What Type of Buyer is Most Likely to Buy the House?
First, you need to determine whether the house is best suited for owner occupants or investor landlords. Investors will often prefer to buy with the tenants if they are responsible, paying market rent, and paying on time. Homeowners on the other hand, generally will not want the hassle of buying a home with tenants and having to work with the tenants to move out. This options present many potential negative obstacles, particularly if the tenants change their minds about moving once the property is sold. This can result in significant costs and a delay in the owner occupant moving into the property.
Selling to the Investor Landlord
As mentioned, investor landlords will often prefer to buy with good tenants in place. It will save the expense of finding and renting to good tenants and the cost of the house sitting vacant. However, they will be unlikely to want to buy if the tenants do not have a good rental history. Here are some of the factors that will influence the investor landlord decision:
CAP Rate – the cost of acquisition divided by annual net income after expenses (basically, does this property generate a profit). For example, if the home costs $300,000 and rents for $1,800 it will have a negative cash flow which is not attractive to an investor.
Quality of Tenant – Are they a quality tenants paying on time or are they tenants who need to be closely manage in order to receive the rents. An experienced investor will ask for the payment history of the tenants over the last 12 to 24 months.
Condition of Property – Is the property safe and in relatively good conditions. What major repairs will be needed in the future and is there any deferred maintenance needed? Is the tenant responsible for paying some part of the maintenance?
The Lease Agreement – Is the lease a month to month lease or a set for a longer lease period? When a property is sold with a lease in place, the new investor must honor the terms of the lease. Once the lease expires, the new investor can then renegotiate the lease if they desire.
The factors listed above will determine whether an investor will be interested in buying the house. In summary, it needs to be a profitable investment in order for them to invest. If the property has been managed well, with a quality tenant, the option of selling with the tenants in place can be very attractive. If there are issues, such as below market rent, deferred maintenance and low quality tenants, the house will not be an attractive investment and you will not get a good price from an investor.
Selling to Owner Occupants
If owner occupants are the most likely candidates to buy your property, you want to avoid trying to sell it with tenants in place. This is true no matter how good the tenants have been or how good the rent may be. Owner occupants have much different criteria when looking to buy a home. While they too are generally looking for a good investment, they are not at all interested in dealing with tenants in place. In this type of scenario, you will have to lower the price significantly to attract owner occupants. They are not going to be interested in buy the property and dealing with the headaches of working to have the tenants move out. You will also most likely need to make significant repairs, depending on the condition of the property when the tenants move out.
Selling to a Flexible, Experience Investor
In many areas there is a third option available to selling a rental property with tenants even if the tenants are not good or if the most likely buyers are owner occupants. For example, RVA Home Buyers in Richmond specializes in buying existing rental properties.
RVA Home Buyers work differently. They will provide you a fair all-cash offer on your house within 24 hours of submitting the short property info form on their website and can close when you want to close. If the house is in terrible shape and you don’t want to (or can’t) fix it up… no problem, they will deal with it for you. If you need to get something done quickly, they can close in as little as 7 days because they buy houses with cash and don’t have to rely on traditional bank financing.
RVA Home Buyers goal is to make your life easier and to get out from under that property that’s stressing you out… while still paying a fast, fair, and honest price for your house.