Best way to sell your Rental Property for the most money!
If you are a property investor, owning a rental property chances are that at some point you will want to ‘flip’ one or more of your properties. This may hold especially true in a hot real estate market, but can also be true for other reasons such as a sudden need for cash flow. Your initial response may be to put the rental property on the market as is, to try and sell it quickly, possibly with the tenant still in the house. Depending on several factors, this may not be the best course of action. Here is why:
Size of your market
If you are looking at selling your rental property with the tenant still in it, the most likely buyer for that property will be another investor. I don’t know how else to say this, but investors only look to one thing: the bottom line. By only marketing to the most frugal buyers, chances are you’re going to get low-ball offers. On the other hand, buyers looking for their first (or next) home will usually pay more than an investor. Plus, it’s a basic law of marketing: Sell to the largest possible market. This holds true for selling a rental property as well.
Let’s say you have a higher priced home and a need to sell. When you are asking over the $400k price point, purchasers will be families that are able and wanting to spend that amount and it is very difficult for a purchaser to see past the fact it was a rental.
Market Value VS. Rent Collected
Let’s say you paid $80,000 for your rental property, house or condo, and are charging $700 per month for rent. These numbers make economic sense to you. However, here we are, 8 years later, and the rental property is now worth $120,000, but the rent increases have not caught up with market value increases (especially in rent-controlled markets). Numbers that worked years ago, may no longer make sense to a new investor, unless he moves the current tenant out (which is very difficult to do during the duration of a lease) or increases the rent by 50%. So while you are trying to sell the property to an investor, the fact that there is a low-paying tenant who comes with the deal will actually work against you. A more expensive property with tenants needs to at least cover the majority of the mortgage payment and may not even included covering the expenses of property taxes and utilities.
Tenants can be disruptive
Tenants, especially ones who don’t want to leave the house, can be disruptive to the entire showing process. They are only too willing to point out any flaws, real or perceived, in the house to any prospective buyer. I’ve even had tenants who refused to open the door and allow showings to take place. At the very least, tenants can leave the rental property in a messy state, turning off potential buyers. When is the tenants lease agreement terminated? What is the possession date? Tenants cannot be kicked out of a home just because you need and have sold the home.
Sell the rental property in a vacant state!
The best course of action? Remove the current tenants, fix up the home and list it with a real estate agent. Now you will attract not only other investors, but also that home buyer looking for a great home. Opening the sale up to the entire market is the best chance at getting top dollar for your rental property.
Please feel free to call me direct to find out your best way to sell your revenue property.