Income Properties in : Is it better to sell vacant or with tenant in property?

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A good portion of my business has trended toward investors and investment properties, I get this question/scenario posed to me often.  If the question is not asked directly, I’m usually bringing up the issues revolving around selling with a tenant in the property.  There are a lot reasons why the answer could go either way on this topic, but let’s explore some of the main concepts that will help you make a good decision based on your situation.  (Qualification:  This discussion mainly has to do with single family income properties, rather than multi-family units).

Many agents just don’t want to deal with the hassle of selling with a tenant. There are scheduling conflicts, posting of notices, and high emotions when treading on someone’s living situation – all potentially emotionally charged and exasperating situations.  While these can be good reasons to sell vacant, they may not be the best.  A good agent knows how to handle and deal with tenants in a caring and professional manner.  It does, however, make the process a bit more grueling and cumbersome.

I find the main issue boils down to is loss of income. Most owners balk at asking tenants to leave, because they don’t want to lose the monthly rents.  In most cases I’ve found that the loss in rent is less than the higher amount a home will fetch when vacant.  Why?

  1. Home buyer’s (people who want and need to live in the home) will pay more than an investor (someone buying a property to rent for income purposes). The reasons for buying are different.  An investor will want a deal to make money.  A home buyer wants a place to live and call home.
  2. Many investors have cash for purchase or a loan that requires 25+% down payment. Home-owner loans (like FHA) require only 3.5% down payment.  VA loans are virtually 100% financed!  Less money out-of-pocket, less skin in the game for an owner occupied loan, which means the purchase price can go higher.  Or another way to say it, money is cheaper for a home-buyer with an owner occupied loan.
  3. A typical home buyer’s loan (Conventional or FHA) requires the buyer to live in the home. If the tenant is on a lease, then tenant’s rights say that the lease must be honored and a home buyer cannot buy the property.

Call or write to discuss your situation in more depth.

Best,

Ketih Klassen, Real Estate Broker – 916.595.7900

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2 responses to “Income Properties in : Is it better to sell vacant or with tenant in property?

  1. Great post Keith. I agree with your points. To add to point #1 from the buyer’s side, buying with a tenant in place can also add more risk to the buyer because what if the tenant doesn’t leave? The eviction process in California seems to put out the red carpet for the tenant so to speak, so that may concern some buyers. Ultimately a vacant home is far more marketable.

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  2. Thanks for your insight, Ryan! Yes – this may be another blog post in the making. Most home buyers certainly do not want to become landlords and have to deal with moving tenants out. When this has happened, I have leaned on my property management background have have negotiate to be there to assist on the move-out and possible eviction. Having an advocate can certainly help give the buyers confidence.

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