A Complete Guide To Selling a House With Tenants In California
It’s stressful being a landlord at the best of times, but when the time comes for you to sell your investment property and move on, the stress can feel palpable. You’ve probably spent time getting to know your tenants and have built a relationship with them, and most humans don’t deal with change all that well.
Springing the “guess what, I’m selling your residence out from under you” conversation can feel like a big deal, even if everyone involved knows that isn’t really what’s happening. If you own a home with tenants in it that you want to sell, what do you need to know and address?
You can still sell your house even if there are tenants living in it …
The good news is this: You have the legal right to sell your property, even if there are tenants living there. It’s your house and your decision to make, and if you want to sell it, that is well within your purview.
That said, there’s a good way to go about selling your home with tenants, and there are a lot of ways that generate resentment and a lack of cooperation and that generally are not pleasant or fun for anyone involved. You do have the right to sell your house; your tenants have rights, too. To make this a tolerable process for them — and, frankly, to get the place sold faster and for more money — you’ll need to solicit your tenants’ cooperation.
… But in most states, they can stay through the end of their lease
One of the rights that your tenants have is to stay in the property until the end of their lease. This applies to both month-to-month leases and fixed-term leases for longer periods of time, such as six months or one year.
Selling a rental house with a month-to-month lease is relatively easy; refresh your memory as to the terms of your lease agreement and give your tenants the appropriate notice that you will not be renewing the lease when it ends. This could be anywhere from 30 to 60 days, depending on how your lease is written and what state the property is in.
Selling a rental with a fixed-term lease can be a bit more complicated. It’s possible that your tenants’ lease might not be up for several months, and if you really can’t wait for them to vacate before buying, then you’ll need to work with them throughout the sales process, and they will stay on in their residence after it’s sold.
Would the tenant be interested in buying?
One easy solution to the issue of selling a home with tenants is to ask the tenants if they’d be interested in buying. Not everyone is going to be able to afford to do this, of course, but it’s very possible that your tenants love where they live enough to consider securing a mortgage loan and making you an offer.
If this happens, it’s really a best-case scenario for everybody. You don’t have to go through the hassle of preparing a home for sale, putting it on the market, and handling buyer bids; buyers don’t have to go through the pain of finding a home that works well for them in their price range. Don’t make the mistake of thinking you can take this step without professional help, though; it’s still a good idea to hire an agent to make sure your interests are being represented and protected.
Can you wait until the lease is up?
Depending on how long is left on the lease, you might be able to just wait until it’s up, gives your tenant the appropriate amount of notice that you won’t be renewing the lease and need them to vacate, and then put the home up for sale. Simple! Unfortunately, in some circumstances, the tenant may have more than six months left on the lease, and you may truly need the house to sell as quickly as possible.
If you can’t wait until the lease is up, you’ll need to have a conversation with your tenants about the sale. This should probably be an in-person conversation, followed by a formal letter — but the in-person conversation will give you an idea of what you’ll need to do to incentivize your tenants to be cooperative, which could mean the difference between an immediate sale or a listing that lingers and lingers.
Decide how you’re going to market the property
Most sellers who are trying to offload a rental property have a couple of different options for how to market the home. They can sell it as an investment property — in which case, an established tenant is a distinct plus — or they could sell it as an owner-occupied home. Investors won’t mind at all that the property has a tenant; in fact, they might consider it a reason to buy in and of itself.
You can market the home as both; that’s also an option. There are some traditional buyers who won’t be moving immediately and won’t mind waiting out a lease, so limiting yourself exclusively to investors isn’t necessarily your only possible path forward.
Work with your tenant on appropriate showing times
It’s important to remember that you are the person in this relationship who desires the sale. Your tenants probably have a lot of feelings about it, few of them positive; they are likely anxious about the future, unsure of where they will move or whether they will have to, sad about the loss of their residence, and more. So if you want them to cooperate to the best of their abilities, you will need to make this process as easy as possible for them.
The first thing to do — and possibly the most important — is to ask your tenant about their schedule. When would it be convenient for them to open their residence for showings, and when are the incredibly inconvenient times? Do what you can to limit showings only to the times that tenants have indicated are convenient for them. Buyers who are motivated will be willing to clear their schedules to see a house that might be a fit, so you can feel free to give your tenants some control over the scheduling.
Offer to pay for cleaning, lawn maintenance, or both
Another big pain point for your tenants is going to be keeping their residence looking showing-worthy just in case a buyer wants to stop by. This is difficult enough for sellers who are motivated to offload their own residence, but when you’re a tenant who doesn’t have a choice in the matter and you’re not going to see any financial benefit from your behavior, why would you be inspired to spend almost all your time outside of work keeping up with your house?
One way you can show your tenants that you care about their experience in this process is to help them out by hiring cleaning or lawn maintenance help — or both — to help them keep up with the showings and alleviate some stress. Yes, it’s going to cost you some money, as will a few of these suggestions. But is it better to spend some money upfront and sell the place more quickly, or to pinch your pennies and allow the home to languish on the market for months? At that point, you may as well wait for your tenants to vacate if you’re not willing to do anything to hasten the process.
Provide 24 hours’ notice for showings
Different states have different requirements for how much notice you need to give tenants about showings, but a good rule of thumb that’s acceptable in all states is to provide them at least 24 hours’ notice. Make sure that all buyer’s agents know this is the case, and don’t acquiesce to pleas to squeeze someone in at the last minute. It could be illegal, it will very likely leave a bad taste in your tenant’s mouth, and you could wind up with an uncooperative tenant on your hands as a result.
Arrange for the tenant to leave during showings
Tenants might not be intrusive when possible buyers are walking through the house, but it’s still pretty awkward to try to look at a place with the current occupant present. Talk to your tenants about options for things they can do while buyers come by to look, and do what you can to make those options easy for them. Maybe spending some gift cards to a local coffee shop or brewpub would be welcome ways for them to spend the hour or so they have to vacate the premises?
Send them on a mini-holiday for the open house
Planning on having an open house over the weekend? What will your tenants do during that time? Maybe you can offer them a night or a weekend away in a nice hotel while you host the open house. This is an opportunity for you to get a bunch of buyers in the house at once, especially if the open house is a significant part of the marketing campaign you’ve established with your agent. Do whatever you can to make it as good as you can make it — and as comfortable as possible for your tenants.
Help the tenant find a new place to live
As a landlord, it’s possible that you have more than one property in the area, and it’s also possible that you may have an opening in a residence that would suit your tenant perfectly. If that’s the case, you can absolutely present that offer to your tenant. Ask if they’d like to see the new residence, make time to show them around, and if they agree that it would be a good fit, maybe offer to help them move, too. If there’s a price difference between their current place and the new one, you might be able to do some negotiating or use it as a bargaining chip.
Even if you don’t have any other homes that might be suitable for your tenant, you might know other landlords or property managers in town through your own business. Reach out to them and mine your network to see how you can best situate your tenants. They’ll thank you for it later!
What if the tenant is behind in rent?
In an ideal world, you could ask your tenant for the rent owed, collect it, then sell your property with no further issues. But the world we live in is not ideal, and a tenant who owes rent already isn’t exactly a selling point when you’re trying to offload a rental property. In fact, it’s a liability!
There are a few ways you can tackle this problem. You could tell the tenant you will forgive their outstanding rent if they agree to move out immediately. You could try to put them on a payment plan that will help them get current by the time the sale happens. Or, depending on how far behind they are, you could start the eviction process — which isn’t fast or easy, but if there are no other options, it may be your best one.
Consider ‘cash for keys’
This term refers to a practice of giving tenants money to move out early. Sometimes landlords do this when the tenant is a problem — for example, not paying rent, or antagonizing other neighbors. It’s essentially exactly what it sounds like: You approach the tenant and offer to pay them to leave.
Your tenant doesn’t have to be a problem tenant to use this strategy when you know you want to sell. If you’re pretty sure that your tenants would cause problems in the sale, and you can’t wait for their lease to end, ask if you could pay them one month’s rent and their security deposit, or whatever seems reasonable to you, if they would break their lease and vacate early. You can also offer additional incentives, like paying for a moving company to help them make the move. This might seem counter-intuitive, but if you really need the place sold and you’re out of other options, it can be the best solution to your problem.