Your Guide to Selling a House with Tenants

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  Written by Steven Porrello

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  Edited by Galina Velgach

You can sell a property with tenants. But is that the best option, or should you end the lease first?

Selling an empty rental property is complicated enough. But throwing tenants into the mix can add legal complexities that make the sale a bit more thorny to navigate. 

We don’t provide legal advice! For specific advice on your rental property, we recommend working with an experienced realtor and connecting with a lawyer.

Can you sell a property with tenants?

Yes, you can sell a property with tenants. That said, most states do have laws that allow long-term tenants to continue living in a rental during and after a sale, at least until their rental agreements expire.

If your tenants are renting month-to-month, some laws may require you to give advance notice of a contract termination (usually 30 to 90 days). 

If your tenants have active rental agreements, you can approach the sale of the property in three main ways:

• Sell with the tenants in the property
• Wait for the lease to run out
• Give your tenant an opportunity to buy

Option 1: Sell a house with tenants

In most states, a tenant’s rental agreement will stay with the property, regardless of who owns it. In other words, if your tenants have long-term leases — 12+ months — you’ll have to sell the property with them still living there.

A lease termination due to sale clause in your rental agreements would require tenants to vacate after a sale. If your lease doesn’t have this agreement, you’ll have to sell the house with them. It’s not easy, but here are some tips to help make the sale easier for you and your tenants.

1. Hire a cleaning crew or lawn service

Offer to hire maintenance services to keep the home clean and presentable. You might not be able to control staging unless your tenants agree to it, but you can at least keep up curb appeal and the interior neat.

2. Give tenants advance notice of showings

If you can help it, inform tenants at least 24 hours in advance of a potential showing. You can work with your listing agent to block out times that are best for showing (when the tenant is out), and times when they shouldn’t be scheduled.

3. Make sure tenants don’t owe you rent

Rent delinquencies are a major turn-off to buyers. If your tenants owe you back rent, make sure you tie up loose ends before you sell the property (ideally before you list it). 

Option 2: Sell a rental property after the lease ends

If you don’t want to sell the property with tenants, but you can’t break rental agreements, you can wait until your tenants’ leases expire. 

In general, your rental agreements can be one of two kinds: month-to-month or fixed-term leases. The type of agreement will determine how long you have to wait for its expiration, with month-to-month leases being the least difficult to end.

Check with a lawyer first! Housing codes can vary city to city, so make sure you’re doing everything by the book BEFORE putting plans in motion. » SEE: Do I Need a Real Estate Lawyer to Sell My House?

How to terminate month-to-month leases

1. Give advance notice. Most states require 30–60 days notice before the cancellation, and some require 90 days. This can be as simple as a letter to your tenants letting them know the date they need to vacate.
2. Provide a reason for termination. Some rent-controlled areas require a valid reason to end a lease agreement, so make sure “property sale” is accepted in your location. 

How to terminate long-term leases

1. Try to negotiate an early leave. Offer your tenants cash, or some other compensation, in exchange for ending their lease early.
2. Cancel the lease because of a violation. If your tenants are late on rent, you might be able to terminate the lease early.
3. Wait out the term. If you can’t negotiate or cancel the lease, you’ll just have to wait until it expires.

Option 3: Offer to let the tenant buy your house

If your tenants love your house, they may be willing to buy it from you. You can transfer ownership to your tenants in a couple ways: 

📜 Work out a lease-to-buy contract

Lease-to-buy, or rent-to-own, generally works like this: your tenants pay a little extra each month. At the end of a specified period, that extra amount becomes a down payment on your property.

These contracts can look different, so make sure to consult an expert! Clever’s fully licensed concierge team is standing by to answer your real estate questions — or help you find the right agent for your needs.

💰 Offer seller financing

Instead of being a landlord, you’d act as the lender in a traditional mortgage transaction. Your tenants make monthly mortgage payments to you, slowly buying the home.

This is pretty rare though, and it comes with risks: there aren’t as many consumer protections as government financing. 

Should you sell a house with tenants?

If you’re weighing selling a property that has tenants, consider:

• The terms of the lease
• Your local real estate market
• The most recent property value

These factors can help you decide whether you should sell while the property has tenants or wait until it’s vacant.

Are the leases short or long term?

While it may be easier to end month-to-month agreements than long-term leases, your buyer might have their own preference.

Fixed-term leases could be more attractive to investors

If the buyer wants to be a landlord, then fixed-term leases offer a built-in income stream. This could also help you market the property, as you could say with a bit of accuracy how much revenue a landlord can expect to bring in.

Month-to-month leases could attract more occupant-buyers

A buyer who wants to live in the property themselves would likely prefer a vacant (or soon-to-be-vacant) house.

If the tenants have month-to-month leases, you or the buyer just needs to give proper notice under local laws to end them. You could also wait until the property is vacant to start showing it to buyers.

What’s your local real estate market like?

A favorable rental market — like a popular vacation spot, a university town, or an area with a major employer — would likely attract investors. And you probably wouldn’t need to vacate your property.

Areas that don’t have much investment potential but do still have high residential value, may attract more buyers if the property is vacant and ready to move in.

Has the property value changed recently?

When property values surge, charging below-market rates can come back to haunt you. Investors don’t want to pay top dollar for a high-valued property but inherit tenants whose rental agreements allow them to pay a lower rent.

Related reading

Managing Investment Properties Remotely: 25 Things to Know. It’s a great time to be a landlord, but remote landlords who don’t have a system in place to manage their properties can become overwhelmed.