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Selling Rental Property: Vacant or Tenant-Occupied?

By Sadiya Anjum

It is one of those questions that haunt sellers – wait till the property is vacant or sell even when it is tenant-occupied? Well, there are several advantages and disadvantages attached to both situations. It depends on your situation – how badly you need to sell the home and how co-operative your tenants are.

Selling rental properties can be difficult if they are occupied by tenants. With offense meant to no one and noting exceptions, tenants generally have a bad reputation. Some tenants may flatly refuse to even consider the property’s sale until their lease is completed. Others may create problems when an agent wants to show a home and deliberately leave the home in a mess to discourage prospective buyers. The may even point out defects to a prospective buyer.

Most tenants may not maintain the home as a homeowner would generally have; so the property may not be as appealing to a prospective buyer. When it comes to home staging, you may not be able to do a whole lot. For vacant rental properties, agents/ sellers may hire a professional to add furniture and accessories to give the home a ‘lived-in’ look. With tenants’ furniture and accessories, it may not create the same effect especially if their possessions do not complement the home well. The property may be in a bad need for repairs or painting before a buyer walks in.

It may just seem logical to wait until the tenants leave before you put the home up for sale. But in this situation, the major disadvantage sellers stand is the income they will be losing from their investment. If the home sits on the market for too long it means a significant portion of earnings is lost. The property may even get vandalized if it is vacant or may get out of shape by the time a buyer arrives.

What sellers should do is talk to their tenants. Most laws allow the sale of a rental property any time with due consideration to the lease. Your first option for buyer should be your tenant. Offer the tenant the option to buy the property; this is usually referred to as the Right of First Refusal. If the tenant is not willing to or cannot afford to purchase the home, then you should discuss the situation with your tenant and put it up on the open market.

You have to give the tenant advanced notice to either leave (if the lease allows it) or your intention to sell. Remember that laws are friendlier to the tenants, so make sure that you inform them in advance. You may find a buyer who wants to maintain the property as a rental. In this case, the tenants can stay put and the buyer has to uphold the lease. But even such buyers may prefer to find their own tenants.

The best solution would be to include your tenant in your home selling venture. An informal and polite talk can help you get your tenants to co-operate with you. In return for allowing the property to be showed any time and for good maintenance of it, you can offer incentives. Usually a rent rebate can work magic. On completion of the sale, you can return a significant portion of their rent; calculate it as a percent of the monthly rent from the time you listed your home. Tenants may fully co-operate hoping to get a discount on their housing expense.

Another incentive could be payment of moving expenses if they are willing to move out early. You may even find alternative accommodation for them. If they have something to benefit from they will be willing to oblige. However as a landlord you must remember your duties towards your tenants. Until you sell the home, you have to live by the conditions of the lease. Try not to make life difficult for them even if you are offering incentives. Before agents or buyers enter the property, they should inform the tenants at least 24 hours in advance.

Selling a vacant property may be convenient but this does not mean that tenant-occupied properties are impossible to sell. If you know how to deal with your tenants, you can get them to co-operate with you. With tenants by your side, you may be able to earn your income until the property is sold.

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