Selling Your Rental Property with Residents in Place

Do I Want to Sell My Rental Property?

If you own an investment property, it’s probably safe to say that at one point or another, you may have considered selling it, depending on how the market is fluctuating. 

When considering whether or not to sell your investment property, one of the questions that will inevitably come up is, “Should I sell with or without my residents in place? And what happens to them when I do sell?” 

This article will serve as a guide to help answer those questions and help you make an informed decision.

 

Selling a Single-Family Home with Residents in Place vs. Not in Place 

If you own a single-family home and it’s being rented with residents in place, the value of the property is going to be dependent on the rental amount if you’re selling it to another investor. 

With that being said, the value of the property for an owner-occupant (someone who will both own and occupy the home) would be more along the lines of what the market will determine.

If the property is located in an attractive market with high home values, you may be better off waiting until the property is vacant and selling it to someone who intends to move into the property and live there, as it may be more valuable to them in that scenario. 

If the property is in a less desirable location with low home values, the rental amount might provide a higher value to an investor than it would someone looking to live in the property. 

In this case, it may be beneficial for you to keep the resident in place because it would be as if you’re buying an income stream/cash flow.

 

Selling a MultiFamily Home with Residents in Place vs. Not in Place

For multifamily properties, their value is often evaluated based on the rental income they can produce. 

So the higher the rents the property can generate, the higher the value of the property. 

So in this scenario, it’s beneficial for the seller to increase rents as much as possible in their market, and have a fully occupied property when selling because that will give them the highest value for the property. 

If your rents are significantly below market rate rents, it may be beneficial to terminate leases or transition them to month to month leases because the new owner will see that as an opportunity to increase the rents, or lease the units at the higher market-rate value.

 

Advantages & Disadvantages of Selling an Investment Property with Residents in Place – Single-Family Properties vs. MultiFamily Properties

Selling Your Rental Property with Residents in Place
Single-Family Properties		MultiFamily Properties
Advantages	Disadvantages	Advantages	Disadvantages
– If the property is in a majority rental neighborhood, and the price point of the property allows the investor to purchase the property and cash flow with the current rental income, then the property will be attractive to an investor interested in single family home rentals – If the lease is within 60 days of expiring and the tenants are moving out, then it could allow for a sale to a new owner occupant reducing your vacancy period – Continue to collect rent & cash flow until the property is sold	– Scheduling showings, inspections, appraisals, etc. with the tenant can be difficult and could lead to delays in ability to sell or close on the property – Potential for poor showing conditions (dirty, unkept, messy, loud, etc.) – Multiple showings will disrupt tenants’ lives, potentially causing them to want to leave – Most single family homes sell at their best price to owner occupants, not investors	– High rental income can make the property worth more – Attractive to an investor looking for a “turnkey” investment property – Continue to collect rent & cash flow until the property is sold – A fully occupied multi-unit proves the marketability/rentability of the property to the new owner	– Lower than market rents could cause the property to be undervalued – Scheduling showings, inspections, appraisals, with the tenant can be difficult and could lead to delays in ability to sell or close on the property – Cannot sell to a buyer who wants to live in one of the units – If tenants are not paying their rent, it could be difficult to attract a buyer

 

What Happens to the Current Lease – Do I Have to Kick My Resident Out?

This may vary from state to state and you’ll want to check the lease terms. However, here in Pennsylvania, the leases will transfer to the new owner in the event of a sale. 

This means that you do not need to terminate the lease or evict the resident in order to sell your property. 

Just keep in mind the best case scenarios that we outlined above on your particular situation to determine if it’s best for you to keep the resident in place or not.

 

The Challenges of Selling a Property with a Resident in Place 

But as with all things, there will definitely be a few challenges in the process.

Some things that could be difficult if you sell your property with a resident in place are:

• You’re going to have to provide notice to the resident for any showings
• You’ll have to show the property with all of the resident’s personal belongings in place
• You’ll need to provide copies of the lease and payment history to the new owner
• Uncertainty around resident’s future
• If the resident has pets, it could cause accessibility concerns
• The resident might not like having their personal space entered during the sales process
  • Showings, inspections, appraisals, etc.

 

All in All

If you decide that you want to sell your investment property with a resident currently in it, we hope this article gives you some of the advantages and disadvantages of doing so. 

But ultimately, you have to make the right decision for you. 

If you need any guidance in making this decision, we are here to help!

In order to best serve our clients, Arbors management, Inc. has created a sales division, Arbors Real Estate. If you are interested in selling your rental property with a resident in it, this is something that we specialize in and are well versed in the challenges that come along with doing so. We would be happy to discuss the details of your property with you. Please don’t hesitate to give us a call!