Selling with a Tenant
Blog by FRESH Real Estate Team | July 9th, 2012
Selling With a Tenant
One of the biggest variables in investment real estate is the tenants. On one hand they cover your carrying costs, maybe pay down your mortgage, and God willing, bringing in some cash-flow. On the other hand, when it comes time to sell, tenants can become the thorn in your side. I get asked all the time what the best strategy for handling tenants when it comes time to list an investment property, so here is what I usually recommend to my clients.
The first choice is to just follow the tenant agreement that is currently in place. If the lease agreement has 5 months to go, then you put a fixed possession date on the listing for those 5 months. I find this is usually the least preferable to the seller and the buyer (though the tenants are usually happiest with it).
So how do we get the tenants to agree to leave, happily, at a time that is beneficial to you? (Believe me you want your tenants, happy otherwise trying to schedule showings with the property in viewing condition becomes next to impossible).
First you can have them agree to leave within your preferred time frame (say it’s two months) with the understanding you will let them have that last month rent free (or at a reduced rate) so long as they: 1) keep the property in acceptable showing condition, 2) they don’t turn down more than 2 showings within a month’s time. This shows you are sympathetic to the work involved in keeping the property in showing condition, and the inconvenience to them to leave the property for each showing.
The other option is to pay the tenant an agreed upon amount of money for each showing (so long as the property was in proper showing condition), and an addition amount for open houses (as they are usually a longer time frame they have to be away from the property). I find this usually works best as the tenant tends to feel less put out by the amount of showings they have to leave for. It becomes very important in this scenario to ensure you’ve listed your property at a competitive price, otherwise you’ll be spending a lot of money paying for showings!
Don’t hope to rely on the relationship you’ve built with your tenants, even if it’s a good one it will sour over the course of the sale without some kind of incentive for the tenant. A little money out of pocket will ensure a much smoother sale (and possibly a higher sale price!).
Mikala James is the FRESH Real Estate Investment Property Specialist. Not only is she an investor/landlord herself, she also brings over 8 years of real estate experience to our team. Mikala started her career with a real estate investment group and faciltated over 120 deals in her first year as an agent.
If you would like to schedule a consultation with Mikala to create your own Investment Purchase Plan, click here.