You still have to keep up with your landlord responsibilities during the sale process!
As long as you are the property owner and the tenants are living on your property, it is your job to follow the letter of the law and ensure that the space is in livable condition.
State and local governments have created laws about how much notice you must give a tenant before a property showing or a repair technician comes to work on the property.
Since you are marketing the property, you will likely need to be scheduling both of these things. As such, it is essential that you give proper notice to your tenant about them.
For showings, giving notice is not only required by law, but it can also help ensure that the property looks great during the showing. Tenants will have a chance to clean up any big messes and put personal belongings away. Additionally, it allows the tenant to go out during the showing if they prefer not to be present.
For repairs, you must notify the tenant according to local law. This is for tenant convenience and safety, but it will also help you. If the repair man is scheduled to work on the washer, but the tenant is in the middle of folding laundry when he arrives, there might be a problem.
Open and transparent communication with the tenant throughout the process is part of their legal right, so be sure to follow through.
Remember that you are responsible for returning the tenant’s security deposit if they move out during the sale. If they will be staying with the new owner, you must hand over that money to the new owner, including any accrued interest.
You must transfer security deposits, prorated rent, and any other fees you collected to protect the property during the lease to the new owner.
When a new landlord takes over the property from you, the tenant can keep the same lease terms you agreed upon. Some tenants will worry about this during the process.
For example, you and the tenant may have agreed on a simple pet addendum for the lease that allows them to keep two dogs. The tenant may worry that the new landlord will require them to remove their dogs. That, however, would be illegal.
If your original lease terms are intact, the tenant can legally keep their pet(s) . At the end of the lease period, however, the new owner could require lease changes before a new lease is signed.
Be sure to explain this to your tenants when you let them know you will be marketing the property. If they understand that their current lease will still be valid for however long is left on the lease, they are much more likely to be amenable to the idea of a sale.
Several different types of buyers might be interested in purchasing a tenant-occupied property. The first is the tenants themselves, and many landlords work out creative financing, like rent to own, with tenants already in place. Other buyers might be people who want to live in the property as their primary residence. In that case, landlords will have to follow their state’s laws for notifying tenants of the intent to sell and, in most cases, wait for the lease agreement to expire and choose not to renew. Another potential buyer would be another real estate investor who keeps existing tenants in place.
No matter what, landlords must check out the laws and regulations that govern their state and follow the process to the letter to ensure that they are in compliance with every rule. Selling an investment property with a tenant in residence comes with a unique set of steps, and landlords would do well to do their research first. There are specific notification timelines as well as the right-to-enter requirements that often differ from more standard processes.
For example, in California , a landlord must deliver a written notice of intent to sell the property 120 days before showings begin. Then, landlords can give tenants a 24-hour written or oral notice before a showing. Showings can only occur during reasonable business hours, and landlords must always leave written evidence of entry, like leaving a business card on the counter.
No matter who landlords think might be buying a property, they are beholden to the laws governing that transaction with a tenant in residence.
Many landlords wait until the tenant’s lease is about to expire, then list the empty property. Others try to sell the property while the tenant is still in residence. There are pros and cons to each approach.
Ideally, landlords would have the property vacant while trying to sell it. It’s always easier to get buyers more excited about an empty house or one that has been professionally staged. There also can be a negative association between a home that has been used for rentals versus one that is more neutral, and generally, occupied rental homes are considered less valuable. An empty home can be fixed up properly and listed in its best condition possible. With a renter in place, the property might not appear at its best to prospective buyers.
However, most landlords can’t afford to empty their rental property for a few months to make it look better to buyers. Keeping the tenant in place until a transaction is imminent ensures that the property generates income. However, tenants may not take care of the place very well, which would turn off prospective buyers.
If tenants wanted to, they could probably figure out plenty of ways to discourage most buyers from making any offer.
For example, tenants might purposely fail to notify the landlord about needed repairs or to alert them to any negative cosmetic issues. Or, when tenants don’t care for the property or even clean up regularly, it can further diminish its appeal to potential buyers.
Effective communication is key to a smooth transition. This starts with a well-crafted notice to the tenant of your intent to sell the property, setting the stage for an open dialogue and cooperative environment throughout the sale process. From keeping the property occupied to putting it in the best light during showings, tenants play a big part when landlords sell an investment property . The tenant must agree to cooperate, or the landlord will have difficulty showing the property properly.
When landlords communicate well with tenants in residence, they are more likely to cooperate throughout the entire process and contribute to a successful sale.
Many landlords understand that it is a big shock for tenants to discover that their rental home will be sold. The fear of the unknown will always worry some tenants, and landlords can do their best to help tenants feel like they are not being kept in the dark.
Consider offering incentives to your tenants to encourage cooperation and ease the sale process. Whether it’s a rental discount or assistance with moving expenses, clear communication about these benefits can be outlined in your intent to sell letter to the tenant.
Here are just a few ideas for tenant incentives when they are in residence:
All in all, landlords should have an ally in the tenants rather than an enemy because a messy, uncooperative tenant can quickly thwart the interest of prospective buyers.
Landlords who want to sell their investment property while the tenant is in residence are embarking on a process that may or may not be successful. However, with the right approach and incentives, you can conduct the sale legally, thoughtfully, and profitably.
Selling a rental property doesn’t have to be daunting. Landlords can navigate this process by prioritizing transparent communication, understanding tenant rights, and preparing a clear notice of intent to sell rental property template. Remember, a well-informed tenant is more likely to cooperate, making the sale smoother for everyone involved.
Every aspect of managing a rental property can be overwhelming at first. When you signed your first lease with tenants, you were probably worried that you forgot something! Even if you were, it all worked out in the end.
The key to selling a house with tenants successfully is to keep everything clear and transparent between yourself and the tenant. By keeping them up-to-date with the marketing and ongoing sale, you’ll find that the process runs much smoother.
Know your rights and know the tenant’s rights . By keeping them in mind throughout the sale process, you can sell your tenant-occupied property successfully in no time!
Our tenant screening services have been trusted by over 100,000 landlords & property managers since 2007. SEE OUR PACKAGES
Starting at just $21.00!
