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It is a must for a landlord to notify his renters if he wants to sell his rental property. The landlord should issue a “Notice of Intent to Sell” to let the tenants be aware of the imminent sale and their rights under local and state laws.
Typically, if there will be a new owner upon a successful sale of the rental property, the former tenants can still rent the property under a new owner with the same terms of the rental agreement, unless stated otherwise.
In this article, you will learn more about the “Notice of Intent to Sell” and the FAQs regarding the subject matter.
Is It Alright to Sell a Property Rented to Tenants?
Some landlords often ask whether it is okay to sell a property that is presently occupied. Yes, they can put a rented property up for sale, but landlords must follow regulations and recognize the rights of tenants before they can sell the property.
One requirement is to issue a “Notice of Intent to Sell” to tenants before listing the rental property. Rules and regulations governing landlords and tenants at the local level may require the former to notify the latter. If the lease provides that a tenant must vacate when the home is sold, the tenant must be given time to make an alternative living arrangement.
In this case, you should hire an experienced real estate agent when selling the rental property. Issues may arise regarding the sale of a rented property, and there may be a difference in the marketing strategy of selling a rental home compared to a primary residence.
Moreover, be mindful that the responsibility of property maintenance and repairs is on the landlord until the sale is complete. Never neglect the needs of the tenants or skip repair requests because it can tarnish your reputation and may even affect your property sale.
What are the Upsides and Downsides of Selling a Rented Property?
You can gain some advantages when you sell a rented property, particularly if you sell it to a fellow real estate investor. There are also higher chances that you can sell the rental property fast. There is greater demand for smaller multi-family properties and single-family rental houses.
Moreover, a rental property owner may also sell an occupied rental home at a good price since many investors are looking for tenant-occupied properties. However, you cannot discount the potential downsides of selling an occupied rental home.
For instance, it would be a complicated transaction if there were needed repairs to make the property viable for sale. It is also a disadvantage if you sell the property at a profit because you may have to pay capital gains tax or tax on depreciation recapture. Fortunately, you can use a 1031 tax-deferred exchange when selling a rental property and buying another.
It is a must when you sell a tenant-occupied property to weigh the pros and cons first. You can also consult a financial advisor, a real estate agent, or a certified public account before selling the property.
What are the Tenant’s Rights When a Rental Property is Sold?
A tenant renting the property under a fixed-term lease has the right to stay until the said contract terminates. The new property owner cannot change the terms, especially charging a higher rent. He should follow the current lease terms if the rental home is sold again.
If the lease terms state that the tenant has to pay every month (not a fixed term), the new owner can charge a higher rent or set new lease terms. He can also evict the renter with or without cause, provided local laws do not prohibit it.
Some state and local laws protect tenants when a rental home is sold. For instance, the landlord has to issue advanced notice to tenants when he wants to sell the property, and the landlord cannot evict tenants without due cause after a successful property sale.
How to Write a Notice of Intent to Sell?
The format of a notice of intent to sell is like a letter. You should give it to your tenants 90 days ahead of the sale date. Make sure to state in the letter the name of the property owner/landlord, contact information, and a statement of the tenant's right to stay in the property until their rental agreement expires.
Takeaway
If you have plans to sell your investment property, do not forget to notify your tenants beforehand. Keep in mind that tenants have the right to know about this matter. Moreover, consider the pros and cons when selling a tenant-occupied rental home. You would never go wrong in consulting an expert when selling a tenant-occupied property and following the tips we have discussed in this article may also help you.
