How to Sell a House with Tenants, by George Herrera, Realtor & Co-Owner of the Queens Home Team at Keller Williams Realty.
If you own a tenant occupied property in Queens, then at some point you may have tossed around the idea of selling. Cash flow is nice, but at some point people get tired of being a landlord and at that time, you are faced with different options for selling. You can sell with tenants, vacate the property and sell an empty house, or you can sell with tenants and gaurantee that the house will be delivered vacant.
The issue with tenant occupied properties is just that, they are tenant occupied. This makes it a not so typical sale, and for us as Realtors, it can pose some challenges. Whenever we meet with Queens homeowners who are thinking of selling a property with tenants, we give them their options, and our suggestion in order to net tbe most money possible. Here is what we typically suggest and our tips for each type of sale in order to have as a little hassle as possible.
Option 1) Vacate the Property, sell Vacant House
This is what we always recommend because it is the best way to maximize your net profit from the sale. One thing we know for sure is that empty multi families sell much faster and for more money than tenant occupied properties. Reason why is because when you sell a house while tenants are still in it, access becomes an issue (because you have to work around tenant schedules) and condition becomes an issue (because you can’t prepare the property for the sale). For this reason, you aren’t able to get as many people in, and the ones that do see it don’t get to see the property in it’s best light. On the flip side, if you vacate your property first, you can do minor repairs, order a cleanout for any junk in the house, and have the property cleaned to make sure it shows well. If you take this route, you can gaurantee that you sell for the most money possible.
If you decide to vacate the house first, make sure you plan ahead and give your tenants plenty of notice. Notice to vacate should be given as early as possible. If they aren’t out by the date indicated, then you will need to start a holdover proceeding.
Option 2) Sell with tenants, Gauranteed delivered Vacant
This is the option that most people take, however, this option comes with the most risk, and a lot of headaches if things go south. The risk comes from the fact that you have tenants in the house, and once you are in contract, you will need them to vacate within 60 days in order to close by the date set in your contract. The challenge then becomes finding a new apt for your tenants. In our experience, most tenants are paying below market rent and when they go to look for a new apt, everything is too expensive. In addition to that, if they own a pet, it can be hard to find an apt. If they have small children, it can be harder to find an apt. If they are elderly, it can be harder to find an apt. You get the point. The issue is that although landlords are not supposed to discriminate against protected classes, the truth is that for renters in certain circumstances or familial make ups, have a harder time finding a place to rent. This leads to delays in your closing, and in the worst case scenario, tenants can stop paying and take advantage of the court system to extend their stay. One thing we can tell you is that with all of the two and three family homes we’ve sold, most have had tenant issues that lead to delayed closings. It is very rare that we see the tenants leave in time for us to close on schedule. Our longest deal on record is one year, that one was a three family in which two tenants forced the landlord to evict them and it took about a year until both tenants were finally gone. Luckily the buyer hung in there, but that’s not always the case. Needless to say, you can already imagine how stressful it was for our client.
If you’re going to gaurantee that the property will be delivered vacant, give your tenants notice to vacate immediately. In other words, don’t wait until you have a buyer to tell them they have to vacate. The sooner the better, because finding an apt is not easy in Queens. Something else you should consider is offering to pay their broker fee or helping with their moving expenses. This will encourage them to cooperate with you, and it will make it easier for them to find a new place.
Option 3) As-is, with tenants, no gaurantee of vacancy at closing
In our opinion, this is the second most ideal option, however, you also tend to get the lowest offers when you go this route. Reason why is because the new buyer will need to inherit your tenants, and they have no idea who they are, what they do for a living, what their credit looks like, whether they pay on time, how they will react to the new change, etc. So, when you sell a house as-is with tenants, the ideal buyer becomes an investor or saavy buyer. In other words, the only people willing to purchase a house with tenants are typically people who are familiar with the tenant eviction process and not scared off by the thought of having to evict someone if necessary. So, if you choose to go this route, you can likely expect to sell below market value, especially if buyers aren’t able to get into one (or any) of the apts.
Speak with your tenants and try to get on the same page. Let them know that they will not have to move so all you ask is for them to give you access to the property for showings, inspections, appraisal, etc. If they pay their rent on time, print out a list of their payments and a bio about them. Share this with potential buyers so that they can see that the tenant(s) are in good standing, this will help you get better offers. And lastly, if possible, you may want to raise the rent before you list. If you are getting a reasinable rent rate, or market rate, then the property will appeal to a larger group of buyers.
Well, hope all this information is helpful. If you ever need some advice on your tenant occupied property in Queens, feel free to reach out to us 🙂
Courtesy of George & Abigail Herrera with the Queens Home Team at Keller Williams Realty Landmark II.