Tenants typically come in two “flavors,” those that are agreeable and easy going and those that are “not so easy to work with” a.k.a…”nightmarish.” We hope, for your sake, that when it comes time to sell your rental property that your tenants are the former. Trust me, the whole process will go much smoother.
If they are disagreeable, you may want to take option 1 when deciding upon the right timetable to list your rental property.
How to time the sale of your rental property
First Option: Wait
Many landlords decide that their tenants aren’t the type of people to put up with the home sale process so they decide to wait until the lease is up.
Some are concerned that this creates a problem due to the property being vacant, i.e.. vacant homes don’t show as well as furnished homes. If that’s your concern, you can get around this problem by hiring a professional home stager. I’ve also seen very recently listings that were lived in by a tenant, during a sale, and the tenant left the unit like a “pig pen” for showings – that’s just how they lived – so that’s the other side of the story. Does your rental property “show better” if vacant in that kind of situation. It just might!
If you’re on a tight budget, have only the most important rooms staged, such as the kitchen, bathrooms, and master bedroom.
Always keep in mind that you’ll be on the hook for the mortgage payment until the home closes so communicate this, if it’s a concern, to your agent about how long it may take to ready the home for sale, market the home. and get it closed. Seasonal trends may dictate when you put it on the market.
For example, I have seen some areas of our market where from March-June anything listed for sale is not only going to move, but move quickly. Right now for example, anything in that pricing ‘realm’ of below $200k (perfect rental property price point for most investors looking to buy in the spring) typically has multiple offers. So listing while vacant during these months offers very little risk of a long selling process, in my humble opinion. After school starts back in August, it’s a bit of a different story. Most buying to reside in a property have done so by that point in the year so now your buyer pool shrinks drastically to mainly include investors.
Having these conversations though will help you decide if you can afford the carrying costs of the home without tenants in place.
One positive too, a vacant unit makes it easier to take care of any needed repairs or updates to the property. It also offers maximum flexibility regarding a showing schedule. Buyers can see the unit anytime!
Second Option: List now
There are many things to consider if you choose to go ahead and list the property while the tenants are still there. As previously noted, you’ll avoid paying the carrying cost of the home while it’s being marketed for sale.
Another advantage to listing now is that the home will be attractive to investors. If the tenants wanted to remain after the sale to the new owner, they are much more likely to be cooperative during the selling process and the potential investor or buyer has the bonus of having in-house tenants when the purchase closes.
The disadvantages of this scenario are many. Some things to consider:
- To recap a point made earlier, although a furnished home many times is easier to sell, is the tenants’ furniture, accessories, and overall taste something that will appeal to buyers?
- Has the tenant taken care of the home? Are there little maintenance issues that will show themselves during showings? I have a townhome under contract right now where the owner has told me 3-4 times in phone conversations that “I bought a stack of air filters and left them in the unit for the tenant to change.” Tenant never did. When you view the unit there is dog hair hanging out of the clogged return.
- Is the tenant agreeable to keeping the home clean at all times? If they don’t keep it clean now, they won’t while listed! Just trust me on that one! A messy, filthy, unit will cost you the homeowner more off the perception that the property has not been well maintained than if you had a vacant unit to sell that’s been cleaned and has some fresh paint!
- Do you have a good relationship with the tenants or can you create goodwill prior to listing the home? Most rental contracts in Georgia for example give permission to the landlord to put on the market for sale. The issue is that they need notice before showings. Many tenants in our market demand 24 hours. This can hinder or limit some showings from taking place. Even if you’re on good terms with them.
- If the lease is for longer than 60 days out – per termination or expiration of the lease – it can negatively limit buyers who might want to purchase your unit to go ahead and move into as a primary residence for themselves. Most loans require when you close that you move in and take occupancy – if financing as a primary residence and getting all the benefits (i.e… lower rates and down payment) within 60 days. That’s an issue once again if your lease term is still more than that timeframe.
- If lease payments are ‘less than market value,’ for a unit like yours then the investor has to deal with getting less in ‘rents’ until the lease expires. Too, they are taking over a tenant situation they don’t know or have any personal knowledge of, both the good and bad that you’ve experienced. That unknown makes some investors skittish about taking over a lease.
What are some ways to entice your tenants to be more cooperative?
- Offer the tenants a month rent free.
- Offer the tenants a reduced rent until the home sells.
- Offer to pay their moving costs.
Review the lease and if necessary, consult with a local real estate attorney, real estate agent or property manager, before you make a final decision on which path to take. I’m happy to work with you in the State of Georgia, Northeast Georgia in particular, as to timing the sale of your investment property in a way to meet your goals and needs!