Can I sell my rental property?

Can I sell my rental property with tenants in it?

Yes. In most states a lease survives a sale, which means the buyer takes over as landlord under the same lease terms. Tenants keep their rights, including the right to stay until the lease ends and to get their security deposit back under the law. You'll transfer the deposits and lease records to the buyer at closing, and the buyer or the title company will usually ask for signed statements confirming the rent and deposit amounts.

If you want the property empty before selling, you'll need to wait for leases to end or reach an agreement with the tenant. Notice rules for ending a month-to-month tenancy vary by state and city, and some places limit when a landlord can end a tenancy. Check local law or ask a landlord-tenant attorney before giving notice.

Should I sell my rental home? Signs it may be time

Owners sell rentals for many reasons. Some are financial, some are personal, and both are valid. A helpful test is to compare what the property earns each year after every expense with what the equity could earn if you sold and put it somewhere else. Add the value of your time, too. A rental that looks fine on paper can still be a poor fit if it takes evenings and weekends you'd rather spend elsewhere.

• The rent no longer covers the mortgage, taxes, insurance and repairs
• A big repair is coming, like a roof, HVAC system or sewer line
• You're tired of being a landlord or managing from a distance
• A difficult tenant or a vacancy is draining time and money
• You've built equity and want to use it elsewhere
• You inherited the rental and don't want to manage it

Selling a rental property with tenants vs vacant

Selling with tenants in place narrows your buyer pool to investors, but it keeps rent coming in until closing and avoids the cost and time of turnover. Investors look at the lease, the rent and the condition to decide their price. A long-term tenant who pays on time is a real asset to an investor buying rental property.

Selling a rental property vacant opens it to owner-occupant buyers, who may pay more for a house in good condition. But you'll lose rent while it's empty and usually need to clean, repair and stage it. If the unit needs work after a long-term tenant leaves, the costs can add up quickly. Compare the two paths on net proceeds and time, not just the expected price.

Occupied showings take coordination. Your tenant's cooperation affects how the home looks and how easy it is to schedule visits. Some owners of rental property find that a single walkthrough with one investor buyer is far easier on everyone than weeks of public showings.

Taxes when you sell a rental property

Rental property is taxed differently from your main home. The home-sale exclusion generally doesn't apply to a property you never lived in, so the gain is usually taxable. Your gain is the sale price minus selling costs and your adjusted basis, which is what you paid plus improvements, minus the depreciation you claimed or could have claimed.

That last part surprises many owners. Depreciation lowers your taxes each year you own the rental, but it also lowers your basis, which increases the gain when you sell. The portion of the gain from depreciation is generally taxed under its own rules, separate from the rest of your capital gain. If you held the rental more than a year, the rest of the gain is generally a long-term capital gain.

If you once lived in the property or are thinking about moving in before selling, the rules for partial exclusions are detailed. Talk with a tax professional before you decide.

Deferring tax with a 1031 exchange

If you plan to keep investing in real estate, a like-kind exchange under Section 1031 of the tax code can let you defer the tax on the gain by reinvesting the proceeds into another investment property. The rules are strict: there are deadlines to identify and buy the replacement property, and the money generally must go through a qualified intermediary, not your own account.

An exchange has to be set up before you close the sale, so talk with a tax professional and a qualified intermediary early if you're considering one. If you're leaving real estate investing entirely, a 1031 exchange won't apply, and the decision becomes a simpler question of what you'll net after tax.

A deferral isn't the same as forgiveness. The deferred gain generally carries into the replacement property, and it can come due when that property is eventually sold outside another exchange. For some owners that's still a good trade; for others, paying the tax and simplifying is the better choice.

Costs of selling a rental property

Beyond taxes, the costs of selling a rental property look much like any other sale, with a few landlord-specific additions. Expect agent commission if you list, closing costs and any transfer taxes, repairs a buyer asks for after inspection, and turnover costs if you sell vacant: cleaning, paint, flooring and lost rent while the unit sits empty.

There are also costs to keeping it while it's for sale: the mortgage, insurance, property taxes and any property management fees. When you compare options, put every one of these on paper. A higher listing price can be worth less once vacancy and turnover are counted, and sometimes it's worth more.

How to sell rental property, step by step

Preparation protects your relationship with the tenants and keeps the sale on schedule.

• Gather leases, rent records, security deposit records and any repair history
• Review the leases for terms about sale, showings and notice
• Talk with a tax professional about your adjusted basis and any exchange
• Decide whether to sell occupied or vacant
• Give tenants proper notice before any showings or inspections, as your lease and state law require
• Compare a listing with direct offers on net proceeds after repairs, vacancy and commissions
• At closing, transfer deposits, keys and lease files to the buyer

Working with tenants during the sale

Tell your tenants about the sale early and honestly. Uncertainty makes tenants anxious, and anxious tenants are less likely to keep the place show-ready or allow access. Explain that their lease continues with the new owner and give the notice your state requires before entering.

Some landlords offer tenants something in exchange for their cooperation, like a rent reduction during showings or help with moving costs if the buyer wants the unit empty and the tenant agrees to leave. Put any agreement in writing, signed by both sides, with the dates and amounts spelled out. Avoid pressure; tenant protections are strong in many places, and a dispute can delay or derail the sale.

When to list your rental and when to sell it directly

If the rental is in great condition and vacant, listing it with an agent often brings the highest price, especially from owner-occupants. That's the honest starting point.

A direct sale to a cash buyer fits when the property is tenant-occupied, needs repairs, has a problem tenant, or when you want a closing date you can plan around. The buyer takes over the lease, there are no showings to schedule around tenants, and there's no buyer's loan that can fall through. Compare the offer with what a listing would net after turnover, repairs and months of vacancy.

Can I sell my rental property to Prominent?

Yes. Prominent Cash Offer buys rental properties directly, as-is, in any condition, with the tenants in place or vacant. If the property is a fit, you'll get a written cash offer that states how the lease and the security deposit are handled. There are no fees or commissions, we pay the closing costs, and you choose the closing date. There's no obligation to accept.