Selling an investment rental property subject to an existing lease can be accomplished, but it is more complicated than a standard sale. First and foremost, you have to understand the landlord-tenant law in your State and understand your tenant’s rights. For example, in Virginia, you have to notify the tenant of your intent to sell, the landlord may show the property up to 90 days prior to the Lease’s end date, and showings can be done by appointment only with tenant’s consent.

The main problem landlords face is a tenant that does not cooperate, which can foil the sale in several ways:

1. They can leave the place dirty or cluttered, making the house less appealing.
2. They can make the house dark by using dimmer lights or not replacing blown light bulbs.
3. They can ignore showing requests.
4. They can decline appointments or constantly rescheduling appointments.

Just these simple acts can make the house unsellable. Unless your tenant is cooperative and helps you make the house presentable, it is best to wait until the Lease is over before you list the property for sale, or you can try to sell it to another investor subject to the existing Lease.

Selling a Tenant-Occupied Rental

Assuming your tenant cooperates and the house is in a show-ready condition, here are the steps to follow to sell the house while it is tenant-occupied.

#1 – Make Sure It is Legal

Review the State law and your Lease. Make sure you are in the window where you’re allowed to put the house up for sale and do showings. If you’re outside of this time window, your tenant doesn’t have to agree to showings, inspection, or appraisal requests. 

In Virginia, the Lease has priority over the sale — this means that the Lease cannot be broken because a sale happens. If the lease term is not over, the new owner has to buy the property subject to the existing Lease and they have to figure out how to deal with inspection and appraisal.

#2 – Get Your Tenant On Board

If you intend to sell, you need to inform the tenant and gain their agreement and cooperation. Ask them for their help to keep the house presentable and to allow showings, inspection, and appraisal to happen.

#3 – Ask the Tenant to Sign COVID-19 Liability Waiver

With the current COVID-19 situation, you will want your tenant to sign the liability waiver. The waiver states that they cannot blame you, your agent, or anyone involved in the process if they contracted COVID-19.

For health and safety reasons, we also recommend that you do not allow regular showings or hold an open house. Instead, the buyers should review the 3D virtual tour, high-quality photos, and 2D floorplans.

#4 – Prepare the Property for a Photo Shoot

Inform the tenant that you will be doing a photo shoot and ask them to declutter the house. They should remove as many personal belongings as possible from horizontal surfaces (e.g., desk space, tabletop, countertop, floors, etc.).

The house should be in a show-ready condition. Here is more information about preparing the house for a photo shoot.

Make sure your agent pays for high-quality photos, 3D virtual tour, and 2D floorplans. Usually, high-quality photos are sufficient for most sales, but to sell a tenant-occupied property during the COVID-19 crisis, you need the virtual tour and floorplans.

#5 – Market the Property

Marketing the property follows the standard home selling process, with the exception of redirecting all showings to the virtual tour and floorplans.

To protect you and the tenant, you should only allow in-person showings for well-qualified and serious buyers. This means that they have reviewed the photos, virtual tour, and floorplans, they have submitted a pre-approval letter, AND expressed their intent to submit an offer.

#6 – Before Putting the House Under Contract

After you get an offer, but before you put the house under contract, make sure you review all the important dates with your tenant to make sure they understand what they need to do and when. Specifically:

• When will the inspection occur and how long they will have to leave the property to let the buyer do a home inspection.
• When will the appraisal occur and if they have to either let the appraiser inside or leave the property.
• When pest inspection and treatment will occur.
• When the final walkthrough will be done.
• When they will have to leave the property.

Alternative Way to Sell Your Property

If selling using the process above does not work, and you cannot wait until the Lease to end, you could consider selling your house to another investor. A good Realtor will have a list of investors to pitch the property to on top of the standard marketing through the MLS. With this method, you will typically need to give the following to the Realtor:

1. Access to the property to take photos and assess the condition of the property.
2. Information on the current Lease.
3. Payment history of the current Tenant.
4. Home maintenance record.

With the basic information above, your Realtor could market your house to other investors who might want to purchase the property subject to the current Lease. This allows the Lease to continues and lets you sell the house sooner.