Selling a Tenant-Occupied Property

Know your rights—and the tenant’s, too.

Whether you’re looking to take advantage of a seller’s market or simply tired of landlord life, there are plenty of reasons you might need to sell a tenant-occupied property. Sure, it’s your house to sell, but having renters does affect the process. Violating lease agreements or upsetting a tenant could slow things down, so you’ll want to understand tenants rights and approach selling your tenant-occupied property with care and plenty of research.

Selling a Tenant-Occupied Property

One of the biggest challenges of sell a tenant-occupied property is that there are so many variables. Here are a few different ways to approach the sale, depending on your situation.

If Your Tenant Has a Month-to-month Lease

Month-to-month leases are typically the most flexible rental situations. Depending on your state and city, you may only need to give your renters a 30 or 60 days notice before you need them to vacate the property and surrender possession. Make sure to provide notice (in the manner required by your lease) to your tenant detailing when the agreement will end.

Landlords can typically terminate month-to-month leases without cause or explanation, so you aren’t required to tell your tenant about the sale however, this is rarely a bad idea as in many instances your tenant may be interested in purchasing the unit if they are able to qualify for financing to do so. Furthermore, any housekeeping measures you need to take (think: preparing for inspections or open houses) may go more smoothly if you keep your tenant in the loop.

If Your Tenant Has a Fixed-term Lease

Longer leases can slow down the process of selling a tenant-occupied property. Unless your lease includes an early termination clause, your renter has the right to live in the property until the lease is up—assuming he or she is paying rent and hasn’t violated the terms of the lease agreement.

The bottom line is, if a renter is following the rules and paying regularly, they don’t lose their right to call your house their home just because you want to sell. In this instance it may be best to wait until the lease has expired before selling your tenant-occupied property.

If You Have a Problem Tenant

If you and your tenant have a rocky relationship, you’ll want to be careful not to make any moves that compromise the sale. Showing the home to potential buyers while an uncooperative renter is still living there, for example, is risky.

An uncooperative tenant may be less willing to tidy the house for prospective buyers or could refuse to leave the house while potential buyers view it, making for an awkward sales experience and ultimately delaying or sabotaging the sale all together.

At the end of the day, selling your tenant-occupied property will go much more smoothly if you and your tenant can cooperate. You could try offering a break on rent for their cooperation, meaning they not only agree to showings, but they also make the bed, contain any pets, and clear the dirty dishes from the sink before showings in exchange for a reduction in the monthly rent. This strategy makes sense for both parties allowing the tenant to save some month in exchange for the inconvenience associated with showing the unit, but also the uncertainty of knowing when the unit will sell and when they need to move. It benefits you the seller by reducing your carrying cost and allowing you to continue to collect an income stream on the property during the marketing and sale of your rental property.

If Your Tenant Doesn’t Want to Go

  • Sell to Your Tenant

    If your tenant really doesn’t want to leave, ask if they want to buy the property. If they already know and love the home (plus, their stuff is already there), they could be your best buyer. If they can’t get a mortgage, consider seller financing. Here, you’re the seller and the lender, letting your tenant make payments to you. While this isn’t always the best fit for sellers and their circumstances, if it spares you the hassle of waiting for the lease to end and going through a lengthy sales process as well as some of the costs associated with such and thus, it could be worth it.

  • Sell to an Investor

    Homebuyers in the market for their own home aren’t typically interested in waiting out someone’s lease agreement, but you may have better luck selling to another investor. However, you’ll likely be dealing with a smaller market, and the new landlord or company will need to honor the tenant’s existing lease.

  • Pay Your Tenant to Vacate

    Yes, it sounds counter-intuitive if you’re selling the property to make a profit. But if you’re in a rush to sell your tenant-occupied property, you may need to sweeten the deal. How much should you offer? Start by scanning similar properties to compare rent prices. If typical rents are more than you’ve been charging, offer to pay the difference multiplied by the number of months left on your tenant’s lease. You could also pay the moving costs or offer cash to cover the next security deposit.