The best practices to successfully sell a property with tenants.
So, you own a multiple family home. Or maybe you have a single-family investment property that you are renting to tenants. In my market, a multi-family unit can have up to 4 units before it’s considered to be a commercial residence. My first hand experience in selling multi-family houses is mainly in two-family homes.
There are so many benefits to owning investment properties; the main one being it’s a great way to earn passive income. If your property is in a desirable location, then you typically won’t have an issue renting it. The downside to owning and managing a multi-family house is the constant maintenance they bring. When an appliance breaks, you most likely have the responsibility to fix it. If the heat goes out in the middle of the night in one of your units, guess who’s getting the call to deal with replacing the furnace?
For whatever reason, now you have decided its time to sell your multi-family property. Great! There are plenty of buyers out there who are looking for just that. Before you even think about signing on the dotted line, please consider these few pieces of advice:
Give tenants their 30 day notice.
If your tenants are on a month-to-month lease, consider giving them their 30-days notice. I know this sounds harsh, but I promise it’s for your own good. Tenants of a multi-family property or rental house are the number one reason why it doesn’t sell. I’ve been in situations where a prospective buyer and their agent were at a listing of mine, and the tenants refused to let them inside. Another situation I was involved with, the tenants changed the locks and didn’t tell the seller/landlord. When the buyers and their agent showed up to see it, not only could they not get inside, but neither could the landlord!
Give the seller/landlord control over showings, not the tenants.
In many cases, most tenants will be on a yearly agreement. You simply can’t kick them out in the middle of their lease because you are selling. If you are the seller/landlord, and your tenants are still living there, you should be the one confirming the showing requests not your tenants. If you give them the control over the showings, they are mostly likely going to decline every single one. Have your Seller’s Agent set up the showing requests for 24 hours advance notice. When you receive a showing request, contact the tenants and let them know the date and time of the showing. This will also ensure that you get the feedback from the buyers, not the tenants.
Ask the tenants to vacate their apartment for all showings.
You really do not want your tenants communicating with the prospective buyers or their agent. If the tenants are present during showings, and they feel disgruntled because you are selling, they might trash talk the property in an effort to prevent it from selling. (Another reason you should just give them their notice prior to listing it!) Ask them to leave 15 minutes prior to all showings, and return 15 minutes after the showing is supposed to be over.
Cash is king.
You can always suggest that your seller offer a cash incentive to your tenants for their cooperation. If they leave their apartment for showings, keep the place tidy, and cooperate for all inspections, offer them a dollar amount of at least half or up to the full amount of their security deposit, to be paid at closing. This is in addition to their security deposit, which would get transferred to the new owner. If they have a cash incentive when the house sells, they will be more likely to cooperate. Hey, they might even help with the sale.
You may be thinking that your tenants are the sweetest, best, most responsible people. You’d be surprised how much people change once they find out you are selling the place. The longer they’ve lived there, the harder it’s going to be! Once tenants understand that their landlord is going to change, they may decide on their own that it’s better for them to move. Plus, the new landlord might decide she/he wants to move into one apartment, and rent the other side to a family member. If that is the case, the tenants will have to move anyway.
At the end of the day, you have to do what you feel is best for your business. Of course, take this advice with a grain of salt and know that each multiple family property is different. Hopefully these tips will better prepare you for when you are ready to sell your investment property. And please, please do not attempt to sell For Sale By Owner- you already know my reasons why. 🙂
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