Can you sell a property while tenants are living there?

Many property owners have found that being a landlord can be a welcome source of supplementary income. Perhaps you've purchased a rental property as an investment, or have decided to rent out your former home after moving. Some homeowners live in one part of a property and find tenants for another part, such as an in-law apartment or half of a duplex.

While this rental income can help you pay off a mortgage, it can also complicate matters if you decide to sell the property. A sale might force tenants to move elsewhere, which can be especially vexing to them if they have been paying their rent and abiding by your rules.

Landlords have the right to sell their property, even if it is currently rented out. However, it is best to try to help any tenants with the transition, especially if they'll need to relocate.

When to sell

One option for landlords is to wait for the lease to expire. You can then inform the tenant that you do not wish to renew the lease and that they will need to find a new residence.

Proper notice is required when taking this route. State law requires that a landlord only needs to give a tenant three days' notice before the expiration of the lease, but it is better to try to give them as much time as possible. Cathie Ericson, writing for the National Association of Realtors, says many states require landlords to give tenants a 30-day notice to vacate.

The lease you drew up with your tenant may give you the option of terminating the lease in the event of a sale of the property. If this clause is not included, the tenant will be able to stay in the property until the expiration of the lease, even if you find a buyer before that time.

Tenants may not feel too motivated to help you sell your property if they'll be forced to move out, so the main benefit of terminating a lease is the ability to prepare the property for showing. Brendon Desimone, writing for the real estate site Zillow, says you'll be able to clean the residence, put on a new coat of paint, or make any other upgrades you deem necessary before putting the home on the market.

Unfortunately, this will also delay when you are able to list the property. And during that time, you won't collect any of the income you would have received if a tenant was paying rent. A residence occupied by a tenant can also help increase the appeal of a property, since it shows how the space can be used.

Tenant considerations

Although you have the right to sell your rental property, the tenants will also have rights you need to be aware of. Consult with a real estate attorney to make sure you are abiding by all of these rules.

For example, a landlord has the right to enter a tenant's residence to show it to potential buyers. However, state law also requires that written or oral notice be given to the tenant, that the showing only take place during "reasonable" hours, and that a tenant consent to the entry.

The transaction can include a transfer of the lease to the buyer, since this will allow them to continue renting from the new owner. The buyer may be happy to take on the responsibilities of a landlord and collect the monthly rent. Unfortunately, others may be less willing to agree to this type of arrangement, thus limiting your pool of potential buyers.

Keep your tenants in the loop during the process. Kaycee Wegener, also writing for the National Association of Realtors, says open and ongoing communication with the tenant can help ease the process.

Before trying to sell the home, you may want to check with your tenant to see if they would be interested in buying it. Laura Agadoni, writing for the real estate site Trulia, says you may also be able to arrange a seller financing agreement where you sell the property to a tenant and they make payments directly to you.

Tenant incentives

Homeowners who put a home on the market know the frustration of having to keep the property as clean as possible and vacate the premises whenever a potential buyer is visiting. Tenants can be even more annoyed if their landlord asks them to keep their place looking nice and leave during showings, since they experience the same hassle without any of the potential benefits of a sale's proceeds.

Offering incentives to a tenant will cut into your own profits from a sale, but can help move the process along. Incentives will encourage tenant cooperation and also assist them in finding a new home.

Discounts on the rent are one easy way to help a tenant. Wegener says you can reduce the rent to compensate a tenant for the trouble of keeping their home clean and vacating it during showings. You may also want to provide incentives such as a cleaning service or a hotel room during a weekend open house.

Desimone says a tenant may be less troubled by the sale if you give them adequate time to move and reduce their rent during the time the home is on the market. You may also want to help them with moving costs.

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