The Risks Of Selling A Rental Property With A Tenant

selling a rental propertyAs landlords and property managers, we all love rent-paying, non-destructive tenants.  We hate the rest, but that’s another story.  No matter how much tenant love you may have, if you want to sell your house with a tenant for the highest and best price, even the best tenant can be a detriment.  Why?  It takes a lot of work and devotion to get the house show-ready and keep it that way during the entire listing period.  Most homeowners lack the motivation to keep their own house show-ready, and they have the motivation of monetary gains (hopefully) to entice them.  Tenants have nothing to gain for their inconvenience so their participation may be less than enthusiastic.  By having a tenant, you limit your market to mainly investors because you are not only selling the house, you are selling the tenant with it.  Anyone buying your rental property automatically becomes a landlord, like it or not, until the tenant’s lease expires.  So what are your options for selling a rental property with a tenant?

Ways To Sell Your Rental Property

1. Wait until your tenant’s lease expires and sell the property

This is the best option if you can afford it.  It costs more because you’re not receiving rent, but gives you the greatest chance to quicker sell at a higher sales price.  You can sell the property to investors and homeowners alike so you’re not limiting yourself.  Without the tenant, you also have the luxury of fixing up or refreshing the property to make it look its best and when unoccupied, it can always be kept show-ready and you won’t run the chance of having a tell-all tenant wanting to tell prospective buyers everything they don’t like about the house.

2. Sell Your House And Your Tenant

This option is the cheapest, but has the most difficulty.  You will need the cooperation of your tenant to sell your house with the tenant still living in it.  You can’t sell it to someone who wants to buy a house to immediately move into because they must uphold the tenant’s lease.  You have to sell it to someone who either doesn’t mind waiting for the lease to expire, or to sell it to an investor who’s looking for an income property.  If you sell it to an investor, then DO NOT UPGRADE anything.  You can get a higher price freshening up things like paint, carpet, roofing shingles, etc., but do not upgrade anything.  Don’t upgrade appliances, just make sure they look clean and are working properly.  Don’t upgrade the kitchen, bathroom or anything expensive.  Upgrades make your house cost more and investors do not want to pay that extra cost when looking for a rental property.  For example, when I’m looking for a rental property, I know the highest price I’m willing to pay before I ever set foot on the property.  When looking for a house, the first thing I do is scout around the neighborhood to determine how many rental properties are nearby then I find out how much can I expect to collect in rent for that area.  Once I know the rental amount, I take that figure and plug it into a spreadsheet to see what my income and costs will be and then calculate the maximum I should pay for a house to produce my desired return on investment.  A simple way you can determine what investors will pay for a rent house in your area, use a multiplier of 80 to 110 times monthly rent.  I usually shoot for a multiplier between 90 and 100 for houses I don’t have to finance, and use a multiplier of 80 or less for houses I have to finance.  This formula creates a high / low range where you can expect most rental investor offers to fall into.   If I can rent a property to a tenant for $1000/month I will probably want to pay somewhere between $80,000 – $110,000 for it.  Unfortunately, this is probably a higher offer than you can expect from most investors.  I tend to look for houses that rent easier, would attract a better renter and are located in areas where rental properties are not common and where there’s still appreciation and to get that, I’m willing to pay a little more.  Yes, there are areas in Dallas, Texas where properties still appreciate.  Most investors will shoot for a lower price.  But either way, all investors base their offers on the income the property produces so you can see how upgrading to Viking appliances and granite countertops would be a poor decision on your part if you were going to sell it to an investor.

3. Sell the property to the tenant

This option is a shot in the dark because most renters rent because they either can’t afford to buy or they simply don’t want to.  If you’re not in a hurry to cash in on the sale of your home, you may consider owner-financing but odds are if your tenant can’t find a bank willing to loan them money, there’s probably a good reason for it.  Be prepared to take back the house when they fail to keep up with the payments.  Selling the property to my tenant with owner-financing is not a strategy I’d do personally, especially as a second mortgage given today’s default rate.

Getting Your Rental Property Show-Ready

First of all, keeping the house show ready and having strangers entering the house at various hours each day is a lot of trouble to ask of your tenant.  The yard has to be kept pristine and the house should always be neat and clutter free.  Lots of homeowners fail to live up to show-ready standards with their own home so imagine how hard it will be to motivate your tenant when he knows that his tenant days may be coming to an end when the house sells, not to mention the tremendous invasion of privacy your tenant can expect for the months that follow.  Be sure to communicate everything with your tenant and introduce them to your real estate agent so everyone knows what to expect.  If the tenant is naturally sloppy, you can expect the house to not show well and you may want to just wait until the lease expires.

Make Your Tenant Your Partner

If your tenant has something to gain from the sale, he may be more inclined to promote the sale rather than detract from it.  Either way, it’s a lot to ask of a tenant and the tenant should receive some form of compensation for helping to sell your house.  Maybe offer a discount of rent while the house is on the market and if they do a really good job, you may consider giving them some money to hire a mover.  Make sure they pick and hire the mover so you’re not liable for anything.  If they’re on board with the sale, then you may also be able to do some cosmetic work on the inside of the house with their participation and agreement to maintain it.  Either way, I’d do external repairs to enhance curb appeal because renters don’t usually tear up external repairs.

Are You Really Losing Money Leaving The House Unrented During The Sale?

The answer is probably not.  Having a renter makes the house primarily appeal to landlords and they’ll only look at it if it’s priced according to a ROI based on rents.  Anyone wanting to live in the house will not be interested in dealing with a renter, even if it’s on a month-to-month lease.  By doing this, you basically reduce the pool of potential buyers significantly.  A reduction in potential buyers also reduces the potential for a higher sales price.  The amount of rent you’ll receive while the house is on the market could be much less than the overall drop in the sales price.  At the end of the day, you’ll either breakeven in rent-vs-price drop or lose money depending on the market, condition of the house and cooperation of the tenant.

Will Having A Tenant Make It More Valuable To An Investor?

It wouldn’t make your property more valuable for me unless you could demonstrate that they were a great tenant and your reasons for selling were external to the property at hand.  When I look at a home with a tenant, I usually assume that the tenant is probably the reason the landlord is wanting to sell.  I don’t know how well the landlord screened their tenant and I don’t know how faithful that tenant is at paying rent.  Also, I don’t know if there is any baggage I may be inheriting depending on the seller’s property management style versus mine.  Was the owner a softie and his tenant habitually walked all over him and expects to do the same with me?  He’s in for a shock, but I’m also in for a few problems as we set boundaries.  It’s in your best interest to show your tenant’s lease, rental application and a copy of every rent check to the prospective landlord. The more paperwork you can show the better your chances of getting a better price.  It’s important to show the landlord buyer that you are a capable landlord who picked a good tenant and that you’re not over your head wanting to get bailed out of a horrible situation that they will be inheriting.  Being bailed out comes at a price and that price is usually a lowball offer.

Where To Go For Advice

The best source for landlords looking for advice is  Their landlord Q&A message board is a great source of information.  I’ve been a faithful contributor and viewer of that board for a few years and it’s filled with advice from other landlords willing to share their successes and failures with other landlords.

This entry was posted in Selling Your House and tagged , by Bill Petrey, Realtor. Bookmark the permalink.

About Bill Petrey, Realtor

Bill Petrey, the CEO and Founder of AgentHarvest, has been written about in the Los Angeles Times, Inman News, AOL Real Estate, and Inman Next, among others. He founded AgentHarvest for the sole purpose of making the process of finding a good Realtor better and easier. Bill Petrey is an author and editor of both The AgentHarvest Blog, Real Examples of Really Rotten Realty Blog, and the creator of Really Rotten Realty.

62 thoughts on “The Risks Of Selling A Rental Property With A Tenant

  1. The best thing to do about this matter is that you need to be wiser than your tenant. For me it’s about being wise enough in choosing the right tenants to live in your house. In the end it’s your loss if the tenants destroys your property.

    • Lex:
      Couldn’t agree more. Don’t be in such a hurry to rent out your place. Run the credit checks, criminal background checks and if possible, do a drive-by of their current resident to see how clean it is.

      You have to be clever to spot the liars and potentially bad tenants. Rather than asking if they’re a non-smoker, no one admits to being one nowadays, pull a cigarette out of your pocket and ask to borrow a lighter. If they reach for their pocket, you know they’re used to carrying a lighter, and that means smoker. Also, when they claim to have no pets, visit their house and look for pets or pet damage. Peek over the fence and look for a dog bowl or signs of rutting in the grass along the fence. I’m not saying never trust a tenant, I’m just saying to do what Ronald Reagan would do, “trust but verify.”

      • Woah! That’s verging on criminal stalking surely! Also never understood this credit checking business, mine is the worst you can possibly get however I’ve rented for 5 years, have the money and never missed a rent payment. Such a snobbish attitude towards tenants is unbelievable! Respect your tenant and they will respect you, don’t judge them because they don’t clean to ocd standard or they might smoke! I smoke but I do it outside, seems like your narrowing your pool of potential nice and reliable tenants (like myself) by snooping around their current property (which by the way I’ve lived in places that were disgusting outside but kept lovely inside) and banning anyone that doesn’t live up to perfect human standards! Just be a nice landlord and you’ll get respect back, just because you own a house doesn’t mean you’re superior!

        • Ami:
          Your reference to landlord elitism and superiority above the tenant masses is completely off base. Landlords don’t screen just to laud over the lesser tenant masses making tenants dance and crawl at whatever whims the landlord decides. Landlords screen tenants to protect themselves from non-payers, vandals, squatters, horders, the lawless, and anyone that would cause costly repairs, create problems, and/or not pay the rent. When a landlord screens a tenant, they are trying to decide who they trust to hand over the keys to one of their most expensive assets. It’s a matter of trust. As Reagan once said regarding Gorbachev, “Trust but verify.” That’s what this is all about. We just want to verify the person we’re about to place all our trust in.

          I assume you’re a good tenant with a long history of being a good tenant. Since that’s how you behave, you assume everyone’s like that. You couldn’t be more wrong. Just as there are good landlords and bad ones, there are good tenants and bad tenants. Some of the worst tenants know how to squat in a house for months or years without paying rent and know how to manipulate the legal system to further their abusive behavior without recourse. Other bad tenant stories include vandalism, crime, drugs, hording, etc. These are problem tenants no landlord wants. A string of these types of tenants will destroy any landlording business. To be fair, you wouldn’t want this type living in your house either.

          Landlords don’t pay as much attention to the credit score as they do credit history. While a low credit score will probably not prevent you from renting, a credit history of non-payments, bankruptcies, foreclosures, or utility cut-offs will. When I read a credit history report, I want to know why they didn’t pay. Is it a one time problem with medical bills due to an accident, a temporary setback from a job loss, or is it just a total disregard to paying their bills? It says a lot about a person.

          The problem with smoking is that smoke odors linger and it takes a lot of money to effectively remove those odors once the tenant has left. The carpet and padding may need to be replaced, the walls may need to be repainted, and vents may need to be cleaned. After all that effort and expense, it may still be noticeable that the previous tenant was a smoker. This makes the home harder to rent to the next non-smoking tenant. Like smoke odors, removing pet odors can be costly too for the same reasons and remedies.

          “Respect your tenant and they will respect you” doesn’t always apply. The wrong type of tenant will try to take advantage of you. As you suggested, we really are trying to narrow our pool of potential tenants. After all, we only need one per house. Not narrowing the pool could lead to a path of destruction for the landlord’s business. Landlords are looking for any clue that can separate the good tenants from the bad ones.

          • Actually, you might want to rent from me. The same effort I put into screening I also put into maintaining the quality of my rentals. Repairs are made promptly and correctly. I answer my phone when a tenant calls and will handle any emergency as quickly as possible. And, because I don’t have costly tenant caused repairs, I can spend that money on improvements like energy efficient upgrades, sprinkler systems and lawn care. All of which make the rental more attractive and attracts more renters allowing me to be more selective.

  2. It works both ways, there are just as many bad landlords as bad tenants. Every single landlord we have had in the past 14 years we have ultimately had to go to the Ontario Housing Tribunal about and every single landlord we have taken there has lost against us. We have won every single time, now that should tell you something. Our last landlord refused to help or pay for (or even compensate us) for a backed up sewage pipe that happened 40 feet up the property and backed up in our basement. Roto-Rooter was called in and they confirmed it was most probably a collapsed pipe as this was a common neighbourhood problem. We had to clean everything up ourselves and our house smelled of sewage for almost a month and not once were we even offered a rent abatement. We’ve had other landlords refuse to turn on the heat even though the temperature in the unit dropped well below the legal limit. We had yet another landlord go ahead and put the gas bill in our name even though the rental agreement stated we were to only pay for electricity while he would be responsible for gas. I could go on and on about the actions of our past landlords who, in my opinion, are just as bad if not WORSE than many problem tenants.

    • Lisa:
      Of course, not every tenant or landlord is desirable. However, this article doesn’t touch on that. This article is about selling a house with a tenant. The desire to sell a house isn’t always due to an annoying tenant. Sometimes landlords just want to retire, upgrade, downgrade, or they just need the money.

      • True.Many people do not want to sell their house but can’t refinance due to the tight restrictions even though they have been paying a huge interest on time for years, it is very stressful. Circumstances change like health or business or just taking care of the property or a needy tenant or divorce or death in the family. I guess the best thing to do is NOT to have a lease, and rent month to month in an up market like we have now so we can relax about things that life may bring us.

        • Laura:
          Not necessarily. Having a 1 yr or longer lease locks in your rental payment. If you go month-to-month, the landlord can raise the rent for the next month. The best way to not worry especially in a market that is increasing in price is to lock in your price with a long-term lease. If life happens and you need to find a cheaper place, the landlord will work with you, especially if they know the rental rate is priced below market.

      • What if….
        your landlord came to you urgently asking to make changes to the lease (with still 6 months left) including utilities in their name or rent out a room to her (we had just filled with tenants for the duration of our lease, 6 months) or she could lose the house. Then a realtor is calling telling us the house going to go on the market. We find out from public records the house under a HUD reverse mortgage loan which requires the owner to occupy the property, and that the landlord is a IRS certified tax preparer and displays a business online of such from the property. The situation of living here with having showings and feeling as though your life is on display has been less then enjoyable. Any thoughts on how to get out of this situation without being effected by the landlords decisions?

        • I assume from your post that you are the tenant and you are subletting all or part of the house to tenants paying you rent? From what I read of your post, I’m reading a lot of panic from the owner. They have to occupy this house or risk losing it and they have to do it fast. Why do you want to get out of it? Do you live in the house or do you sublet it entirely? First think I would do is to have the owner buy your tenants out of their lease. Then I’d let the owner buy you out of your lease. Who knows if this situation is over or not once the landlord moves in. They may get caught for the time they weren’t occupying the house and could be fined or worse depending on laws. Either way, it could trigger them losing the house. Both you and your tenants should be able to make this a profitable situation for both. The best way to get out of this situation is to get out of the lease and you have a landlord that’s more than willing, desperate even, to help you. First you need to make sure your tenant’s lease is resolved to the tenant’s satisfaction since your name is on that lease as the landlord. Then you can remove yourself from the problem. I suspect your landlord is in more trouble than you may know.

  3. “In the end it’s your loss if your tenants destroy the place.” I just sold my condo in San Diego, California. For 3 years I thought I had great tenants. She’s a reporter for the SD Union Tribune and Del Mar Patch. They were always very nice on the phone and in emails. But CA law doesn’t allow landlords to enter the premises unless it is to make repairs – no periodic inspections are allowed. When I met tenants to advise I was selling, I was shocked at the damage and filth. I accepted a very low offer from an investor taking poor condition into consideration but when he saw the condo he backed out due to damage and filth. I then accepted a low offer from an individual buyer and had to give a credit to compensate for damage and filth. Can I cover any of the diminution in value from my former tenants? It goes far beyond normal wear and tear. Wood floors have to be replaced and, after tenants gave notice to move out, they destroyed kitchen cabinets by trying to strip and refinish them. All of that was part of the reduction in price and credits I had to give to proceed with the sale. The $1,000 security deposit doesn’t come close to covering the loss. Contractor estimated $20,000 to fix kitchen and floors.

    • Sonja:
      I’m so sorry for your situation. Unfortunately it’s pretty common. If you can’t enter a property except to make repairs, you could have a quarterly maintenance routine of replacing the air-conditioning filters. This should qualify as repairs and give you access four times a year. You can also test smoke detectors during that time too.

      There’s definitely a price point for a rental property. You don’t want expensive fixtures, finishes, or appliances for them to tear up. I definitely don’t want to buy a rental property that has anything nice in it. Most renters don’t mind the cheaper improvements, and they’re less painful to replace if destroyed. Linoleum or tile instead of hardwoods, laminated countertops instead of anything stone, and if you buy carpet, use the cheapest carpet and padding you can find. If you want to go a little nicer, spend the money to upgrade to thicker padding, but keep the cheap carpet. Don’t add ceiling fans or any additional fixtures that the tenant could tear up or steal.

      • As a renter, I disagree. High-end finishes are much desired by renters here. Rents are insanely high no matter what the finishes but even moreso for “nicer” apartments. Of course, many of the renters in this market have six-figure incomes, so that probably makes a difference. Basically, we’re a town full of people who want to buy home but can’t because there aren’t enough affordable single family homes available. So, everyone here wants a rental that is nice enough that we can at least imagine or even pretend we own the place.

        I hope someday the urban growth boundaries are extended and that developers start building low-end houses here again. I have to say that I would love to stick it to the horrible investors who are driving up housing costs. I will relish the day the value of rentals plummets once people can afford to start buying their own homes again.

        • It does make a difference, but you still don’t want to over improve too much. Even in high-rent rentals there’s still the risk of your rental getting trashed. However the risk goes down proportional to the amount of pre-screening and background checks. Also the more income producing a tenant is, the more responsible they are. Not always, but often. Mainly because they have more to lose when they act badly.

  4. What right does a long term month to month tenant have ?
    The landlord did not serve a written eviction notice and landlords son is letting the tenants know the property is already In escrow and they need to move. Rent has currently been paid till the end of the month.
    Tenants do not have the funds to move. Property is in California

    Any advice would help

    thanks !

    • You should take your contract to a lawyer and have that lawyer determine if the landlord followed the rules of the contract. I can’t legally advise you on specifics because I’m not a lawyer. However, I can give you some general information about the lease agreements I use.

      If you were in one of my rental houses, in a lease agreement with me, the landlord, and I sold the house while the agreement was still in effect, the new owner would inherit the contract and be obligated to follow it, just as you would be obligated to pay the new owner rent instead of me, the old owner, for the life of the contract. In your case, if it’s a month-to-month written the way mine are, then the life of the contract is only 1 month with an option to renew for another month if BOTH parties agree.

      Since you can’t force someone to be in a contract unless they want to be, the landlord has just as much right to not renew it once it expires as you do. It doesn’t sound like the landlord is evicting you, but is just simply not renewing the lease agreement for an additional term and letting it naturally expire.

      One thing you may want to do is contact the buyer. If the buyer is going to rent the house, they may agree to rent it to you.

      I wish you the best of luck, but keep in mind, if your landlord is letting the agreement expire, it probably has more to do with the sell-ability of the house than it is a reflection upon you. While it is an inconvenience, it shouldn’t look as a black mark on your record because the contract expired as written.

  5. My cousin is renting a family room at my brother’s rental property at the amount of $500.00 since 2006. No increase was made up to this date. For the last two months he is is not paying his rent and not paying utilities since November. He was given notice to vacate for non payment . According to him , he will not vacate until my brother give him $5,000.00 and look for he’s new place , and was even saying thats the law says for tenant like him. My brother decided to sell the property. Is this the best way to get rid of him? And is he right saying that my brother will need to give him $5,000.00 and even has to look for he’s new place? What advice can you give us since my cousin is not cooperating with him?

    i forgot to tell you that my brother and my cousin has no written contract only verbal contract.

    • Maryl:
      My advice to you is stay out of it. No matter what you do or what you say, one family member will be mad at you. If you stay out of it, Thanksgiving dinner may be more enjoyable.

      So your cousin is trying to convince your brother that the law in your state requires the landlord pay the tenant $5000 AND find a new place for the tenant to live in if the landlord wants the tenant to leave? Is he having any luck getting your brother to believe that? To get rid of your cousin, your brother needs to contact a lawyer and get his advice. I doubt your cousin will leave willingly. If your brother wants to sell that property, he’ll have to do it without your cousin. I’m sure your cousin will do his best to scare off buyers and prolong your sale.

  6. My inlaws have rented a home for over 16 yrs and the havent had a lease in years. The owner wants to sell, he has even verbally agreed to give them the home if the kept up with the payments on the mortgage he has left, they agreed. He now has a 3rd person involved who doesnt want my inlaws to walk way with it and is back to showing the home, stressing my them out. Their in CA do they have any rights since they lived there so long. Thank you in advance.

    • Silvia:
      This is definitely a question you need to ask an attorney familiar with California law. I would think you’d need more than a verbal agreement to transfer ownership of a home and I can’t see how renting a home for years entitles the tenant to ownership rights.

  7. We are on the other side of the equation: My husband and I are renters, and we want to buy our house. How do we convince the owners to sell? First off, we don’t know if we qualify for financing, but I think we might. It’s been difficult to get into talk to the bank because of our work schedules. We are not even remotely interested in FHA loans, but I think we may be able to qualify for 5% down conventional. I’m not sure how much of a detriment our student loans will be, though. We currently have about $26K in savings, and we are able to save at a rate of about $1000/month in addition to meeting all our financial obligations (student loans, rent, etc.). I would expect this house to sell for around $260K, and the Wells Fargo mortgage calculator estimates closing costs on both a 5/1 ARM and 30-year conventional loan to be around $5000. Although we would prefer to have at least $10,000 in savings after closing, we think that now is such a good time to buy that we would even feel okay spending $18K of the $26K to get this house. We have excellent credit (FICO around 800); however, my husband has $65K in student loans from grad school, and we’ve only been at our jobs for a little over one year. Fortunately, we have no debt other than student loan debt. Part of our hesitation with meeting with a mortgage loan officer is that we are very protective of our credit scores, and I’m worried about what a hard inquiry will do to our credit. If there’s absolutely no chance of us qualifying for a conventional home loan, I don’t want us to risk ruining our credit in the pre-approval process. We are not interested in moving right now because we would have to pay a hefty penalty to break our lease. Moving is also expensive, and it can be such an enormous headache. Frankly, we’re so busy with our jobs lately that we simply do not have time to move. The only benefit of getting pre-approved right now would be if we were to buy THIS specific house.

    I don’t know if the owners would be willing to sell. Home prices are increasing dramatically in this area due to heavy investor activity, and I’m sure they will be able to sell for a higher price next year; however we would like to buy before the interest rates skyrocket. It may be difficult for us to compete with the investors who are buying all the low-cost properties (and by low-cost, I’m talking $250K-$350K) in the area and turning them into overpriced rentals when it comes time to buy a home. We have a very good relationship with the owners of our house. They originally bought the house for their aging mother so that she could live closer to them. She subsequently passed away. I know the house still has quite a bit of sentimental value attached to it, and I’m hoping that the owners may want to sell to a family rather than to an investor. But, I don’t know that for sure. Money talks, after all…

    What would be the best way to let the owners know we are interested in buying the house? Would it be a bad idea to even try to broach the topic before we’ve secured financing? We want to offer a fair price, but I’m afraid that they could ask for much more than the house is worth if we seem too interested… Also, if we buy the house we’re renting, would we automatically get 100% of our security deposit refunded? (That would help out with the closing costs a bunch!) How do we convince the owners to sell when they know we are already locked into a lease and that we have to keep paying them rent for another year? A mortgage with PMI, taxes and insurance would probably cost us about $300 more per month than what we are paying in rent, BUT we would end up saving money because, right now, we are not only paying rent, but we are also putting a good chunk of change into saving for a downpayment each month. Buying the house could actually free up about $700/month for us to put into saving for something else or to increase our home or student loan payments. Although this house is too small for us to stay here forever, it is a nice starter home. We would like to start a family soon, and, while this house would be fine for babies, I think we will feel cramped with more than one kid or with older children, so that is another reason for us to buy sooner rather than later. I figure that, if we bought this house at slightly above fair-market value, in about three or four years, we will have built up enough equity to move to a very nice “forever” home. By that time, our student loan debt should also be significantly reduced. It’s very hard to find homes in this town in the expected price range of this house. We’d like to take advantage of whatever opportunity we can to buy this house while interest rates are still relatively low.

    • Don’t approach your landlord until you know you can get a loan and include all that info with your offer. Regarding your landlord asking for a high price? That happens often when you want to buy something someone isn’t considering to sell. It may take a higher price to entice your landlord to sell. To be persuasive, you’ll need a compelling argument. And that means an enticing price. Before talking price, determine the max you’re willing to pay and stick with it. Don’t let desire and emotion get you in trouble.

      • Also don’t put yourself in a financial strain either. If you can’t get a lone then start paying off debt. You have time since your landlord isn’t thinking of selling right now.

  8. My daughter and son-in-law are leasing to own a house they don’t have a contract been there a year. My son-in-law did all the repairs on the house put front and back railings on porch too, put a deck, shed, swimming pool, new toilet, new bathroom sink, new range, new dishwasher, and put carpet in living room. The owner didn’t pay him for the repairs or appliance but, she just sold the house and the realtor told my daughter she has to leave everything they put into the house all appliance, toilet, sink, carpet. The realtor wants to put into a contract they get pay $2,500 for everything if they move out this is not any half of what they pay for everything. What should they do?

    • Rhonda:
      First of all, I’m so sorry to hear about your daughter’s situation. For the record – never …. NEVER …. N-E-V-E-R buy or lease a home without a written contract or spend a dime remodeling a property you don’t own. Normally I’d say their situation depends on what the written agreement states, but you mentioned there is no written contract. The only thing I can suggest is have them seek a lawyer. In a situation as serious as this, you need to ignore everything you read on the Internet, including my advice (except for the never stuff), and hire a lawyer who specializes in real estate contract law.

      If the agent is willing to pay your daughter for the improvements, maybe she can show the receipts and get a higher amount at closing. You’ll probably take a loss considering that they’ll probably deduct wear and tear, and age of the improvements, which is pretty common in appraising value. The fact that the agent is willing to work with your daughter is a good sign. I’d meet with the lawyer to see what rights you have, then meet with the agent to get a larger payoff and hopefully you can avoid having this go to court. Be willing to make the house show-ready, and cooperate fully with the Realtor trying to sell the place. This will only work in your favor. Any hostility shown on your family’s part will only hamper the negotiations.

  9. We are selling a condo we ask our agent not to notify our tennents of the sale untill the day we close because we have had three buyers back out and if out tennent moves out then we could be left with an empty condo we found out that the buyers agent contacted our tennent 2 days before closing and told him he had to pay them rent in three days. Is that leagle

    • But is it smart. I’d inform them of the sale. By being able to show the unit, you can get a higher price if it’s in good condition and you can assure the tenant that the lease will be honored by the new owner. I’d rather have my tenants hear it from me than a stranger. Who knows what they would think if the news came from someone else. This is the time you and your tenant need to trust each other.

  10. Hi, I have family members (aunt and uncle) who have been renting a house for 10 years. They pay around $900 a month in rent. This is around 105K total they have paid to the homeowner. My aunt recently told me they are moving and the owner offered to sell them the house (I do not know how much) and apply half of their rent toward the sale(that would be a little over 50K). I looked the house up on zillow and see it’s worth 48K. But, I also saw on zilow that houses in the area have been selling for around 38-49K over the last few years, and now they are selling for around 78K– even though some are still selling for between 38K-49K.

    Based on this, I am assuming the owner is, understandably, looking to sell because the market is picking back up.

    But, the house needs repairs (which can be noted from just looking at it) and I don’t think the owner can sell it as is, unless it’s to an investor who will probably flip it and/or rent it. My relatives are now looking to rent another house in the same rental range.

    My aunt and uncle are older and I do not think they know about the value of the home. If they were to agree to buy the home from the owner, what kind of financial leverage or negotiations can they apply, considering the home needs at least 15-20K in repairs? From my estimate, even if the owner were to sell the house for 78K, my relatives can get him to reduce this for the repairs and deduct a percentage of the rent payments, considering they have already technically ‘paid’ for the house. What do you recommend my aunt & uncle need to be prepared to ask the owner for or hear him ask them for?

    • Liza:
      First of all, this is a fixer-upper. Is a project like that something they are willing to undertake? Second, Zillow’s zestimate may be based on older data and may not reflect the current trend in market prices.

      Basically, they need to hire a Realtor to find out what the home is worth, determine if it’s worth buying, how much it will cost to fix up, and to help them make a reasonable and competitive offer based on all the findings.

      If they’re in one of the areas we represent, they can find an agent capable of doing the things I mentioned, by using our free service.

      Hope the info helps.


  11. Selling your property to your tenant is very easy but turns out a bit difficult when he becomes your good family member, and you don’t want to put him in a dilemma. Tenants many times want your property as they become comfortable with the environment.

  12. Should a tenant who’s been well-paying and been maintaining a property for many years, be able to get a better deal if he now wants to buy? Better than market rate, and how to convince the seller to sell at this lower price, given the fact the landlord/seller has never so much as looked at the property in years?

    • Marcia:
      Given the way your question reads, I’m assuming you’re the tenant. Sounds like a nice idea, but I doubt the landlord will go for it. It’s hard to entice someone to sell a home below market rate and it’s nearly impossible to talk someone into selling below market that isn’t even thinking about selling. Since your question uses the term “should,” I’ll answer it as if it were a requirement or entitlement. I’ll also assume “maintaining” means keeping it clean and taking care of the condition, excluding purchasing upgrades or improvements solely at the tenant’s expense. My answer is no. Being a good renter does not entitle the tenant to anything not agreed upon in the lease agreement.

      However, if you reword the question to “Can I ask for a discount” then by all means sure, go for it. What would it hurt to try. Just don’t expect or demand it because it’s not an entitlement. Keep in mind that a lowball offer will not entice your landlord to sell. I’m betting it’s not going to happen.

      At the same time, don’t fall in love with the property to the point that you’re willing to overpay for it either. There are lots of comparable properties for sell in a range of prices. Leave your options open.

  13. My husband and I own a rental home that our tax advisor instructed us to sell this year. The tenants do not wish to purchase the home due to financial reasons. They also do not want to move when the house is sold. My question for you: Is there a website that caters to investors that want to purchase income property that includes tenants?

    • Karen:
      I’m not aware of any site devoted to selling houses with a tenant, but agents are versed in handling these situations. You have a few options.

      1. Wait til the lease expires and not renew it. Follow your lease’s rules regarding termination, including proper and timely notice. This ends the lease agreement on good terms and is the easiest option that leaves the tenant few matters of recourse. After all, you’re not terminating the lease, just not renewing it after it expires. There’s a big difference.

      2. Use “Cash for Keys” option. Offer your tenant anywhere from $500-$1000 if they agree to terminate the lease.

      3. Sell the house with the tenant understanding that the buyer also inherits the tenant while the lease is in effect. I’d use an agent for this that specializes in investment properties.

      For more advice, go to On that site they host a forum that’s full of information shared and discussed on the forum by landlords who frequent that site. I’m a regular reader and commenter there.

      Hope this info helps.


  14. I have a paid in full property (no mortgage owned, no liens) that I am renting at the moment, but I want to sell it….the only option I have is to offer owner’s financing (10% down payment, 8% interested for 8 years)
    In this case, who gets to keep the tenant’s rent? Me , until the buyer pays in full?
    Who pays the property taxes? Who pays the monthly maintenance fee?
    If the buyer chooses to live in the property, does he/she pays rent+the mortgage she will own me?
    What about squatter law? If she pays taxes for 5 years, wouldn’t the property be transferred to the buyer’s name?

    • Kelly:
      First of all, why is owner financing the only option? Can the buyer not find a bank-loaned mortgage? Second, I’d ask for more of a down payment. I’d want at least 20% and would even consider dropping the interest rate to cover it. You need a higher down payment to cover the risks of the buyer not paying and forcing you to foreclose on the house. Anyone willing to pay 8% interest probably has poor credit otherwise they would have gladly gotten a loan from a bank for half that. Poor credit = high risk.

      Regarding your questions, remember, I’m not an attorney nor have I read your loan agreement. You should consult with an attorney and have them create the loan docs. This isn’t something you should do yourself. I think you’re confused about selling verses renting. Once you sell the house, you no longer own it. Unless your loan agreement states differently, you are only entitled to receive a mortgage payment if you owner finance, until the loan is paid. Think of yourself as the bank holding the note. That’s all you are from now on.

      Who gets the tenant’s rent? They do, because they own the house.

      Who pays property taxes? They do, but you are also at risk of losing the loan if the house gets foreclosed on by a taxing entity. You have two options, write the note so that you make the payment but the payments are added to the monthly note. Or you can let them handle everything and make sure you call the taxing entities to be sure they paid the taxes. Some of counties have taxes owed or paid info online.

      You should have the same worries for insurance payments too. If they don’t insure their house, and it burns down, you’re going to be left holding an unpaid note. Make sure they send you copies of insurance payments and a copy of the coverage policy to ensure they have adequate coverage to rebuild, or at least pay their note should their house suffer a catastrophe.

      Regarding maintenance fees, homeowners associations can foreclose and file liens against properties for unpaid fees. You need to make sure those are paid too. You can either ask for receipts or pay them yourself and add it to their monthly note so they’re reimbursing you for it. However, HOAs are easier to communicate with so I’d ask them to call you and send you copies of payments and maybe that would suffice. Depends on your experience with the HOA and how willing they are to work with you.

      If buyer chooses to live in property….
      These last questions make me think you’re confused about what’s happening. You’re thinking like a home owner, not a note (or mortgage) owner. I’m assuming they would either live in it or rent it but it doesn’t really matter since they own it.

      Squatter laws? Once you sell it, the person you sell it to owns it. It’s theirs. They aren’t squatting in your house, they are living in the house they purchased. You are only entitled to a mortgage payment. Make sure a lawyer prepares the loan docs and make sure the attorney files the loan docs with the county clerk to make it legal and public.

      If you can find a buyer that can get a loan with a bank, I think you’d be better off. You might not get as much money as you would with an 8% note, but you’ll have less hassle, worry and risk. Either way, make sure you get an attorney to prepare the paperwork.

    • You have to follow the procedures you and your tenant agreed to in the lease for the time frame specified in the lease. If the lease time frame has expired, then it may convert to a month-to-month, as specified in your lease. If it’s a month-to-month, you can follow the leases’ nonrenewal procedure and notify the tenant that you will not be renewing the lease and that will give them probably up to 30 days to vacate.

      If you have several months left on the lease, you could work with the tenant and offer them $500 or $1000 incentive to leave early. But, as long as the lease says they have a right to be there then they have the right to be there for as long as the lease says.

      When selling, communication is the key to a successful conclusion.

  15. I am a home owner and have a lease purchase agreement in place including possible owner finance as soon as they build up their down payment -f all lease payments are on time for three years. It is a small town and they have family there. There are no rental properties in the town – so if they change their minds and move and lose all their money they put in – not a problem. I want to sell to an investor. There never has been a mortgage on my part – do not owe anything. I am older and want to get some money now. How can I do this and is it ethical?

    • There would be nothing ethical or legal about it if you ignored your current contractual obligations. You’re under a contractual agreement already for the sale of the house so you can’t try to sell it out from under your current buyer that already has a contract to buy and is fulfilling that contract.

      Legal and ethical way to do it is to be completely honest with the current tenant/lease to own buyer. Explain you need the cash quickly and ask if they can buy it now or would they be willing to terminate the lease to own contract and convert it to a regular lease. Keep in mind it’s completely their option. You have no power here if they’ve lived up to their part of the bargain. You may want to offer them a cash incentive to entice them to do something they don’t want to do, or a discount on the house if they buy now. But remember they are within their legal rights to refuse to change the current contracts.

  16. I have a month to month renter who is now wanting to buy the property. I’ve always looked at this property as part of my retirement…I have the monthly income and still have the “principal” of the actual property if I ever sell it. How do I come up with the value of this property? I would assume it is a bit different than a residential sale… is there a multiplier of sorts to use? Many thanks.

    • First of all, why are you selling? Ask yourself, would you sell this property if the tenant wasn’t making an offer?

      I think your comments leave me to think that answer would be no. You could price it based on a rental income multiplier but the multiplier number is unique to your specific area. You’d have to have an agent run comps to determine the multiplier range of your market area.

      However, you don’t have to do that nor do I recommend selling the house as a rental. Selling a property as an investment property limits your buyer audience, and all investors are looking for a deal to make their numbers work out. You’d sell at a lower price if an investor bought it.

      In this case, if you’re selling to the current tenant so none of the issues of buying a house with an existing tenant apply since the tenant would then become the homeowner.

      I’d price it based on the houses sold and for sale in your neighborhood, similar to yours in size and features. The solds tell you what a buyer was willing to pay for it, and the currently active listings show what sellers are hoping for. The right price is somewhere in between the highest sale and the highest priced current listing. Of course that’s only part of the equation. You also need to make adjustments in that price based on how the condition and features of your property compare to the others that are for sale around you. It’s best not to be the highest priced home for sale.

      Now, pause for a moment, and step back. Take a good hard look at that price and ask yourself is this price worth it to you to sell this house? Could you use the funds to buy another house with greater returns? Could you use the money for another type of investment offering similar returns? Are you interested in reducing your rental portfolio? Lots of questions to ask, but be sure to ask yourself these questions and be sure of your answers before offering the tenant your price.

      If you’re only offering it to this tenant you can up the price a bit to see if they’ll bite. After all, you’re a hesitant seller and he/she is a willing buyer. Also if this tenant has a successful track record of paying the rent, you may consider holding the note, but I wouldn’t hold anything but a 1st position note and be sure to file those loan docs with the county clerk so your loan is of record and proven 1st position. 1st position means that you’re the first person in line securing your loan with the property as security. First position loans are satisfied first if the house is sold, everyone else gets what’s left over based on their position. That’s why second mortgages always have higher interest rates. Before doing owner financing, make sure you consult with a lawyer and have them write up and file all the documents. Also make sure you get a large enough downpayment so you won’t get burned if the value of the home drops or if they don’t maintain it properly. You also need to make sure they maintain and keep current their home insurance and remain current with their property taxes. That’s very VERY important.

      Hope these ramblings help. Don’t feel you have to sell just because the tenant wants it. Offer a price that you love more than that house and that would give you an opportunity to invest in something that offers greater returns than that rental. If you can’t profit from the sale or use those funds for an investment with greater returns then why sell? If they don’t take it, then you still have the house. You don’t have to offer them a deal. You may like note holding, but it has it’s own risks, responsibilities and rewards however no one calls the bank at midnight if their water heater springs a leak or if the HVAC goes out.

      There are a lot of hot markets out there right now and if you’re in one of those markets then this is a good time to sell for a premium. I sold one of my rentals in the Dallas, Texas market. The price was just too good to pass up. Best of luck and don’t feel pressured to do anything you don’t want to.

  17. Im a tenant n landlord is selling house. The realtor is a personal friend and i was informed by realtor that she has to fully disclose my personal info. Now this house is falling apart and needs alot of repair n has alot of mold. Landlord promised n promised n promised repairs n never got done. Imy kids n i have been in n out of hospital with asthma attacks due to mold in house n was only paying partial rent bc repairs were not being done as promised. Is it ok for realtor being a personal friend of old landlord disclose that to the new investor? What does the old neglective landlord have to do with the new investor if they willing to make repairs?

    • The reason the landlord’s Realtor needs to disclose your personal information to the buyer is because the buyer, if they decide to purchase the house, will also be purchasing the remainder of your lease. They have a right to know your payment history, conditions of the lease, and your ability to pay. Once they buy, they’ll have a right to all of the info the current landlord is privy to.

      Regarding the condition of the home, the Realtor and seller MUST disclose the condition of the house. You, as a tenant, also fall into that disclosure.

      Not sure about your question of what does the old landlord have to do with it. As long as they own the property, they have everything to do with it. Once they sell, they will not longer play a part in the process and you will then be under the new landlord’s operation.

  18. I am living in a house owned by very distant family. I have only been living there 8 month. The owner stated that he would let me live there until his retirement in 5 to 10 years. The house is on 120 acres, and he just wanted someone around to watch over the land. His previous tennant was nasty and a thief. The only contract signed stated I could live there, make repairs (much needed, the house was not liveable). This was done so that I could get water, power, gas, etc. in my name. He secretly had the house and land up for sale, and now has an interested party. What rights do I have? I have spent several thousand dollars just to get the house liveable.

    • Karen:
      I’m so sorry to hear that. You should never ever spend any money maintaining or improving someone else’s property. The only thing I can suggest is that you need to hire a lawyer. Does the lease mention anything about you getting paid for your contribution to the repairs from a tenant’s perspective? Can you prove he hired you to undertake the repairs? If you did this as a job, could you put a lien on the property that would be settled out of the proceeds of the sale? These are all good questions I’d talk over with a lawyer. And you should do that before the property sells.

      • Thank you for your response. There is the contract that I signed stating I could live there and make repairs. I do have all receipts from the repairs and materials. You gave me some ideas on how to recoup my money. I knew it was somewhat of a gamble going in, but was verbally told I could live there at least 5 years, so I gambled. Lesson learned.

        • Sure, the contract says you have permission to make repairs, but does it say anything about reimbursing you for those repairs? That’s the problem I see. Did you contact a lawyer yet?

  19. Hello, Bill.

    A month ago I purchased the condo I was renting. Three months into my lease, the landlord decided to put it on the market. I was given first refusal, and chose to buy the unit. Am I correct if a rental property is old while a lease in place, that the security deposit paid by the renter should be transferred to the buyer? In this case I am both the renter and the buyer. I ask because I’m not entirely sure of the legal parameters for this and my seller is no refusing to return the security deposit to me.

    • Take a look at your HUD1 statement. Does it say anything about the deposit? Either it was deducted from the price as stated on HUD 1, or the landlord owes it when the lease agreement is terminated. Or he’s supposed to transfer it to the new landlord. Either way, he should give it to you or show you how it was spent on repairs and damange (not really applicable in this case). There are strict laws regarding deposits however, they are different in each state/county/city. Ask the title company if it was deducted from the price. If not, ask the former owner for the deposit back. He’s required by law to refund it or account for it.

  20. I have a quick question as a tenant. Our landlord had just announced they are selling the home, due to their own personal reasons. We had been here for over two years and accumulated things from my grandmothers house so the house is cluttered. We were planning on buying a home anyway so her selling it is really the issue, her realtor wants us to be available to leave for all the showings and also stage the home. We have three young boys and having to explain to them why we need to get rid of 90% of our home for a little over month is complicated. As well as us having to pay for the storage while paying for a new place to live. I don’t mind helping my landlord by any means, but this is extremely convenience my family. Do we have any rights in this matter, if the realtor wants us to dump all this money shouldn’t they be paying for it? We will have to pay our rent in a home we can’t den have the things we own in.

    • Both you and your landlord have rights in this matter. However, you also have leverage given their need to sell. Here’s the way I’d look at it. You know you’ll be moving shortly. You’re going to be packing up all your stuff to move anyway, why not do it now? With strangers going through your home, you’d be better off moving all your valuables into storage anyway. You have two big bargaining chips that you could use to come up with a mutually beneficial solution. 1. Staging, provided they pay for storage to store your goods for 6 months, and 2. depending on when your lease is up, you may want to offer them a chance to end your lease early, when the house transfers ownership so the new owners can get an unoccupied house. Both of these things will help them sell their house for more money in a shorter time. If you can handle the inconvenience of this, you could use this as leverage to get free storage, your security deposit back, and paid for movers to help pack and move a majority of your things to storage. In return, you’ll maintain the staging, keep the place clean and show ready, and make your family available to leave at short notice for any showing. You can also offer to end the lease on the closing date.

      Another option would be for you to allow them to end your lease early, without penalty, and you would move to a new place immediately. This would remove you from the problem and would allow them to sell without delay.

      Another option would be to buy the home yourself. Maybe you could get it at a discount since it would be an easy sale?

  21. I’m renting and I have signed a year lease,before we because tenants our landlord had her home for sale and it didn’t go through,she then decided to take off the market and rent to my family,we moved in signing a year lease,about 5 months after living there she decides she is going to sell the home to the previous couple who had wanted to buy(they were approved for a loan finally) and is telling us we need to move asap,what do we do?

    • Jamie:
      Tell her no way. Then ask for the buyer’s contact info. They will become your new landlord. I’m betting that the buyer probably has no idea you’re renting the place. The new owner has to honor your lease as long as you abide by it but doesn’t have to renew it. If the new owner doesn’t want to be a landlord, offer to have her buy you out of your lease. You could ask for $1k or more to terminate the lease. Be sure to give yourself enough time to find another place and move but it could be a win for both of you. Make sure you make this offer before the closing date. The buyer may want to adjust the offer price or back out entirely.

  22. Question- we are living in a house for 15 years and owner ask if we could buy our house for a price that is really manageable, however we tested our house and it was positive for seven deadly black mold will the bank allow us to buy this house anyways because we had lived here for so long or is that has any bearing on it? In our state of New York and Franklin county I believe you cannot sell a house with mold.

    • You’ll have to check with a local agent that knows the laws in your area and the bank to see what they’ll allow. You may want to add mold remediation into the offer so they can solve the problem for you before closing.

  23. As a tenant. What can I do with a fixed lease agreement. Our lease term isn’t to end until September 30, 2016, but as of the 29th of April my landlord came over to inform us that we need to vacate the property by May 29th 2016 due to they have sold the property. I have asked her for our deposit so we can place it on a new place and she refuses until we move out completely. What can I do when she’s breaking our lease?

    • Crystal:
      You need to read your lease. Does it give him the right to do this? If not, you have no legal reason to leave. When a rental property sells, it sells with the tenant and lease. The new owner becomes your landlord, at closing, the deposit is handed over to your new landlord and your new landlord must abide by the current lease until either it expires, BOTH parties agree to terminate, or one party fails to abide by the lease and the other party wishes to terminate. Be sure to stay current with your rent. If the current owner REALLY wants you to leave, tell your landlord that you’ll agree to leave if you get the entire deposit plus $1000 or whatever amount will pay for you to move and get a new lease property, and maybe a few bucks extra for your effort. You’re in control unless there’s a provision in the lease that says different. You don’t have to do anything except abide by the lease terms.

  24. Question:

    State of CA- Residential Real Estate:
    Buyer and seller in contract – 45 day escrow, renters occupying home- all very agreeable -to include all.. Lease allows renter additional 5 days into a new month. Buyer will save a large amount of money by closing month end.

    Renter has place to go -and dates all in effect. Renter, seller, buyer all in agreement with current lease and situation. Renter’s lease agreement- all want to adhere to!

    5 days in limbo? Seller in possession Agreement? at COE? – but allowing renter to remain in house ( 5 days- 4 actually- 1 day full maid service 5th day).. If Tenant in possession agreement- means transfer lease, renter insurance to new name – renters deposit..- utilities.specified- as all in current lease and acceptable to buyer and seller. etc.
    Repairs are done, contingencies removed, loan is ready for docs..
    Buyers i agreement -walk through 1 day prior to close and will agree to – as is at that point- seller deal with renter.. Buyer will deal with renter should anything not be acceptable after close.
    This is clean and seamless… BUT?? is this too risky?
    This has been easy from beginning- all have been in agreement with all from day 1 renter is very easy and cooperative.. has been throughout and continues to be?
    Legal words of wisdom- legal paperwork?

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