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Can You Legally Sell Your Rental Property With Tenants In It?

Can You Legally Sell Your Rental Property With Tenants In It?

If you wish to sell your property which is currently occupied with a tenant, you have two options:

Sell With the Tenancy

With this option, you will sell your property subject to the existing tenancy. That means your tenant will remain in the property after the sale is completed, and they will then start paying rent to the buyer.

Complete Sale after Possession (i.e. Eviction)

In this case, you will need to terminate the tenancy before the sale is completed, so the property is vacant/untenanted. Well, you can only imagine how much more potentially stressful the process of selling can be with a tenant in occupancy – it’s extra weight to consider during the slog. Of course, that’s not to say there aren’t advantages of doing it.

Smaller Market

With the Utah currently suffering from a major housing crisis there is certainly no shortage of buyers trampling over the tire-kickers, whether they are landlord or home-buyer. If someone likes your property enough they may even have no qualms with making an offer even if they have no intentions of being a landlord (i.e. they’ll give notice to the tenant when legally possible). But the reality is, the market for a tenanted property will appeal to a significantly smaller market, so there’s a chance it won’t shift as quickly as an unoccupied version. But that’s not to say that will always be the case, because selling a house successfully often largely intervenes with fate- the right buyer being in the market at the right time.

Complications Of Viewings

Yeah, taking viewings with tenants can be a right royal pain in the ass at the best of times, and the horror is only amplified if your tenant isn’t pleased with what’s happening (which wouldn’t be terribly unsurprising, and understandably so). It’s more expensive to sell when vacant. Most landlords prefer to sell their property while it’s tenanted because it’s generally cheaper. Bear in mind, if you legally repossess your property from your tenant and then try to sell, you’ll no longer benefit from rental income, which means you’ll have to dig deep into your own grubby little pockets to pay the mortgage. That can become incredibly expensive if the property remains unsold for several months. This is by far the most common incentive for selling the property while it’s tenanted. Not a bad incentive either.

Condition of Your Tenant When Selling

If you’re selling a tenanted property, the odds are you’re going to attract ‘experienced landlords’ So if selling is part of your extreme and flamboyant exit-strategy to unload a rogue tenant that’s disruptive and/or in fallen into rent arrears, the truth will almost always rear its ugly little potato head. On the flip-side, a good tenant will make your proposition a hell of a lot more desirable. Point is, any serious buyer will care about the condition and quality of your tenant and selling with a rogue tenant will usually do more harm than good. You’ll have better luck shifting a property that’s subsiding at a 45 degree angle.

Legally Repossessing Your Property

If you’ve decided that getting rid of your tenant before selling is the best move (for whatever reason), the usual rules applies, and you’ll need to legally terminate the tenancy, which may mean you’ll have to get comfy and wait several months for the process to complete.

Notifying Your Tenant of the Sale

If selling with tenants in Utah, don’t be naive enough to believe you hold all the chips. The tenant is definitely sitting on the same table as the board of directors! While they may not be able to completely stop the process, they will have the ability to make the process unbearably painful or relatively painless (selling is never totally pain free).

Offer Your Tenants First Dibs

Purely out of courtesy, even if you know they’re in no financial position to be serious contenders, you want to give your tenants the opportunity to buy the property before going to market.

Explain Reasoning Before Marketing/Selling

Being abrupt in these situations can be profoundly damaging, and that includes marketing before discussing it with your tenants and/or doing it without providing an explanation. Take the time to talk to your tenants and explain why you are selling.

Be Reassuring

Since you have made the decision to sell with tenants in situ, you have the opportunity to spin a story which reflects the tenants best interests (even though you’re probably doing it to minimize the impact on your bank balance).

Reassure the tenants and explain what your decision means:
• You’re not kicking them out, because you don’t want them to lose their home as they’ve been good tenants (I’m assuming they have been)
• Another landlord will most likely buy the property, so their occupancy is most likely safe
But, while it may seem logical that a tenanted property should fetch a premium, it’s not always as straightforward as that. As discussed, it will depend on the quality of your tenant, but more crucially, the rental yield the property can achieve. In other words, the ROI (Return on Investment), which will specifically take into account the rental income over the initial cost of buying the property. Plus, and needless to say, there needs to be demand for the property. A good agent will be able to provide assistance with the numbers.
How To Sell A Tenanted Property.
• Use Your Local High-Street Estate Agent: Presumably, there’s little to be said here. Just approach your local agents and see what they say.
• Use An Online Estate Agent

If you’re in financial distress or you can’t handle the responsibility any longer, you have a bit more urgency than if you decided this is it once your tenant’s lease ends, and you may need to sell with tenants. No matter the reason you’re selling, you can sell with or without tenants, but if you choose without, you’re at the mercy of your tenants. You’ll have to wait for their lease to expire unless you can find a way for them to leave early.

Pay the Tenants to Leave

If you want to sell the house early, you may be able to pay the tenants to leave. This depends on the cooperation of the tenants. Some tenants may be willing to leave without payment, while others may want you to help with moving costs or other costs they incur unexpectedly since they weren’t expecting to move quite yet.

Sell With Tenants Occupying the Property

If you have cooperative tenants, you may be able to get them to help you sell the property. You need their cooperation because you’ll need access to the home to make any repairs or renovations necessary. Appraisers, real estate agents, and inspectors may also need access. If your tenants don’t mind the occasional interruption and keep the house clean and organized for potential buyers, you can use their help to sell the home while they live there.

Selling Without Tenants

If you don’t have cooperative tenants or you don’t want to bother them, you can wait until their lease expires or pay the tenants to leave early. If you sell the property without tenants, you may increase your buyers pool since most buyers won’t buy a rental property for themselves. This limits your audience to real estate investors, and if you’re using a real estate agent, he or she may not have the right audience for this situation.

Selling without tenants provides the opportunity to:
• Renovate the home and make repairs to get a higher price for the home
• Market to an audience that isn’t just investors
You may or may not get a higher price for the home or sell it faster—it depends on the market, the home, and how well everyone works together.

Know Your Tenant’s Rights

All tenants have rights, as do landlords. Knowing your tenant’s rights ensures you follow the law even when you’re ready to sell the house. If you have a current lease, your tenant has the right to stay in the house for the duration of the lease unless there are terms in the lease that allow you or them to exit it with notice. If the tenant doesn’t want to end the lease, you either sell the property with the tenant in the home or pay the tenant to break the lease. If you’re thinking about selling your property with tenants, you must market to the right audience: real estate investors. Using a traditional real estate agent, you might or might not have the right audience. Sure, you may come across some investors, but you’ll have to weed your way through buyers looking for a primary residence.

The Benefits of Selling a Rental Property With Tenants

At first, it may feel strange to sell a rental property with tenants. You are the landlord. Aren’t you supposed to remain the landlord for the entire lease period? While that was the intention, it’s not the case any longer, and that’s okay. It’s perfectly acceptable to sell a property with tenants, and it’s even beneficial.

You Have the Right Audience

This is important. You can market your home all you want, but if you’re looking at the wrong audience, you won’t sell the home. If you market your home with a traditional real estate agent, you may not get as many investors interested in the home. Instead, you’ll have buyers looking for a home to live in, which doesn’t fit the bill for what you’re selling.

You’ll Save Money

It costs money to sell a house. That sounds a bit backwards, but it’s true. You’ll incur costs from the city, county, your HOA, and the real estate agent. While there’s not much you can do about your city, county, and HOA costs, you do have the option of how you sell the house.

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It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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