A common question DenCO Property Management (DenCO) gets from our owner investors is can the property be sold with a tenant still in place. The answer is yes but with caveats. First, the real estate transaction is subject to the lease terms. Also, the new buyer must honor all of the terms and conditions of the existing lease.
Anticipating The Property Sale in the Lease
DenCO believes in strong leases that lists all tenant and property management company responsibilities during the rental agreement term. It behooves the property manager to review the lease terms and conditions with the tenant before it is signed. Doing so sets a foundation for a successful rental experience. An essential item in the lease is that the owner or their real estate agent has the right to show the property with proper notice. The owner or their property manager should avoid long lease terms if a sale is likely.
Tenants Cooperation Is a Must
Tenant cooperation is necessary because they have a legal right to continue living in the rental during the duration of their lease. Renters generally do not appreciate disruption to their daily routines for showings and walk-throughs, so it is wise to over-communicate and attempt to reduce any inconvenience as much as possible during the sales process. But realistically, most tenants hate to move and are generally not cooperative in the sale because of the uncertainty it brings to their lives.
Buyer Considerations
Since the buyer is buying a home with a tenant, the home sales contract should include lease details such as the length of the lease, rent amount, and any other terms and conditions of the lease. The buyer must understand their responsibilities as the new landlord when purchasing the property. Responsibilities include maintaining the property and fulfilling any obligations outlined in the lease agreement.
Buyers benefit from buying a rental property with a tenant in place because there are no make-ready costs meaning there is no need to move out the tenant to make any repairs or renovations before buying the property. Also, there is no loss in rental income since a paying leaseholder occupies the unit between the signing of the contract and the closing.
Realtor Considerations
Generally, real estate agents would prefer moving the renter out before placing a single-family home on the market for the following reasons:
- A tenant in place reduces the buyer pool by 80 percent, so the property starts in a handicapped position.
- Most homes are decluttered before being placed on the market, so renters’ stuff distracts buyers’ ability to envision what the house would look like with their belongings.
- There is a loss of agility to show homes at days and times when buyers are available since the tenant must approve all showings.
- Realtors never know what the tenant might say to a prospective buyer during a showing or open house.
The Benefits of Using Property Management Company
Sometimes owners with tenants in place immediately need to sell their rental, so it would behoove them to entice the tenant in the middle of a lease term to move out. Owners using property managers can ask them to place the renter in one of their other properties and negotiate the lease termination. If the renter refuses to move, the property manager can coordinate showings and open houses with the leaseholder.
One benefit of hiring an experienced property management company is their knowledge of dealing with tenant issues, such as selling with a tenant in place. DenCO manages over 150 home, duplex, and apartment rentals in the DU, Washington Park, and other Denver neighborhoods and has been in business since 1990. Call us at 303-722-9688 or click here to complete a contact us form.
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