Selling your rental property with a tenant can be easier if you are selling directly to an investor. However, most likely you will get a better price if you sell to an end buyer.
What are the Pros and Cons for selling with or without a tenant?
Pros for selling with a tenant
- If you don’t want the hassle of showing and preparing the property for sale, then selling with a tenant might be the best option.
- Sell immediately, you don’t have to wait for the lease to end.
Cons for selling with a tenant
- Investors are only interested in cash flow. If your property doesn’t show positive cash flow it may be a difficult sell.
- A smaller pool of potential buyers.
Pros for selling without a tenant
- More buyers to choose from.
- Buyers are willing to pay a higher price if they plan to live on the property.
- Selling without renters, allows you to prepare the property for sale.
- Showing the property is much easier.
Cons for selling without a tenant
- More risk, spending money on repairs without guarantee of a sale. Although in the current market that’s not really a problem.
- You may have to wait for the lease to end.
- Loss of revenue – The property will not bring rent while being fixed and marketed.
What are your legal responsibilities as a landlord if you are selling your rental?
Check your existing lease for a clause that allows you to end the lease early if you are selling the property.
If such a language is included in your lease, you simply have to send your tenants a Notice of Termination Due to Sale. The lease should spell out how much advance notice you should give your tenants.
If the lease doesn’t have such a clause you can still have the option of sending a letter to your tenants that you intend to sell the property but they don’t have to agree to it.
Many landlords offer to return the deposit immediately upon move-out or just offer cash if tenants agree to move out earlier.
If the lease is month-to-month or if it’s ending soon, give your tenants a Lease Non-Renewal Notice. Check your state requirements and lease for the length of required notice.
Where to list your property if you are looking to sell to an investor directly?
List your property where the other investors look for investment properties.
- Roofstock – Roofstock is a website specifically designed to facilitate the sale the investment properties without disturbing existing tenants. You can even sell your entire portfolio of rentals. The Roofstocks fee for selling the property is 3%. Roofstock listings are syndicated on the BiggerPockets marketplace.
- BiggerPockets marketplace – You need a membership to list a property.
- Connected Investors – This is a free option but most investors there are looking for wholesale deals.
- Facebook marketplace – You need to have free time to respond to inquiries.
- Local Investor Groups
- Corporate buyers like OpenDoor, Offerpad, and even Zillow – Flexible closing date but with the fees and discounts you will have to give up around 20 to 30 percent of your equity. Still, it doesn’t hurt to ask. Very rarely, I’ve seen sellers get decent offers.
When you should sell with the tenant?
If you live out of state and the property will require an extensive renovation before selling, it may be a better idea to sell with a tenant. Many times selling to an investor will be much easier than to an end buyer because investors pay cash or they use conventional loans.
Another reason to sell to an investor is if you don’t have the cash to do the renovations required to sell directly. For example, to sell to an FHA or VA buyer, you may have to replace the roof if it’s at the end of its useful life.
You will also only get the benefits of selling directly if you can spruce up the property.
Of course in a market like this, you could make a deal with a roofing company to pay at closing.
There are also some companies like Curbio that will fix the property and get paid at closing. I don’t have personal experience with them but I am sure you will pay for the convenience. Still, if you can get a better price, it may be worth it.
When you should sell without the tenant?
If you would like to get the highest sale price for your property, it’s worth either waiting for the lease to end or offering the tenants financial incentive to move out earlier.
You can update and fix the property so it will appeal to most buyers.
Vacant properties are much easier to show. They can be staged with appropriate furnishing to achieve the best possible price in this market.
Personally, I always sell without a tenant but I also have a team that can do rehab very affordably and I can supervise the work.
The numbers don’t lie
The best way to decide how you should sell is to do the math.
- Start with determining what the property will sell in perfect condition and in AS-IS condition. Contact a couple of Realtors and ask their opinions.
- Ask Offerpad, Opendoor, and Zillow for offers. Keep in mind that they adjust their offers based on the repair needed. You could get a high initial price but it may be adjusted later.
- If the property needs work, use our rehab calculator to figure out how much it will cost to get it ready to sell.
- Calculate the commission and selling cost. If your property is in Florida, use the Seller Net Sheet to calculate your closing expenses.
Which options net you more profit? That’s the one you should go with.