There comes a point in nearly every real estate investor's journey where they need to sell a rental property.
You might want the cash, a new property (which can help you avoid any capital gains tax paid to the IRS when done through a 1031 exchange), or to get out of the landlord business altogether.
Selling an unoccupied home is relatively cut and dried: stage it, landscape it, list it, and wait for the offers.
With a tenant-occupied property, the process is a little more complicated. To begin, you’ll want to take a look at the type of lease you have in place.
If your renters are living under a month-to-month lease, a basic procedure would be:
- Give your tenants written notice.
- Remind them to remove their belongings by the last day.
- If they don’t move out at the scheduled date, start the eviction process.
Some landlords install an early termination clause in the lease. These clauses stipulate that the lease can be broken under certain circumstances, like (a) lease terms not honored, (b) major neglect of property, or (c) landlord’s need/desire to sell.
When your tenants have a fixed-term lease without an early termination clause, tenants have more rights and landlords have less flexibility. If you absolutely must sell your occupied rental property, here’s a complete guide to your options.
(Of course, don’t forget to check your state’s landlord-tenant laws to make sure you’re doing everything by the book. Each state has different regulations on notice required for property showings and move out dates.)
1. Wait for Lease Expiration
As long as your tenants are paying rent and following the lease rules, they have a right to stay through the lease term; that is, unless the lease has an early termination clause (see above). Your first option would be to wait for the lease to run its course, at which point you can inform your tenants of your desire to sell and give them adequate notice.
Pros: You’re honoring the lease you signed, earning rent while you wait, and making a clean break with fewer hard feelings, most likely.
Cons: You have to wait to sell. If it’s a seller’s market with 9 months left on the lease, that could be lost capital.
2. Pay Your Tenant to Vacate
Tenants on a fixed-term lease might be open to negotiation: a settlement in which you pay them to move. This can ease the pain and expense of moving while creating an incentive for the tenant to vacate. Before you choose this option, come up with a calculated figure based on:
- Moving Costs: Offer to reimburse your tenants for their moving expenses.
- Rent Difference: If a comparable home nearby has slightly higher rent, offer to pay the difference for the months left on your lease.
- Cover Security Deposit: Moving into a new place, your tenant will need to pay the first month’s rent with a security deposit. You could offer to pay their security deposit for the new place.
- A Ballpark Number: If a quick sale of your home promises a huge return, you might be willing to pay your tenants a sweeter sum to encourage them to move.
Pros: Money talks, as the saying goes, and a cash offer could encourage a faster move and ease any tensions.
Cons: Depending on the circumstances — e.g., time left on lease, local rent prices, moving costs — you might be shelling out a big chunk of change to get tenants to move.
3. Sell to Your Tenant
Say you have a good tenant who not only loves your home but is eventually looking to buy. In this case, why not offer them the property? It’s a goodwill gesture — in that you’re coming to the table with an offer for them to stay rather than leave — and would lead to a relatively quick and painless sale.
If your tenant is unable to get traditional financing, you can always offer seller financing, in which you receive regular payments from the buyer that take into account interest, payment schedule, and default situations. Seller financing usually occurs over a short period of time until the tenant can secure a mortgage.
Pros: You’d be selling to a person who already knows and loves the house … and no one has to move.
Cons: If your tenant needs seller financing, you’ll need to already own the home outright, and the buyer can always default on the loan. Also, your tenant — shifting into buyer’s mode — might request changes or extraneous repairs to the home as part of sale.
4. Sell With an Active Lease
Another option is to find a buyer who’ll purchase your tenant-occupied investment property with a current lease in place. The new owner would allow the tenants to live in the home through the lease period, after which it would be up to the new owner to keep the tenants under a new lease or make other plans.
Pros: You’re quickly cashing out of your investment and handing over the reins to a new landlord. It’s a relatively smooth transaction for the buyer, seller, and tenants.
Cons: This is not the type of sale you can just list on the MLS. Your buyer pool is limited to investors or those patient enough to let a lease expire until they either move in, renovate, or write a new lease. These buyers can be difficult to weed out.
5. List Through Roofstock
Overall, it’s no easy task selling a rental home with tenants in place. You essentially need to find someone who’s willing to take over your investment project without changing too much. A truly seamless route would be to list your home in a marketplace tailored for investors who actually want tenants in place.
This is how Roofstock works.
Roofstock is the leading marketplace for selling rental properties. Landlords around the world choose us to list their rentals because it’s simple, effective, and 100% online. You don’t have to put signs in the yard or schedule showings, and you don’t need a realtor or broker.
When you list your rental home on Roofstock, you’re connecting directly to a network of sellers who want exactly what you’re offering — a turnkey rental real estate property.
Our stats reveal that listing on Roofstock saves you time and money. The average Roofstock listing sells 77% faster and boosts profits by $11,500.
Here are a few more benefits of using Roofstock to sell your rental:
- Market your property to an international network of real estate investors
- Retain your tenants and rental income cash flow through closing
- Publish an attractive online listing built on the key metrics and property information Roofstock gathers for you
- Transact 100% online — you don’t even have to leave the house.
- Enjoy a hands-off process during which Roofstock communicates on your behalf with local property managers and potential buyers
- Save money with a low 2.5% transaction fee (or $2,000, whichever is greater).
What’s the Process?
Listing and selling your home through Roofstock couldn’t be easier. Here are the basic steps:
- Submit Your Listing: Enter your property’s information in our system and we’ll generate a free valuation report.
- Set the Price: Using this valuation report, we’ll work with you to set a fair price that both attracts investors and meets your financial goals.
- Let Us Take the Lead: Roofstock gathers inspection reports, current lease information, and other important documents which will be used to create your listing. We also provide key financial metrics and market area information to emphasize investment potential.
- Receive Offers and Close: Offers come to you directly online. Once you accept an offer, Roofstock oversees the entire closing process — usually within 30 days.
- Collect Rent Until Closing: Your rent cash flow doesn’t stop until the deal is done.
Roofstock removes the guesswork and headaches from your rental home sale. Compared to the other options for selling with tenants, it presents the fewest hurdles for the seller, buyer, and the people living in your property.
Here’s a simple comparison chart showing how the Roofstock process differs from the standard way of selling a rental property.
As you can see from the chart above, compared to Roofstock the traditional way of selling a home is more costly, takes longer to process, and affects your overall bottom line.
Removing your tenants and selling a rental home the standard way using an agent, broker, and title company leads to longer waiting periods, lost rent, steep brokerage fees, and other expenses related to interior staging and outdoor landscaping.
The Roofstock method allows you to keep your tenants in place, keep the rent flowing through the entire process, and the fees are minimal. Plus, Roofstock makes the entire process easier by handling a lot of the finer details and requiring sellers to have fewer points of contact.
To view more information on how this works, visit our selling platform, where you can find additional data, explainer videos, and easy account set-up.
You can also learn more in our webinar, Selling Your Rental Property Through Roofstock: