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Selling a Tenant Occupied Property

tenant occupied property in a nice neighborhood

Over $485 billion is spent on residential rental properties every year.

With over 27% of all Americans renting a home, rental properties make for some of the best investments. However, things can get a bit tricky if you have a house with tenants that you want to sell.

Tenant occupied homes can still be sold. In some cases, real estate investors are actually looking for tenant occupied homes for sale so that they don’t have to go through the effort to find someone to rent the place.

Interested in learning more about selling a rented home? You’ve found the perfect blog. Here’s everything you need to know about selling a rental property.

Rental Properties

Rental properties are a lot more common than you may think. With millions of Americans renting apartments and homes across the United States, rental properties have become some of the best investments for people looking to create a passive source of income.

Rental properties often refer to properties designed to be rented out in order to generate an income for the homeowner. While property companies purchase and rent out thousands of homes around the country and the world, many rental properties are individually owned.

This refers to families or individuals that own more than one property and wish to use their second property to provide them with an additional source of income. While these properties can be rented to tenants long-term, platforms like Airbnb have made it easier than ever before to rent to people on a short-term basis.

These kinds of platforms allowed rental properties to expand and become even more versatile investments. This also saw more people diversify their investments to include a second property specifically to rent out. While renting can provide you with a stable income, rising property prices may make you consider selling your rental property.

Should I Sell My Rental Property?

There are a few factors to keep in mind when thinking about selling your rental property. This includes the market condition, the amount of equity you have in the property, and the potential returns you could expect from the proceeds of the sale.

Property Equity

The equity that you have in the property refers to the difference between the home’s value and how much debt you still owe on the property. For example, if the property is worth $200 but you owe $100 on the home, your equity position is worth $100.

This effectively means that as soon as you sell the home, you need to send $100 to the bank or mortgage company, leaving you with $100 in profit that you get to take home. This is important as many people think that selling the home at $200 means that they walk away with everything.

Another factor to consider is capital gains tax. This tax is a levy placed on the profit or financial gain that your property has experienced while you’ve owned it. For example, if your home is worth $200 now but you originally paid $150 for it, the $50 gain is subject to tax.

Capital gains tax applies specifically to the $50 gain and can range from 0% to 37% depending on your personal circumstances. If you have held the asset for a long time, you won’t have to pay short-term capital gains tax. Short-term capital gains tax applies to people that made the initial investment within the last 12 months.

This tax is also dependent on the financial status of the taxpayer. Depending on the tax bracket that you fall under, you can pay between 10% and 37% in capital gains tax.

Potential Returns

If you rely on your rental property to provide you and your family with an additional source of income, you should consider how you’d deploy the proceeds of the sale to create another source of income. While the big sum of money may seem great at first, a regular, stable source of income lasts a lot longer than liquid cash.

The best way to go about this is to talk to a financial advisor and let them draft a professional portfolio for you. This can outline investments you can make along with the potential returns they can provide for you.

While most bank accounts offer 0% to 1% in interest, fixed deposits and ETFs can offer you far more in dividends and growth. The stock market is known to be unpredictable and risky, but many experts agree that general ETFs are some of the best investments you can make.

When comparing returns, remember to include all the costs associated with owning a home. This includes maintenance costs and property taxes. These costs are often forgotten but would be an extra saving if you were to sell your home and invest the cash elsewhere.

The Property Market

The most important factor to consider is the overall property market. The property market is known to grow steadily, but external factors can quickly increase the value of property in an entire area overnight. Property tends to heavily depend on the market and area to derive an accurate value.

This is why most property websites indicate what homes in the area recently sold to potential buyers. These prices are generally used to determine how much property is worth. If the price of property in the area is skyrocketing, it could be a great time to sell and stash the profits.

When the property price goes up, your equity in the home grows along with it. This means you can sell the home for more money and take more money home after paying off whatever debt you may have on the property.

Property prices fluctuate, which means what goes up can also come back down. This is another reason why you should capitalize on a seller’s market while you can.

How to Sell a Rental Property

There are many different ways you can sell your home. The most effective way to sell your home is to make use of online tools such as iBuyer.com. One of the most frustrating parts of selling a home is trying to filter through buyers to find the serious, qualified ones.

Platforms like iBuyer make this process effortless as they evaluate your property instantly with an accurate estimator and use the information you provide to match you with potential buyers that are looking for everything you’re offering.

This kind of service is more personalized than just posting an ad on a classified site. Personalization helps save you tons of time and effectively links you with serious buyers that are interested in viewing and buying your home.

Can You Sell a House With a Tenant in It?

If you have a rental property that has tenants in it, you can still sell the home. Many advise that the first people you should talk to about your intention to sell the home are the tenants. This is because they may be interested in making a bid for the place.

Even if your tenant does not want to move, you can sell the home inclusive of the rental agreement. This is perfect for buyers that want to purchase the home as an investment property.

This becomes tricky when the new owner does not want to rent the property but wants to live in it. In this case, the tenant would have to find another place to stay. 

How to Sell a House With Tenants

As mentioned above, it’s possible to sell a home with tenants living there. While there may be some extra paperwork to do, it can actually increase the price of your property to real estate investors looking to rent the place out. This is because they won’t have to go out of their way to find someone to rent the place from them.

If you want to learn how to sell a home with tenants, here are a few ways to go about it.

Offer the Home to Your Tenant

The first thing you should do if you plan to sell your rental property is to tell your current tenants about it. This is because they may be interested in making an offer for the place. As mentioned above, tenants often fall in love with the homes they rent and become used to living in the area.

This is why most renters end up buying the home they rent or a similar home in the same area. Even if your tenant does not have any interest in buying the home, it’s still the right thing to let them know in advance so that they can make alternative arrangements in case the home gets sold to someone who does not want to rent the place out.

In most cases, one to two months’ notice is ideal to let your tenants know that they need to find another place to stay. This depends entirely on the lease agreement that you have signed with them. If your agreement stipulates that they can stay for five more months, they are contractually allowed to stay for the remainder of their agreement.

Wait for the Lease to End

If you don’t want things to get complicated, you can simply wait for the tenant’s lease agreement to end before selling the home. This avoids any conflict with the tenant, as you would simply not renew their lease. This is also a better way to clear the home instead of having to ask the tenant to find another place to stay.

Most leases are between three and twelve months. This means that you can still advertise the property and even negotiate prices for the property as long as the potential buyer knows that they can only assume ownership after the lease agreement is completed.

This is also a great way to maximize the revenue that you receive from the property. By completing the lease agreement, you benefit from a few more months of rent while you try to find a potential buyer to take the property off your hands.

It can also help to find out what the new owner plans to do with the home. If they plan to do some renovations and rent the place out, it could be a good idea to introduce your tenants to the new owners before they move out of the rental property.

Sell the Property With the Tenants

Another option is to sell the property with the tenants and rental agreement in place. This effectively sells both the property and the lease agreement to a new owner. The new landlord can then collect rent from the tenant as soon as ownership of the property has changed hands.

This kind of deal is a real estate investor’s dream as they know how hard it can be to find a tenant that you can trust. If the home already comes with a long-term tenant, it’s almost a guarantee of income. This can even result in a higher price for the property.

Sell Your Tenant Occupied Property

Selling a property that already has a tenant in it can make the property appeal to real estate investors and even help raise the price. While there may be a few administrative tasks to handle to ensure everything goes smoothly, with the right help, there shouldn’t be any major issues.

If you have any questions or want to learn more about how to sell tenant occupied homes, feel free to contact us today.

iBuyer offers a wide range of services to help you save both time and money as you sell your home. 

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