How to Sell Your Tenant-Occupied Rental Property!
Owning a rental property can be a great investment, whether you’re in for a revenue stream or holding it for long-term gain. But at some point, your thoughts will turn to selling it – maybe you want to take advantage of a seller’s market, or need access to funds, or just don’t want to be a landlord anymore.
Selling any property is challenging and comes with a certain amount of stress, but selling an occupied rental property brings a whole other level of challenges because you have to factor your tenants into the process. They can make it easy or more difficult, depending on how cooperative they feel like being, and much of that will depend on your relationship with them.
But don’t despair! While it’s true that selling a rental property with tenants is more difficult than simply selling your own home, with a little knowledge and preparation, it’s completely possible.
We’ve put together some information to help you, including some basic steps you can take to successfully sell your rental property, so keep reading to learn more!
Selling to Your Tenants
Before you start the marketing process, ask your tenants if they would be interested in buying it from you. If they seem to like living in your property, they might be really happy for the opportunity, which makes selling it so much easier. They may even have already asked you for a right of first refusal, meaning they get the first shot at buying the property before it goes on the market.
If you aren’t able to agree on pricing or terms with your tenant, or you simply decide not to sell to them for other reasons, remember that it’s important to be as amicable and considerate as possible. You’re going to need their cooperation with showing the property to other buyers, so be careful not to insult or upset them.
Selling the Property When it's Empty
Homes tend to sell better when they’re occupied, or at least look occupied, but this doesn’t necessarily apply when you’re selling a rental property.
Having an empty property lets you take care of any repairs or renovations without having to accommodate tenants. You can also stage and clean the property and plan showings and open houses without having to plan around a tenant’s schedule.
You may also find that buyers are more comfortable vetting and choosing their own tenant, without having to inherit a potentially bad one.
Selling With Tenants in the Property
If selling to your tenant or waiting until the property is empty aren’t options, then you’ll need to list your property on the market while it's occupied. This can be challenging, even if you have a great relationship with your tenant, because you’ll need their help to keep the house clean and accommodate showings. But having them on your side will help you sell the property faster, and possibly for a better price, so it’s important to try and cooperate with them.
Even though there are challenges to selling a tenant-occupied property, it’s completely possible to do it without causing yourself unnecessary stress by following a few steps to prepare yourself and understand what you can and can’t do.
Step 1: Review the Lease
Selling a property doesn’t give you any special right to break the terms of an existing lease. You still need to uphold the terms and conditions of the lease and follow the rules for giving notice and ending it.
If your tenant has a monthly, or periodic, lease, you’re fortunate because you have some flexibility. You can ask your tenants to vacate for any reason, so long as you provide them with 3 month’s notice, in writing.
If your tenant has a fixed-term lease, things get a little more complicated. Unless the lease includes an early-termination clause, or you and your tenant can negotiate a new agreement, you can’t ask your tenant to leave before the contract expires simply because the property is being sold.
The reality is that a longer lease can slow down the process of selling your property a bit, so if you have some flexibility, you might want to wait until the lease has expired before putting your property on the market.
Step 2: Notify Your Tenants
You don’t need to notify your tenants you’re selling the property, but if you need to show the property (which you probably do), you’ll have a hard time keeping it from them, so you’ll need to have a conversation with them. Plus, it’s courteous towards them and that will go a long way to gaining their cooperation, which you’re going to need!
Step 3: Understand the Rules
When you own a rental property, it’s easy to think that you can do what you want with it, whenever you want. After all, the property belongs to you, right?
Well, not exactly! Landlords and tenants in Alberta both have rights and responsibilities, and they’re actually legislated under the Residential Tenancies Act. It’s important to be familiar with the rules, especially so when you want to sell the property.
Remember, there can be consequences to breaching the Residential Tenancies Act. Always consult with a realtor and a real estate lawyer to be sure you’re acting on the right side of the law.
Step 4: Consider Your Tenants
Keep in mind that by selling your property, you’re putting a pretty big burden on your tenant - being courteous and treating them well will go a long way!
Give plenty of notice for showings and consider offering them incentives to keep the house presentable and accommodate requests for showings: give them gift cards to use at a local coffee shop during showings, hire someone to mow the lawn and clean the house, or even offer a break on their rent if your budget allows for it.
Selling With a Problem Tenant
Sometimes a tenant will just make it too difficult to sell your property. If that’s the case, think about whether you can wait until the lease expires to put the property on the market. Or, if it fits your budget, you could offer to compensate them for vacating early, cover their moving costs, or offer cash to cover the next security deposit.
If you’re selling the property primarily to make a profit, this may seem like a bad business decision. But if you’re in a rush to sell the property, it may be worth it.
The Bottom Line
Selling a rental property that’s occupied by tenants has its challenges, but it’s possible. Don’t be afraid to try to sell it, even if you still have tenants. You might not find a buyer, in which case you can just try again when the lease finally terminates, but then again, you just might! The best thing you can do is identify areas where you can be flexible, think about your options, and then reach out to experienced realtors who can help you navigate the process, like the team at Alex Cowie Real Estate!