Unload that tenant occupied real estate and keep your sanity

Posted by Erion Shehaj in Featured Articles, Homeseller Guide, TipTuesday on Tuesday, July 21, 2009 | no responses

So you cashed out of your local bloated market in California / Florida / Arizona circa 2006 and conquered some sweet new construction deal(s) in the Houston area. You know you weren’t alone as during that time everyone and their lovely mother was doing it. How could you pass it up, anyway? Brand new property, ridiculous price/SF, great cashflow, fully managed, investment heaven. Fast forward thirty six months and you find yourself fighting rising property taxes (a county’s gotta eat) and insurance rates eating away at your ROI like a monkey on a cupcake. Rent mostly covers expenses, but it might be time to exit that investment and go in a different direction.

Three options

At this point you’ve got three basic options:

Sell the property to an investor – This would be a viable option if your home had a lot of equity and you were willing to give it away. Since neither of those are true, the best you will be able to get is a fresh-off-the-seminar newbie trying to shortsale a performing mortgage sticking you with a tax bill. Just don’t do it.
Kick the tenant out and sell it vacant – Provided that this is possible under your lease terms, you could opt to terminate the landlord-tenant relationship and put the property on the market for sale. All in. This may work out to be a genius move or a disaster depending on the timing of when you get a contract on the property.
Sell the property while tenant-occupied – Let’s face it, kicking the tenant out is easier said than done. The prospect of “bleeding” the entire mortgage/tax/insurance payment is not a happy one. So you put the property on the market for sale while the tenant is still occupying the property. This post is about how to sell tenant occupied real estate in Houston, Texas.

Issues

When trying to sell tenant-occupied real estate, there are three main issues that may arise:

Access – The biggest obstacle when dealing with tenants is working out appropriate access arrangements so the property can be shown and subsequently sold. Tenants tend to not want to be bothered with “excessive” showing activity while that’s exactly what you want if you’re selling. And all the greatest real estate marketing in the world is going to do is get someone interested in viewing the property. So no access, no sale.
Condition – Sometimes, the way a tenant keeps the property on a day to day basis may not be exactly “showing grade”. If you want your property to sell, it has to shine in every showing. The tenant may be your biggest friend or greatest enemy on this, depending on how you play it.
Possession – Even after you get a contract to sell the property, you will most likely have to give your tenant sufficient notice and time to move out. So the deal has to be structured in such a way that allows for it to happen without turning off the buyer.

Game Plan

So now that all the cards have been layed on the table, what should you do?

Hire a Houston Real Estate company that will aggressively market the property. In this market, properties priced appropriately, move. The rest soak up the sun. Don’t test the market with a higher, unreasonable price because it will slap you with more days on market than you can handle. Offer the best value you can upfront and watch the activity. If the home is not getting the showings, the deal you’re offering is not matching the market expectations of prospective buyers.
Get the tenants on your team the sooner the better. A non cooperating tenant in this situation can be disastrous to your chances of success. Consider incentives that will steer the tenant to work for the cause and not against it. For instance, you may offer a discount on the rent for every month the tenant provides appropriate access. Or you can offer them a reward payable after closing if they keep the property in showing condition at all times. I know you may feel uneasy doing this – but trust me when I tell you that kicking the tenant out and paying the mortgage or letting your home stale on the market for lack of access will cost you way more money than these incentives.
Allow sufficient time in your closing timeline for tenant move-out. Make it clear to all prospective buyers from the beginning that this transaction requires a 60 day closing period to allow the tenant to move out and find a different place to live.

If you are in a similar situation, start the conversation today at 713.952.3200.

Photo Credit: Darkpatator