There are plenty of reasons to sell your rental property. Maybe you’re moving across the country, and you don’t want to manage your property from a distance. Or you’re not able to charge enough rent to cover the mortgage. Whatever the reason, you have the right to sell anytime.
But if renters currently live in your rental, you should keep certain things in mind. Start by revisiting the lease or rental agreement you all signed (hopefully you all signed one!).
If your renter is renting on a month-to-month basis, give them proper notice. Mail or deliver a letter to your renter 30 days before you’d like them to vacate your rental property. The required notice period varies from state to state, so check your state’s laws.
In this situation, you don’t need a reason to terminate the agreement. (That’s why it’s called a “no cause” termination.) It’s one of the main benefits of having a month-to-month agreement. And you don’t have to tell the renter why they need to leave, but of course you can, if you want!
Take these steps:
- Send a letter. Make sure the letter has the date on it. Let your renter know that their tenancy will terminate XX days from the date of the notice or next rent due date (depending on your state).
- Let your your renter know they should remove all their possessions and return the keys to you on or before the last day mentioned in the notice.
- If they don’t move out on that date, start the eviction process.
Fixed-term leases require more planning, because they don’t end when a property changes ownership.
Here are five options for moving forward with a property sale if you have a renter with a fixed-term lease:
1. Wait until the lease expires
This is easiest approach: wait to sell the property until the lease expires and your renter moves out.
If your renter has violated any lease terms, you can terminate the lease faster with proper notice. Valid reasons for a lease termination include, but aren’t limited to:
- Failing to pay rent
- Engaging in illegal activities on the property
- Violating a no-pet clause
- Subleasing if prohibited
- Causing serious property damage
- Being a nuisance to others
- Falsifying information on the rental application
2. Sell the property with an active lease
This option limits your prospects, because you’ll need to sell to someone who knows renters are living at the property (and they’re okay with that). That means the buyer would need to be someone who wants an investment property, and that can be limiting for you as the seller.
In almost every state, the lease and security deposit must be transferred with the property, and the new owner becomes the new landlord. In this case, it’s important the new owner honors the renter’s lease and lets them live there until the lease expires.
3. Pay your renter to vacate
If you want to sell right away, and your renter still has several months left on the lease, you can try to negotiate a settlement. This tactic is called “cash for keys.”
It can be tricky to decide how much to offer. Here are some ways to arrive at the right figure:
- Make up the difference: See what comparable properties charge for rent. If those rents are more than what you’ve been charging, offer to pay the difference between what your renter will likely have to pay and what they’ve paid you, times the amount of months left on the lease.
- Moving costs: Offer some money to help your renter move.
- Pay their security deposit: Offer half of what your renter would need to move into a new place, which is usually the first month’s rent and a security deposit.
- Whatever you can afford: It comes down to how much you want your renter out early, and how much you can afford.
- Keep in mind that the renter is under no obligation to agree to your terms. If they say “no,” you’ll need to wait until the lease ends to sell the property.
4. Sell the property to your renter
Offer to sell the property to your renter. You could allow them to get financing on their own, or offer a seller-financing deal, which is a type of transaction where you become the lender and your buyer (the renter) makes payments to you so they can buy the property.
Seller financing is especially attractive to long-term renters in good standing.
Typically, you need to own the property free and clear—or get approval from your mortgage lender—to do a seller-financing deal.
5. Terminate the lease early
Does your lease have an early termination clause? If so, that clause might stipulate that the lease terminates in 30, 60, or 90 days after closing on the sale of the property.
In the future, when you’re creating a lease, know that the “trigger” can be anything you want, as long as it is reasonable, and both parties agree to it in the lease.
Let your lease determine your next steps. If you signed a fixed-term lease, and your tenants are on good terms, figure out what you can afford and what will work for your renters. Then sell, sell, sell!