REAL ESTATE TIPS: Options to consider when selling property with tenants

We tend to talk more about home ownership than being a tenant, which makes sense considering the nature of this column. But sometimes there are other topics that are important to talk about relating to real estate too. After all, many tenants will become homeowners and all rentals are owned by someone. So today let’s talk about what it looks like to sell a property occupied by tenants.
From my experiences, most tenants fall into two different categories. The first is your “short term” tenant. They are there temporarily. Sometimes they are only looking for a place for a few months. Maybe they are building a home and waiting for it to be finished, perhaps they recently moved to the area for a new job and are just renting until they feel like they know the area better, maybe they are getting divorced and just need a place to stay to get back on their feet.

Finding a place to rent without signing a 12-month lease seems virtually impossible. So these “short term” tenants will sign the lease but they won’t stay any longer. This doesn’t mean that they don’t take care of the place or make it homey, it just means that for them, this rental is a means to an end so to speak. It serves whatever temporary purpose it has and then they move on.

The second type of tenant is what I would call a “lifetime tenant.” They plan to stay in a particular rental house forever. Sometimes they feel like home ownership is out of their reach or sometimes they just like the freedom offered with rental as in no responsibility for repairs, taxes and home maintenance/ upkeep.

The lifetime tenants often prefer to rent homes rather than apartments and tend to be the ones who paint the house, put in additional landscaping and even do/want to do additional things like new carpet, etc., often at their own expense because they feel like it is their home and they take responsibility for it that way. Many of these tenants are a landlord’s dream because the tenant is so emotionally vested in the property that the landlord may not even go to the property for years. In fact, in the last month I have talked to two landlords who have had the same tenant for seven years at one house and 10 at the other. And the landlord has not stepped foot into those homes for most of that duration of time. Seems like a perfect scenario, right? Well, it can be – if the tenant recognizes that they are the steward of the home and not the owner. And sometimes the line can be blurry, especially when the landlord chooses to sell.

I have had many almost tearful conversations with tenants over the years when I am going to sell the house for their landlord. The tenant can feel slighted because they feel that “their” home is being sold out from underneath them. They have often invested their own dollars for improvements and that can make it seem even more like their home. So when a landlord wants to sell, it can feel crushing to the tenant. Just like a home buyer, the tenant is looking for something they can invest in — so to speak — so the thought of finding another rental house that meets their criteria, especially if the area has very few rental homes or they are on a tight budget, can seem understandably overwhelming.
So here are two possible ideas to make the transaction easier should a landlord decide to sell a property occupied by a lifelong tenant.

* Let the tenant have the option to buy first.
This is often just a courtesy as many lifelong tenants have no desire to buy and so they are not prepared to buy as far as down payment or possibly credit score, etc. Sometimes, however, the tenant does choose to buy and that can be a win/win for the tenant and the landlord.
Obviously the landlord isn’t required to do this but it is an option that I have seen work for both parties. And I have seen it not work.
I met a man a few years ago who was trying to sell a rental that he did not want any longer. The woman renting it insisted that he sell the home to her – and she had a list of demands, some crazy. She was also looking for the deal of the century in terms of price. And when her financing fell apart, out of guilt, he let her stay there and continue renting. It was almost like he didn’t want to deal with it anymore. Last I heard, she is still his tenant.

* Put tenant in a 12-month lease.
Be really careful here and seek the opinion of a Realtor who knows your property and your market well. If you and your Realtor are fairly certain, for whatever reason, that the home will sell to another investor, AND your tenant’s rent is market value rent AND they are a good tenant (pay on time, keep the property clean, etc), it might be a good idea to put them in a 12-month lease. This gives the tenant the security that they don’t have to move and it allows the new owner to have a good tenant already in place.
If your tenant is paying crazy low rent (for example, normal rents for the area are $800 and they are paying $300 because they have been there for years) putting them in a lease to give them security will also hurt your numbers on the sale end as far as what the new buyer is willing to pay you for the property.
Again just seek a professional opinion from someone who is familiar with your property before making this call.
I hope that no matter what you are doing while you read this column, that you are enjoying life and, hopefully, enjoying beautiful weather. Have a great day!
Esta Ryder, Broker/Owner
President’s Club
Ryder Realty, LLC
estaryder@gmail.com
330-317-6912