Preparing to sell a rental property leaves you with several options, one of those being to sell it with the tenants in place. Here we’ll discuss the pros and cons behind selling a rental property with tenants.
Who are you selling to?
If your home is best suited for owner occupants or a landlord should be the first deciding factor. Investors don’t mind buying homes with renters, in fact if they are good tenants and paying market rent they’ll be happy to take it off your hands.
Homeowners on the other hand do not, they aren’t used to evicting tenants and often don’t want to take on that new burden prior to moving into their home. It will greatly affect the value you get for your property if your target buyer is a homeowner and they have to deal with your tenants.
The Landlord Buyer
The landlord buyer won’t mind taking on a property with tenants, but they aren’t going to want bad tenants. So if your property isn’t performing well as a rental that will have an influence in the value of your house. The main factors that will come into play with a landlord buyer are the following;
CAP Rate – Cost of acquisition divided by annual net income after expenses (basically, does this property generate a profit. Hint, if the home costs $300,000 and rents for $1,800 it does not).
Quality of Tenant – Are they a quality renter paying on time or are they tenants from hell destroying your place?
Condition of Property – Is the property safe and habitable. What major repairs will be needed in the future and are there any deferred maintenance needed?
The Lease – Is this a month to month lease or a set contract? The lease will supersede any purchase so whatever you have agreed to the new landlord must abide to until the contract runs out.
These three factors will determine what an investor buyer can purchase your home for. Remember it must be a profitable investment or they won’t want to take it on. If you have a property that has been managed well with a quality tenant you should have no problem getting a fair price from an investor buyer.
If there are issues, such as below market rent, deferred maintenance and low quality tenants your property is essentially an under-performing asset. This will affect the value you can place on your property when it comes time to sell.
Simply put, you want to avoid trying to sell a home with a tenant to an owner occupant. The affect is has on the price they will pay for the property outweighs any benefits you may realize from selling it this way.
Home owners are different buyers than investors, they do not intend to keep the home as an income property and it is a much more personal experience when buying a home. All things equal if a home owner has the choice between a homes with a tenant and without they will always take the non-tenant occupied home.
In most cases it is wiser to give your tenants the appropriate notice in writing and terminate their lease agreement. Once they have moved out you can begin to clean up the property prior to marketing it towards the owner occupant buyers.
You are adding value to the property by making is easier for the next owner to move right in, with home owners this is a great value proposition.
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When we buy houses as an investor we are open to purchasing with or without tenants but all of the variables listed above to have to be considered with our offer. Most important are the lease terms (length and amount paid), the condition of the property (what repairs need to be made) and the quality of the tenant (clean, orderly and paying on time).
It is after all of those factors are considered that we will make an offer to buy a property. If you have a rental property you are considering selling your home in San Diego or the surrounding areas please let us give you a no obligation cash offer today.