Navigating Tenants

Oftentimes investors want to divest and are then faced with the age-old question in selling their investment property; what do you do about the tenants?

Depending on the type of property tenants can be an added bonus for potential investor-buyers. For example when looking at a multi-unit building, it is important to have a higher percentage of occupancy that yields at or above market rents. However when looking at a single-family home, it may be a different case.

In dealing with a single-family or stick build home, the decision needs to be made on a case-by-case basis. Here are the top 3 things to think about when you consider listing your home that is tenant occupied.

By selling the property are you displacing the tenants?

Unhappy tenants have no motivation in helping you sell your house, in fact no tenants do. Happy tenants they may be deciding to move at the end of their lease are more likely to be accommodating to showings and keeping the place clean. Tenants that want to continue renting and cannot or do not want to buy the home can oftentimes be very difficult in the selling process. There’s nothing in it for them to help you, in their mind you’re kicking them out. In this instance, I would recommend letting their lease expire and moving them out prior to listing. This is the best way to ensure that no damage has been done to the home and it is clean and free to show prospective buyers.

Is the lifestyle of the tenants conducive to showing the property to potential buyers?

If it’s so messy that you can’t take decent pictures without dirty laundry in the shot, the answer is probably no. Not all buyers can look beyond the dirty students life, although they may provide a great cash flow not everyone understands the smell goes with them. Even the most accommodating tenants can be a turn off to prospective buyers. This would be a case where you can work with your agent to get an outside opinion on how bad it really is, because the less attractive your property is and the longer it sits on the market, the lower return you will get. 

Can you afford to have the unit empty for the duration of the sale?

The bottom line is can you afford to not have tenants. This is where sacrifices are made on tenant happiness and the homes ability to show well. If this is the case, there will need to be some strategic planning and maybe creative thinking on keeping everything in line. Here you would want to negotiate with the tenants on their move out date, maybe give them the option to go month to month or reduce their rent slightly to make the inconveniences more attractive. Or offer to have the home professionally cleaned prior to listing and get the photographer in there at the height of cleanliness. In this situation, you can’t make them help you but you can try to make their conditions less burdensome as you try to sell the home.

Ultimately the challenges of selling a single-family property that is tenant occupied are unique to every situation and you want to do as much as possible to limit that impact on your tenants. Pricing the property correctly in order for a quick sale is also a major component in reducing the amount of headache you will have to deal with, but that’s a topic for another time. Assess the situation, weigh your options and be considerate of those who have paid you to call your property their home.