05 Feb Selling Your Rental Property – When is the Best Time
Selling Your Rental Property – When is the Best Time
You own several rental properties as investments through ups and downs in the housing market. When you meet with your financial advisor, you always discuss whether to sell or hold onto those properties. Things have changed with your situation and you’re thinking about getting out.
WHEN TO CONSIDER SELLING
You’re moving out of the area
Being a landlord is often easiest when you live near the rental property. You can meet with prospective tenants or check-in with current tenants within minutes. Maintenance was easy because you could stop by on your way home from work. But when you need to move out of state for a job change or plan to buy a retirement home in another country, being a long-distance landlord sounds like a hassle.
You’re tired of being a landlord
It sounded so easy: buy a property, find good tenants, and collect rent. And for a long time, it was easy. But now your properties are starting to show wear and need repairs you don’t have the energy to make. Or perhaps the last few tenants were more of a bother than they were worth. You’re tired of dealing with late-night maintenance calls from your tenants.
You’ve been losing money
The neighborhood around your rental property has changed, and you’re not able to charge the rent you used to. Or perhaps you haven’t invested in upgrades to the property that renters in your area are willing to pay more to have. At the same time, property taxes have been going up.
Your investment partnership has issues
When you and partner began buying investment properties to turn into rentals, you got along just fine. But over the years, your relationship has soured. You decide to end the partnership by selling the rental properties you own together. Perhaps your partner has been your spouse, and now you’re divorcing and need to split assets.
The house suddenly needs major repairs
You had to replace the roof on your rental two years ago, and now the furnace is acting up and the water heater needs to be replaced. Your rental has gone from a money-maker to a money pit. The market is up and you have a lot of equity.
New rental competition
Your older property has been easy to rent out because there have been so few rental properties in the area. However, you just read in the newspaper that two large apartment complexes are going to be built in the same neighborhood. It might be difficult to compete with apartments that include all modern conveniences plus off-street parking that yours doesn’t offer.
You are asked to sell
You converted a large home into a duplex years ago, and have been able to keep it occupied with decent tenants. Now, the neighborhood is changing from mostly rentals to more owner-occupied homes. A couple hoping to buy in the area leaves a message with your tenant that they’re interested in buying yours and converting it to a single-family residence.
WHAT LANDLORDS SHOULD CONSIDER
So, you’ve decided to sell your investment property. But there’s a hitch: tenants occupy the property. A tenant-occupied rental can make or break the sale of your property. You can either wait until the lease is up and the tenant moves out, or get creative with incentives to gain their cooperation.
If you are marketing the rental property as a rental property, rather than an owner-occupied residence, having a good tenant can show potential investors that the property will be a good investment for them.
Selling to Your Tenant
You stop by to give your long-time tenants the heads up that you’re thinking about selling. The couple likes the neighborhood and has strong ties to the community, so they ask to stay. You can sell the traditional way or try another option:
- Request a non-refundable fee that gives your tenants the right to purchase the home for an agreed-upon price within a year. They have time to build up a down payment to buy while they continue to pay you rent.
- Draft a lease-to-own agreement with part of the rent going toward their down payment.
- If you don’t have a mortgage on the property, you may choose to finance their purchase of the home, with interest. The tenants make payments to you for an agreed-upon period of years.
Notify the tenant per the terms of their lease that you will not be renewing their lease because you are be selling the property. Make sure tenants are caught up on rental payments and be prepared to take legal action if they don’t cooperate.
- Month-to-Month Lease
If your tenants have a month-to-month lease with 30- to 60-days written notice, asking them to vacate may be as simple as sending them the notice per the terms of your agreement.
- Longer Lease or Unclear Lease Terms
Selling an occupied rental when tenants have a 12-month lease can be trickier. In most U.S. jurisdictions, the tenant has the right to live in the rental for the term of their lease and continue to live there after the sale as long as the lease remains in force, according to the legal site Nolo.com.
- Negotiating Lease Length
When you’d rather sell without a tenant, try offering them money to modify the terms of the rental agreement or lease to move out sooner. Help them find a new place to live and pay for moving costs and any rental deposits.
Give yourself enough time to clean and do any updates before you market the property as vacant. If the tenant refuses to leave, even at the end of their lease, you may have to evict.
- Showing a Tenant-Occupied Property
Your understanding that showings are an inconvenience to tenants can improve their cooperation. This is true whether or not the terms of the lease or rental agreement detail how the tenant is expected to prepare for showing the property. The legal advice site NOLO.com also recommends that you consider tenant’s rights under local and state laws, too.
If the property isn’t ready for showings, hire a cleaning service and take care of the yard while the property is being advertised for sale.
Give the tenant at least 24 hours’ notice that a showing has been scheduled, unless the terms of their lease specify more notice time is needed.
Ask the tenant to leave during showings. Offer an incentive, such as a reduction in rent, for their cooperation in keeping the rental tidy and removing pets from the home during showings.
FIVE REASONS TO SELL YOUR RENTAL PROPERTY
- You can invest the money elsewhere, with better returns
A good investor knows their ROI. Even when the property has been a money-maker, it makes sense to sell if a major employer is moving out of the area or you learn of another reason that will make it likely fewer rented residences will be needed.
- You have a lot of equity in the property
You bought low and paid cash, made a few upgrades, and have kept the property rented by good tenants. The market has changed, and the house is now worth several times more than you paid. Perhaps you should sell while the market is up because you never know what’s coming next.
- You’ll need the money soon
You bought two rental properties as part of your plan to pay for your twins’ college educations. Now, high graduation is just a few months away, and they’ve both chosen pricey private colleges. Or perhaps you weren’t ready to say goodbye to your childhood home and decided to keep it as a rental until retirement. You just turned 65 and qualify for Medicare, so you’re ready to say goodbye to your career and move south. It’s time to cash in on your investment.
- The property is taking up too much of your time
Perhaps you’ve been the maintenance person for the property, and you no longer want to answer those calls. You may have enjoyed keeping up the landscaping and painting when you were single, but now that you have young kids, you’d rather spend the time with them. Or perhaps your career is keeping you busier than you expected. Unless you want to pay someone to do what you did on your own time, it’s time to sell.
- You need the money now
If you’ve lost your job or have medical bills piling up due to an illness or injury, selling your rental property can provide an influx of cash to keep your family afloat. This is particularly true if you have a mortgage on the property.