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How to Sell a Rental Property

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Selling a rental property has more challenges than selling a primary residence. Often, it is easier and more profitable not to sell it the traditional way. Here are the steps to selling your rental property, even if it is occupied with tenants.

Step 1: What to Do with Your Tenants

Review the lease. Is it a month-to-month lease? If so, give your tenants notice to vacate and when they need to move out. If they and their belongings are not gone by the scheduled date, you can start the eviction process, or opt to sell with tenants.

If the lease is for a fixed term, check for an early termination clause. Early termination means you, the landlord, can break the lease if you need to sell the property. If no such clause is in the lease, your options are limited. You can either:

  • Wait for the lease to expire;
  • Pay your tenants to vacate; or
  • Sell with an active lease

Only investors will purchase occupied rental properties.

Step 2: Evaluate Repairs

Whether your tenants stay or go, a rental property has to be up to par with health codes and regulations. It is your job, as the landlord, to perform regular maintenance and make repairs.

Evaluate the property and assess its damages, if any. Schedule time to make repairs when your tenants are not home. If your reason to sell is because there is property damage, you can sell to an investor who intentionally seeks out properties that need TLC.

Step 3: Clean!

You are going to have walkthroughs with potential buyers. Remember to give notice to your tenants prior to every showing. Ask them to clear clutter and not be present at the scheduled time.

Bad tenants are less inclined to follow your requests, so you may have to pay for professional cleaning and landscaping services.

Step 4: Hire a Realtor

Being a landlord is hard work. If you do not want to sell FSBO, you can hire a real estate agent to manage the sale for you. They will list the property, schedule walkthroughs, and help with sale negotiations.

A few things to keep in mind though:

  • Agents / realtors receive a commission of 3% to 6% of the sale price upon closing.
  • If your rental has damage, and you plan to sell AS-IS, your property is less likely to sell to a regular homebuyer and more likely to be of interest to investors.
  • Tenant-occupied properties will only be purchased by investors.

When your most potential buyer is an investor, you will profit by selling directly to the investor instead of bothering to list the property.

Step 5: To List or Not to List

Identifying your ideal buyer is perhaps one of, if not the, most important step in this entire process. It will save you time and stress, and even prevent you from losing money to identify the target buyer. How do you choose?

You should list your rental if:

  • It is vacant;
  • In great condition; or
  • Needs only minor repairs or quick fixes, which you plan on having done.

You can sell directly to an investor if:

  • The rental is tenant-occupied. You’ll need to disclose if they are non-paying tenants.
  • The property is outdated or needs major repairs.
  • You already tried listing it but it didn’t sell. Failed listings often get the “something must be wrong” label after 30 to 45 days on the market, and consequently sell for less than the asking price.

Step 6: Conduct Walkthroughs

If you are trying to sell, and the lease is expiring, but the tenants still live at the property, ask them about their schedule. Just like with regular listings, and the owners are asked to not be present, ideally your tenants will not be present during showings. However, if you decide to sell to an investor, meeting the tenants may be beneficial, since an investor is the only type of buyer who will purchase a rental with tenants. Keep the parties separate though if you suspect there is a risk of bad impressions.

Step 7: Pay Capital Gains Tax

When you sell an investment property, you pay tax on depreciation recapture and capital gains taxes. The amount you are expected to pay depends on multiple factors:

  • The total depreciation expense claimed;
  • Your tax bracket;
  • If you plan to buy a replacement property within 180 days of selling your rental; and
  • If you sell to receive a lump sum or installments (via seller financing).

We work with investors who specialize in purchasing rental properties, and you can discuss options with them. Even so, we recommend you also speak with a tax advisor to find out possible deductions and do the math to break even or maybe get a refund.

Final Thoughts

There are numerous reasons to sell a rental property. High equity, high demand, an increase in value, and the house being in good condition all make it favorable to place it on the market.

Other times the best option is to sell to an investor directly, so you can avoid costly fees and repairs. If your rental is occupied with good or bad tenants, your best, if not your only, option is to sell to a real estate investor.

Our investors offer to pay cash, as a lump sum or installment payments, to purchase the property “as-is.” There’s no need for an appraisal or inspection. Plus, you choose the closing date, in several months, 15 days or less, giving you time to handle last-minute items.

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When Should You Sell Your Rental Property

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The best reason to become a landlord is to make money and have a passive income. But it has risks, and if the stress is higher than the revenue, it may be time to sell your rental property.

Homeowners look at the market when deciding to sell. As a rental property owner, you have additional factors to consider. Here are 6 signs it is time to sell your rental property.

1. You’re a Remote Landlord

Being a landlord is a hands-on, on-site job. There are a lot of things you have to do:

  • Find and screen tenants
  • Sort paperwork
  • Ensure regulations are met
  • Repair and maintain the property

Your landlord duties take time and effort. Performing from a remote location makes things more difficult, for you and your tenants.

Showing, repairs, evictions – these all require a drive, or worse a flight. You can hire a property manager to handle things for you, but then a portion of your passive income goes to them.

2. Too Much Trouble

Being a landlord, you are always on call, should a tenant need you. Do your tenants call late at night when a system is busted? Or maybe they just like to nag you?

Do your tenants damage the property time and time again? Are they noisy, and you get constant complaints from neighbors? What about involvement with the police for one reason or another? These horror stories are real.

If a property is more trouble than it’s worth, and being a landlord becomes a full-time job, it is time to sell.

3. You’re Ready to Move On

Things change and being a landlord no longer fits in your life plan. It’s fine. 

Maybe you need to move, or another source of income became available, or you need to focus on your family. Whatever the reason, you cannot afford to put your time and money in your rental property anymore. You need to sell it so that it’s one less thing for you to worry about.

4. Too Many Expenses

Let’s face it, maintaining a living space for tenants is expensive. There are repairs and scheduled maintenance, not to mention property taxes and insurance, and it all adds up. 

If it costs more to keep the property functioning and up to par with health codes than its yearly profit, selling is the more affordable option.

5. No Positive Cash Flow

You became a landlord to make a passive income. If you are losing money or just breaking even, it is time to reevaluate your situation.

There are several reasons your cash flow could be diminishing:

  • Costly repairs and maintenance;
  • Property tax increases;
  • Unpredictable and unexpected vacancies;
  • Utility and insurance costs rise; or
  • Market rents drop.

These are the risks you accept as a landlord. Managing rental property is a numbers game, and if you don’t come out on top, why continue?

6. Non-Paying Tenants

Of all the common landlord-tenant issues, tenants that pay late or not at all is the worst.

Evictions are costly and time-consuming, or maybe you are not allowed to evict the tenants. A case like this would be if the tenants file for bankruptcy and the court grants them an automatic stay. They stay in your rental property, free of rent, and you lose out on payments.

So What Do I Do?

If you want to sell fast, forgo repairs, and unburden yourself of bad tenants, sell to a real estate investor. Most investors pay cash for rental properties “as-is” – damaged, neglected, and even with bad tenants still living there. The investor pays all closing costs and additional sale fees, saving you money on traditional listing sales.

You can enjoy a quick closing, in a month, 15 days or less – you choose the date.

Using your cash proceeds, you can then invest in a new rental property and resume a passive income, or use it as needed. You have the cash, you have the choice. You are no longer locked down by a problem property and landlord responsibilities.

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5 Common Landlord-Tenant Issues and Solutions

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Being a landlord is not easy, especially when you have bad tenants. Here are common landlord tenant problems and possible solutions.

1. Late or No Rent Payment

The most common issue with bad tenants is their inability to or refusal to pay the rent.

SOLUTION

If your tenants often pay late, discover if they are having financial problems. You could set up a temporary payment plan for them and prorate late fees.

If your tenants refuse to pay at all, you can send them a pay or quit notice. It outlines how much is owed plus late fees and when they must pay. If they ignore this, you can pay them to move out. It is a less satisfying option, but your goal then is to find a new paying renter as soon as possible.

If worse comes to worst, you can evict non-paying tenants. This requires lengthy court proceedings and money out of your own pocket though. If the court sides with you, law enforcement will remove the bad tenants by force.

2. Noisy Tenants

Sometimes your tenants are noisy, and they disturb their neighbors. These neighbors then complain to you or maybe call law enforcement.

SOLUTION

It is a tricky situation, but the best you can do is talk to your tenants about the noise.

You might include a clause in your agreement that says what happens if a tenant disturbs the peace. It does not have to be a solution your tenant likes. It can be a penalty fee or so many strikes, and they must leave. Discuss your options with an eviction attorney.

3. Damages (Intentional or Otherwise)

There is nothing more frustrating than a tenant who is destructive to the property. They neglect maintenance, break appliances, stain carpets, put holes in the walls, and leave trash lying everywhere. Sometimes they do it out of spite because you spoke with them on another issue. Other times, they are just dirty tenants.

SOLUTION

To minimize damages, you can have in your agreement that you will perform monthly visits to inspect the property. If there are damages, tenants must pay a fine, and if this bad behavior persists, you will evict them.

4. Rule Violations

Your lease agreement should list tenant rules and requirements. These include restrictions on pets, subletting, noise, etc. If a tenant breaks the rules, the agreement will also outline the forthcoming penalties.

SOLUTION

Most times you can fine bad behavior. Other times, if the tenant does not give you too much trouble, you might adjust a rule in exchange for compensation. For example, if you do not allow pets, but the tenant gets a dog, you can amend the lease to require a pet deposit. That extra money will cover any damages caused by the animal.

5. Tenant Files for Bankruptcy

Most times, when a tenant files for bankruptcy, the court grants them an automatic stay. You cannot evict them and may lose money on unpaid rent till the case is settled. The tenant has 60 days (or more) to decide if they will assume or reject their lease.

This situation is a massive headache, and there is little you can do but file a Stay Relief Motion and wait for the court and tenant decisions.

SOLUTION

Sometimes you need a fresh start. You can sell your problem property and use the money to buy a nice rental property in a better location. However, selling by way of a traditional listing takes time. You often have to evict the bad tenants, make repairs and perform maintenance. It gets costly! Consider instead selling to an investor.

Most investors pay cash for a rental property “AS-IS”. They will buy it with its damages and its bad tenants still living there. Most are also open to seller financing, and you gain interest over time. You do not have to do anything but choose the closing date, which can be in 7 days or less.

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3 Tips for Selling a Rental Property with Tenants

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The pandemic of COVID-19 has created a roller coaster of effects in the real estate market. To prevent the spread of the virus and minimize the crisis impact, the federal government and several states, cities, and counties are prohibiting landlords from evicting tenants, be they bad or behind on rent.

Times are difficult, and rent collections are essential to help pay off mortgages, property taxes, utilities, and maintenance. Are you a landlord with a tenant-occupied house to sell? Do you have bad tenants? Are they not paying rent? Here are some things to know and consider.

1. Prior notice of a showing

Typically, you would ask tenants to be off-site during showings, but most people are staying home with the times being what they are. This can risk bad impressions between tenants and new landlords who come to see the property. Ask tenants about their schedules to find the times that are most convenient to bring buyers over. Also, state laws require you to give tenants prior notice of a showing, usually 24 hours’ notice, so they have time to prepare.

2. Presentation matters

Giving notice to tenants when there are showings also gives them time to make their living spaces presentable; at least, you hope they will take the time to clean and clear their clutter. Bad tenants may not be so cooperative. You can offer incentives, like refunding the security deposit or paying for cleaning and maintenance services, to inspire them to keep the house. This will cost you money, but the payoff is worth it if it helps sell the property.

However, if there is property damage because tenants are destructive and neglect responsibility, it is unlikely that a new landlord will want to deal with them, and it will be difficult to sell the house.

3. Transfer of lease agreements

Keep in mind that a transfer of property rights means a transfer of lease agreements. Be sure to review the items in these agreements to ensure you are not in breach of contract. There may be terms and conditions that require you to notify tenants within a certain number of days of new management. You will have to oversee the transfer of security deposits and rent receipts to the new owners and inform tenants of this action. You will also have to inform tenants of how they will pay rent to the new landlord moving forward.

If you would like to sell your property fast, without navigating bad or non paying tenants, consider selling your rental to an investor. Most investors will make a cash offer on a property, regardless of tenant issues and leases. You can offload a property that returns little profit for a sure deal, enjoy a quick closing, and be free of difficult tenant-landlord relations.