How to Sell a Tenant-Occupied Property
Selling rental properties can be challenging, particularly when they are occupied by tenants.
Selling multi-family homes, though, can be a valuable niche for a REALTOR® to develop—provided you’re familiar with landlord-tenant law and, in particular, the Landlord and Tenant Act.
Can You Sell a Tenant Occupied Property?
Yes, it is possible to sell a house that has renters in it. However, there are three key things to consider when doing so.
1. Review the Lease Agreement
First, you should check your lease agreement with the renters to see if there are any provisions regarding the sale of the property.
Some leases may include clauses that allow the landlord to sell the property. In contrast, others may require the landlord to give the tenants notice or even the opportunity to purchase the property themselves.
2. Consider Tenant’s Rights
Next, as noted above, you should consider the rights of the tenants. We’ll cover this in more detail below, but overall, they have a right to quiet enjoyment of the property and should not be unduly disrupted by the sale process.
You should be respectful of their privacy and avoid showing the property to potential buyers while they are home unless you have their permission.
3. Account for Tenants in the Terms of the Sale
Finally, you may need to consider the terms of the sale.
If you are selling the property with the tenants still in place, you may need to negotiate the terms of the sale with the buyer, such as whether the tenants will be required to move out or whether the buyer will assume the lease.
Overall, it is important to be transparent with the tenants and to work with them to ensure a smooth sale process.
The Basics to Sell Tenant Occupied Property
- A multi-family building with four or fewer units is considered residential.
- Any structure with five or more units is designated as commercial.
- Potential buyers seeking an FHA, VA, or USDA home loan must occupy the residence.
- Tenants living in a building when it’s on the market have specific rights granted by both state and federal law.
- Important: Depending on the particular city or town, an inspection and a renewed certificate of occupancy may be required before the property can be put on the market.
- While putting an unoccupied building on the market might be easier, the downside is no rental income for a potential buyer.
- Renters with a lease may be evicted prior to putting a property on the market. In most states, the landlord must issue a notice to vacate with at least 30–60 days’ notice. The tenant must be notified by mail. The notice should specify a move-out-by date and instructions regarding keys, forwarding address, etc.
- Unless a negotiated move-out settlement has been agreed upon by both parties, residents with a fixed-term lease that doesn’t have a termination clause may stay while the property is up for sale.
- Tenants who have failed to pay rent may be asked to leave, provided the landlord has stipulated those terms in their lease.
The Landlord and Tenant Act outlines the terms and conditions that should be included in a rental contract or lease agreement. These rules are designed to protect both landlord and renter.
- Security deposit: While there are some variations at the state level, a landlord must specify the cost and terms of a security deposit. Some states require a separate escrow account to be set up and the deposit to be returned within so many days after the renter has moved out
- Monthly rent: The charge for rent must be clearly stated and cannot be raised during the lease period unless otherwise stated.
- Utilities: The landlord must indicate which utilities are or are not included in the rent.
- Building maintenance: While not always specifically addressed, the landlords should be expected to make repairs within a specified and reasonable amount of time.
- Privacy: A landlord must notify a tenant in writing at least 24 hours before entering their apartment.
- Guest policy: A landlord may specify the number of guests and a time limit within which a renter may have guests stay in the apartment.
- Pets: A landlord may prohibit pets.
- Eviction: Disturbing other tenants, breaking a clause in the lease, or failure to pay rent, can be cause for eviction. To evict, the landlord must follow the eviction procedure described in the Landlord and Tenant Act.
Showing a Tenant-Occupied Property
Open communication with the current owner and renters is critical if you’re going to have a successful sale. Keeping the building in good viewing condition and scheduling walk-throughs with potential buyers is easier if you have a friendly rapport with existing renters.
State laws dictate how much notice must be given prior to a showing; 24 hours is generally the rule.
A good REALTOR® wants to avoid instances where a tenant is uncooperative because he or she doesn’t want the building to sell. So, it’s important to empathize with the renter about the inconvenience they’ll experience.
One way to ease the situation is to offer the renter a perk. This might be a discount on their rent while the property is on the market, a free weekly cleaning service, or a hotel room over a weekend during an open house.
Buying a Tenant-Occupied Property
For buyers, particularly first-time buyers, the multi-family home can be a great way to test the waters of homeownership.
For those not adverse to taking on the role of the landlord, the income generated from renters can cover both the mortgage and maintenance costs.
For the REALTOR®, a residential multi-family is a good alternative to offer your customers when single-family homes are scarce and interest rates are rising.
Commonly Asked Questions About Selling Occupied Rental Property
What does tenant occupied mean?
Tenant occupied means that a tenant currently lives in the property and has a lease agreement with the landlord. It is common for real estate listings to specify whether a property is a tenant occupied or not, as this can be an important factor for potential buyers.
Tenant-occupied properties may offer a steady stream of rental income for the buyer, but they also have the added responsibility of managing the property and the tenants.
On the other hand, an unoccupied property may be easier to show to potential buyers, but it may also mean a loss of rental income until a new tenant is found.
What are some tenant appreciation ideas?
This completely depends on your relationship with your tenants and how much you are willing to invest prior to completing the sale.
- Host a tenant appreciation event: This could be a barbecue, potluck, or another gathering where you provide food and drinks for your tenants. This is a great way to show appreciation and build community among your tenants.
- Offer small gifts or discounts: You could give your tenants small gifts such as gift cards, movie tickets, or other treats to say thank you. Alternatively, you could offer them a discount on their rent or other services during the transition.
- A handwritten note or card: A simple note or card can go a long way in showing your appreciation to your tenants. It’s a personal touch that they will surely appreciate.
- Offer a referral bonus: If you have a tenant who refers a new tenant to your property, consider offering them a referral bonus to thank them for their help in finding a new tenant.
- Repair or upgrade something in their unit: If something in your tenant’s unit needs repairing or upgrading, consider doing it as a way of showing appreciation. This could be something small like replacing a light fixture or something more significant like installing a new refrigerator.
Bottom Line on Selling a Home with Tenants
Selling a rental property with tenants can be a challenge, but it is possible. Landlords should review the lease agreement to see if there are any provisions regarding the sale of the property and consider the rights of the tenants, including their right to quiet enjoyment and privacy.
The terms of the sale may also need to be negotiated with the buyer, such as whether the tenants will be required to move out or whether the buyer will assume the lease.
Landlords should also be familiar with landlord-tenant law, including the Landlord and Tenant Act, which outlines the terms and conditions that should be included in a rental contract or lease agreement.
These rules protect landlords and renters and help ensure a smooth sale process.