Don’t let a tenant impact your real estate sale
Maximize your ROI while selling investment property with Tenants.
As an investor, a majority of your return can come in the form of price appreciation, but having a tenant as a non-incentivized participant in the sale can require a smart and nuanced approach to ensure that they don't hinder your ability to maximize your sale proceeds. Through the use of effective technology and unique marketing methods you should still be able to find buyers and get them emotionally involved in the property, in spite of the additional challenges to keep tenants happy and involved in the process.
Maximizing price while limiting liability
When selling with tenants in possession of the property, it’s not all about sale price.
The legalities around handling and managing this process can be daunting – you need to make sure the lease is followed exactly and that disclosures and notices to tenants are handled properly. Violating terms of the lease or impacting the rights the tenants enjoyment under their lease can be costly and it is best to involve a seasoned professional in this specific niche to handle sales where eliminating liability is just as important as maximizing price. Keeping tenants motivated and involved is important to acheive the most harmonious closing with the highest return. While you could just wait until the lease is up or see if there is an opportunity to buyout the lease, this could be costly and may leave massive amounts of rent uncollected. During the crash of 2007-08 selling with tenants became increasingly complicated as time spent on market expanded to months and investors needed to sell property without removing the tenant because they couldn't afford to lose rent that was critically important to pay property expenses and mitigate carrying costs.
The process of selling a rental property with a tenant in place.
- Approach and assess the tenants -- All tenants are different but it is always best to start assessing their demeanor and willingness to participate in the process and communicate with them with respect and compassion. The tenant is likely going to be upset as moving is often a painful process, especially if the tenant is really happy with the property and how you’ve been managing it. It is important to do everything to get the tenant on board and to gain their willing assistance to helping you sell your property. This can be accomplished in several ways and is often different for every situation. You can administer a credit or discounted rent for the time period where they will be inconvenienced. If the tenant is messy, compensation can hinge on a clean home during showings and an accommodating attitude when it comes to access. Some tenants can come unhinged when presented with this situation and can become obstinate and even combative. I recently had a tenant refuse interior pictures and do their best to restrict access. Your agent may need to get creative to align the tenant’s interests with the sellers and creativity to uncover mutual benefit can often best setup the terms for a peaceful price discovery and closing process.
- Prepare the property for sale -- While there isn’t a lot that can be done to improve the interior marketability of the property due to tenant control, it isn’t out of the questions to make some changes to how buyers will view the property. Have a big piece of furniture that makes a home look cluttered? Offer to pay the tenant to store it in the garage – sometimes a small change makes a big difference to buyers’ perception. Changes can be tied to incentives, but it is best to keep the modifications simple so as not to upset any goodwill that can be generated with the tenants.
- Use Technology to minimize impact on tenants -- At Reméo Realty, we’ve spent over a year and well over $100,000 to build a proprietary showing system which keeps tenants in the loop and empowers them to set showing availability that least impacts their ability to enjoy the property. While we try to funnel prospective buyers into friendly times for the tenant, it cannot always be accommodated. We employ HomeCaravan technology for every listing with tenants in place. Offering this to tenants along with having them sign a simple agreement will allow this platform to serve as the official 24 hour notice for entry. Empowering tenants to select times that work best for them can go a long way to making sure that they are working with you as opposed to against you in the sale. For information on why HomeCaravan is so effective in aligning a tenants interest with your interest, go to www.homecaravan.com
- Show your property's best features to prospective buyers – professional photography has become more prevalent in the real estate industry when it comes to selling property, but with difficulties and low availability due to tenants in place, it is increasingly important to really help prospective buyers understand the property prior to physically visiting it. There is a lot of extra coordination required to gain access to the home and comply with the terms of the lease. At Remeo Realty, we have an in-house staging coordinator, Amber Weirenga who visits with tenants to really put the best foot forward. A staging specialist is present during photo shoots and will arrange furniture and tenant belongings in order to stage the shots that will appeal to buyers looking at photos online. Outside of traditional 2d photography, we also capture video and 360° VR tours that really immerse potential buyers in the home. In addition, professionally prepared floor plans are created to help buyers understand the layout. Our agents will virtually escort interested buyers through the home day and night with our proprietary Peek in Tours Virtual Reality system. These virtual reality tours can be used with or without VR goggles and really increase the interest in your property. Here is an example of an effective tour with one of our tenant occupied poperties -- http://remeorealty.com/featured/21436-avery-ln
- Find buyers – you decided this property was a good investment, so others may as well. We have a large network of buyer clients who we manage property for and have assisted with acquisition and disposition of investment property. To date, we also have a list of over 18,000 brokers and real estate professionals worldwide who connect us to investors and relocation buyers across the US and abroad. Because access is limited, delivering the content to the most qualified buyers is VERY important and cannot be understated. A few months ago, my network produced a bidding war between a relocation buyer moving from the bay area and an investor in China. Neither buyer had physically seen the property prior to putting in an offer. Because of the VR tour, we had no issues and the eventual winner of the property found just what they expected when they arrived for their inspections and saw the property for the first time in person.
- Negotiate and close – agents who aren’t proficient in selling properties with tenants in place are often timid in their negotiations and typically just want the property to close in order to be done with what is a more burdensome sales process than typical owner occupied or vacant property. This is not who a conscientious investor needs at the most critical point to determine their final IRR. Make sure you really interview agents that understand how to insert themselves into this situation that requires a thorough knowledge on how to best conduct a sale with these unique circumstances
Do you have a question about investing in residential real estate or selling a property with a tenant in place? Feel free to ask below or to reach out to Christine DiCarlo, an experienced real estate broker who has handled countless transactions over her career with tenants in place and has written an acclaimed white paper on preparing property for sale and best practices on maximizing sale price in multiple offer negotiations.
About the author:
Christine DiCarlo is a 20 year Real estate veteran who is the broker of a boutique brokerage in Orange County, California. At the time of this writing, Christine has 4 listings with tenants in place and she is very successful with her approach to maximizing investor returns on acquiring or disposing of units and residential SFR rental property investments.