Should I List My Rental with the Renters Still Living at the Property?
There are no hard and fast rules to answer this question, but generally speaking, the final decision will depend on your specific financial situation and if you will make more money by kicking out your renters and getting your home in Top Dollar condition rather than having your renters remain while your home is listed. The first big question to ask is who is most likely going to buy your property? If your rental is likely to stay a rental and you have solid tenants then you may want to list with them still on the lease. Your decision to let them stay will also depend on how nice your tenants’ décor is and if they are willing to keep your home looking nice for viewings. If you decide that your renters need to stay it is usually a good idea to offer them a bonus after closing to incentivize them to keep your home looking as nice as possible. However, if the home is too cluttered or their furnishings not appealing, the home needs painting or new flooring, the tenant has pets or you think they will be uncooperative with showings it will almost always make more sense to let the lease expire before listing.
No one wants to lose rental income while the home is listed, but you also don’t want to make 20K less on the sale of your home because it was not in good showing condition or the tenants made it a difficult place to show. I think most of us have either been in a situation themselves, or at least can imagine a situation where a tenant doesn’t want to leave and makes it more difficult to sell. Do you really want your tenant telling prospective buyers about small problems with the home, their thoughts on the neighbors/neighborhood or giving them a chance to tell a prospective buyer stories that will negatively affect their perception of your home? My wife had a friend living in her rental property in Florida while it was listed and he “inadvertently” passed on information to a buyer that caused them to ask for 5K less on the purchase price. And he was a friend!!! So you can imagine what a disgruntled tenant that is being uprooted from his/her home may say or do.
The quick down and dirty math is pretty simple with a bit of guess work for the projected marketing times and how aggressive you want to be with pricing. For the most part, the projected loss of income is (rent) X (how many months) and even given a 4 day marketing time you should probably just use a minimum of three months to be on the safe side, especially if you are planning on doing some renovations before listing. Now if you are planning on doing some work to the place before listing it, like clean-up, painting, landscaping, new flooring etc you will have to add that into your calculations. Home staging also pays for itself in increased offering price and time on market so you will want to consider staging and add that into the calculation as well.
Let’s take an average Seattle home that you think will sell for about 300K as is, which rents for about $1,500 a month. Let’s say you need new interior paint, new vinyl flooring, new carpet and pad, refinished hardwood, replace two vanities, landscaping and general clean-up of a cost of $5,000. And you want to capitalize on every dollar of your investment so you have your home staged which will cost about $3,000. So at a minimum you are going to need to make an extra $12,500 on your home to make financial sense of kicking your renters out. This figure is three months of rent, $4,500, remodeling, $5,000 and home staging, $3,000.
In a fast moving market, like my Seattle area, with marketing times of less than a month for most areas and relatively high median home prices compared to the rest of the country this should be an easy decision. I understand that nobody wants to play the mean landlord that has to tell their tenant(s) that they have to move, but this should be a finanical decision, pure and simple. If your rental needs any rehabilitation work done at all in order to conform to the buyers’ expectations for homes in the neighborhood of your rental you should wait until the lease is up or see if your tenant is willing to move early before you list. With some light rehabilitation that you would most likely do between tenants anyway you should easily profit an extra 15-20K above all of your costs for getting your home in Top Dollar condition. Let's also remember that these costs to renovate the rental and stage the property are fully tax deductible too. Most decent real estate brokers should be able to do these calculations for you rental owners out there and come up with a similar formula to help you with this big financial decision.
The Top Dollar Real Estate Team- We Remodel, We Stage, We Sell and You Make More Money
Comments(3)