How to (More Easily) Sell a Rental Property
January 8, 2015
By Robert L. Cain
Several years ago I was in the process of selling a single-family rental property and made the mistake of allowing the tenants to continue to live there while that was going on. I had offered to pay them five dollars for each showing if they would allow a showing without the 24-hours’ notice that state law called for, but they decided they didn’t want to. All they talked about was “this sale thing.” Obviously they were not happy.
It turned out that if they had okayed showings without 24-hours’ notice, they would have made something over $100. One tenant said, “If we had known so many people would look at it, we would have said it was okay to look at the house without so much notice.” Live and learn, kid. The property didn’t sell that time around and not until it was vacant.
Another time I accompanied a landlord to look at a possible rental property. The tenants insisted on being there. They wanted to be sure to point out to any possible buyer that the house had serious problems. They had even gone to the trouble of creating a leak in the ceiling that they apparently could make drip at will to show in how much disrepair the house was in.
Even if tenants are cooperative and they are the nicest and most considerate people you’d ever want to meet, they don’t have the same interest in seeing that their home gets sold as the landlord does for seeing that his investment property gets sold. They may be the best housekeepers in the world, but they won’t see the necessity of keeping the place shiny and bright every day just to encourage the sale. The yard won’t be as tidy as is needed. There could be clutter here and there. Their German Shepherd might “greet” everyone who tries to come through the door.
I know, it’s happened. Rental properties have been sold with tenants still living in them. Good for the tenants, and congratulations to the landlord. Often, though, tenants do things that will at least hinder the sale and at worst make it impossible. Mostly this has to do with single-family, duplexes, triplexes and such. Multi-unit apartment buildings are almost always sold “subject to interior inspection.”
Another drawback is that some real estate agents won’t show properties that are difficult to get into. If it needs 24- or 48-hours’ notice, forget it. If an appointment is required and the tenant isn’t reachable, forget it.
What’s a landlord to do, then, to sell a property that at present has a tenant living in it? The obvious and best solution for a faster sales is terminating the tenancy, but that cuts into income requiring mortgage payments to come out of the landlord’s pocket. Never a good thing. Even so, that eliminates the problem of a tenant deliberately messing up the sale and makes it more likely the property will sell.
As an aside, in the past I have recommended letters from lawyers to recalcitrant tenants. If a tenant does something to indicate that the property has serious problems when, in fact, it doesn’t, that is both defamatory and restraining of trade. A letter from a lawyer advising a tenant of those facts and the possible financial consequences of their continuing to engage in defamatory and trade restraining activities might stop the problem.
The other end of the spectrum is to put in the listing, “Subject to interior inspection.” That will avoid dealing with tenants and give the seller the opportunity to go through the property to tidy up any issues before the “interior inspection.”
That will eliminate many buyers because they want to see what they are getting before they agree to anything and tie up their assets waiting for the interior inspection and possibly miss out on another, better deal.
Something that might add some security to the “interior inspection” clause is a home inspection done before the property goes on the market. That could be available for any possible buyer to examine. Assuming the inspection report is satisfactory, that could allay many of the fears a buyer would have.
Something else to include is an operating statement for the property. Assuming it shows an actual profit and maintenance up to date, that might allay many fears of an investor, less likely, though, for an owner occupant.
Regardless of how you proceed, tenant or no tenant, here are a few things to do to attract buyers who might offer something approaching full price.
- Fix up the yard. Keep it mowed, keep the edges trimmed, and keep the shrubbery neat.
- Paint the front door. Painting the entire house would be better, but at least paint the front door and make it shine. And that front door knob, polish it.
- Make sure the roof looks like it is in good repair. A roof that looks like it is on its last shingle will sent prospective buyers speeding off in their cars.
- Have flyers in front of the property that prospective buyers can take with them. On those flyers, explain things about the property that will encourage sales.
The key is, get it sold. We do what we have to do to turn the property. Marketing a vacant property may end up being the best approach, even if it means losing a couple of months’ rent.