Can I Legally Sell My Rental Property With Tenants in It?

Are you selling your rental property with a tenant still living in it?

If so, you already know that dealing with tenants is a complicated affair. Selling your rental property with tenants adds more complexity to an already elaborate process. In recent years, rents have been growing at a brisk pace due to low rental vacancy rates and an increased demand driven by high home prices, making it potentially attractive to landlords looking to cash out — and attractive to buyers looking for income by investing in real estate.

Whether rents grow or decline, you may decide that you no longer want to be a landlord. You may want a cash infusion, are looking for a new property, or are ready to retire.

You probably have many questions if you’ve been thinking about selling your occupied rental home.

We talked to an experienced property investor and a top real estate agent to gather tips and tricks about the benefits and drawbacks of selling a home empty versus occupied.

DISCLAIMER: As a friendly reminder, this blog post is meant to be used for educational purposes only, not legal advice. If you need assistance navigating the legalities of your sale, HomeLight always encourages you to reach out to your own advisor.

Can I sell a rental property with tenants living in it?

Yes, you can sell a rental property with tenants living in it.

Erik Jacobs, an Illinois circuit judge and former real estate attorney, has worked on numerous rental property sales. He estimates that 90%–95% of the commercial transactions he handled involved tenants staying with the property.

The key determining factor is the type of rental agreement you’ve established with your tenants. There are two primary options: month-to-month agreements and fixed-term leases.

Options for handling tenants with a month-to-month agreement

If your tenant rents on a month-to-month basis, you likely won’t have a problem selling an occupied property as long as you give the tenant proper notice.

In general, both landlords and tenants can end month-to-month tenancies by giving written notice at least 30 days in advance. Neither party needs a reason to terminate a month-to-month agreement, which is one of the main benefits of this arrangement.

However, it’s important to consult state and local laws as well as review the rental agreement itself to ensure you follow the specific procedures required. Each state has different rules and laws that control proper notice, so make sure to check the regulations in your area.

Options for handling tenants with a fixed-term lease

A fixed-term lease, on the other hand, usually extends over a longer period, often spanning 12 months or more. During the lease term, tenants agree to stay, pay rent, and can’t be forced to leave unless they violate lease terms. Fixed-term leases are great for stable, long-term housing, and landlords who want to avoid frequent tenant turnovers. When the lease ends, tenants can move, renew, or it may become month-to-month.

If your tenants signed a fixed-term lease, your options for selling during that term are more complicated because the lease doesn’t easily terminate just because of a change in ownership of the property. You can:

1. Wait until the lease expires

If you want to sell your property, it might be better to take the patient approach and wait for the current lease to expire. This approach takes a little planning and foresight on your part but relieves you of the headache of dealing with tenants. There are several crucial benefits to waiting until the tenants have moved out to list a rental property.

First, the current rental income will dictate what the house is worth, says top-selling Huntington Beach, California, real estate agent Cheryl Coleman, who specializes in investment properties. If the tenants move out, you may be able to increase the rent, which will, in turn, raise the value of the property.

Another reason to sell a vacant property is that you’ll have the opportunity to make any renovations to increase home value, common repairs, or upgrades without disturbing the tenants. It will also be easier to prep, stage, and show the home, Coleman notes. “Even if we lose two to three months of rent payments this way, we usually end up selling for up to 20% more than we would have if we’d sold with the tenants still living there,” she says.

The biggest drawback of waiting for your tenant’s lease to expire is the cost of paying a mortgage. If you are still paying a mortgage on your rental property, the time it takes to prep your home for sale may be an expense that you don’t wish to accrue.

An exception to the fixed-term lease occurs if there are evictable violations to the lease agreement. Valid reasons for a lease termination may include, but are not limited to:

Being a nuisance to others
Causing serious property damage
Engaging in illegal activities on the property
Failing to pay rent
Falsifying information on a rental application
Subleasing (when prohibited)
Violating a no-pet clause

2. Sell the property to an investor with an active lease

If your tenant is up to date on their rent payment and has a preexisting lease or rental agreement, selling to a real estate investor might be the best option for you. Having a tenant already in the property offers real estate investors a time and money-saving advantage by eliminating the need to find a new tenant.

One thing to consider is that selling the property to an investor limits your pool of buyers because you need to sell to someone who accepts and understands that a tenant is living on the property. The lease transfers to the new owner when you sell a property with a tenant on a fixed-term lease.

In commercial real estate contexts, having an existing tenant is a major selling point, according to Jacobs. “Investors are more apt to look at the rate of return that they are receiving on their investment than other buyers might be,” he explains. “They are concerned with net operating income (NOI).”

All in all, a good tenant with a pre-existing lease or rental agreement who pays rent on time is a good asset for a real estate investor, and it may make them more likely to purchase your property.