Can you sell a rental unit “out from under” your renter? A loaded question, of course. Look at it this way. If your renters love where they live, it could be a win for all involved.
You have a few things to consider as you plan for positive outcomes, of course. This is true whether you ultimately sell with the occupant in the unit, or wait instead until the unit is empty.
Here are some scenarios — and how you might handle them with style and grace.
Best-Case Scenario: Your Renter Is Awesome, and You’re Not Pressed for Time
Your renter could have a flexible attitude, and be glad you’re offering the option to stay on in the unit, even after you sell. Yet even in the perfect scenario, be sure to review what you stated in the lease agreement. And without fail, understand renters’ rights under your state and local laws. Be sure you’re giving proper notice that you plan to sell the unit, and that remaining in the unit is among the renter’s options.
It’s probably not a good idea to take past flexibility for granted. Someone who loved renting from you might not be thrilled to see you go. A key element in their life is changing, and they are not in control. This is a time when early and consistent communication is key. Ideally, you’ll want to state that you’re planning to sell when you take a renter on in the first place.
A clause in the rental agreement memorializes this for both parties. The text can explain that the unit could be (or will be) sold, and that there could (or will) be times when the property will need to be shown. What does this mean, in practical terms? Reasonable showing hours could be 9-5, with at least 24 hours of advance notice — even if this isn’t required by your state’s law.
Assuming it’s all-systems-go for your current renter, you’ll be seeking potential buyers who (a) want an investment property, and (b) are happy that a great renter is already on the scene.
On the other hand, if it’s a standalone home and the vast majority of likely buyers will be seeking a primary residence, a current renter will shrink your pool of possible buyers.
All Other Scenarios: Should You Rethink Your Strategy?
Before giving up on the idea of selling an occupied home, consider tailoring your marketing to the house hacking trend. Real estate continues to price out many hopeful buyers. You might have something that’s perfect for them.
After all, if you’ve got a renter who pays full market value and who proves willing to work with an owner, that’s a real asset. If there is no vacancy period, then your buyer gets an immediate return on the deal from Day One. Plus, the buyer will be freed from having to transfer the unit’s accounts into their own name, or having to market the rental to other people.
A currently occupied property could also fit the bill for buyers who won’t be ready to move in for some time. You could, in any case, advertise the place among both primary residences and investment property listings.
But if none of these alternatives seem feasible, it’s OK to rethink your strategy. In that case, you might opt to wait to sell. Waiting until the lease is up before going to an agent with your rental listing is the solution to a lot of open questions. Given that a currently happy renter’s attitudes can change, and moving is stressful, the decision to wait until the renter is ready to move has a lot going for it.
Meanwhile, remember to check your state’s law. Note what it might say about a renter’s rights to remain in the home throughout the duration of the lease, and related considerations.
Stay on Good Terms With Your Renter. Because It’s the Nice Thing to Do, and Because Online Reviews Happen
Back to the best case: If your renter is currently on a month-to-month rental agreement, then you can simply end the agreement at the end of the month, giving fair and proper notice. Great! But to finesse this in real life is typically more complicated.
As the saying goes, kindness costs nothing. But it does reap rewards. So it doesn’t hurt to:
- Cover your renter’s food expenses when you need to show the unit and the renter accommodates your need.
- Cover cleaning and landscaping costs during the period you’re marketing and showing the unit. Step up and be sure to do everything you can to get the property into its best condition and best light.
- Tip off your renter to other rental properties. (Your real estate agent can help.)
- Offer fair compensation for any lease modification you might need to negotiate with your renter.
It’s also worth asking yourself: Should my renter get first dibs on this home? Maybe your renter wants to buy the property. Before putting the house on the market, why not ask?
OK, about those online reviews. Samples of this kind of material appear, for example, on a site called Rate the Landlord, which draws renter reviews from North America and beyond. Harsh? Subject to unfair targeting? It can be, but what’s new, in our digital era? Lawyer and doctor reviews, “rate my professor” and similar sites have been around for some time. For that matter, so have business review sites in general.
Even without this concern, local word of mouth is always better when it’s positive. A disgruntled renter can make a sale hard to pull off — and spread other negative energy as well. Life is better for all concerned when negativity is averted.
A Few Parting Words to the Wise
Never underestimate the benefits of empathy. Remember that your investment property is the place your renter calls home.
There are property management companies out there that can assist with marketing while you focus on relationships with people. It’s something to think about.
Let your real estate agent know when the best showing times are for your renter; everyone’s different and some people work nights. And yes, having a real estate agent on board is helpful.
A real estate agent can inform you as to the current rental market, and on showing the home in its best light despite your challenges. An agent can get you specialized templates, such as a Notice of Intent to Enter Premises, and can also help you advertise the unit online without breaching your agreement or general privacy norms. Read up on your real estate agent’s fiduciary duties to you as you market your property.
Please note: This article is not financial or legal advice. For situation-specific guidance, consult with your local, licensed professionals.
Supporting References
Patrick Freeze for Bay Property Management Group (Baltimore and Washington, DC): How to Market a Rental Property That is Still Tenant-Occupied (Jun. 22, 2022).
The Philadelphia Inquirer, via Inquirer.com: Pennsylvania Tenants’ Rights: Landlord Entry (Aug. 24, 2020).
And as linked.
More on topics: Screening potential renters, 1031 exchange for an investment property in 6 steps, Selling renter-occupied property by contract for deed works
Photo credits: Andrea Piacquadio and RDNE Stock Project, via Pexels.