Selling a Cleveland Rental With Tenants Still Living There

Some Cleveland rental owners are ready to sell but have tenants with months left on a lease. Others inherited a house that came with a tenant. Either way, the question is the same: do you sell it with the tenants in place, or wait until it's empty?

I'm an investor myself, so I've been on the buying side of these deals. Here's how I'd think it through.

Two different buyer pools

If you sell with tenants in place, you're mostly selling to investors. They want the income, and an occupied house can actually be a plus for them. If you wait until it's vacant, you can also sell to people who want to live in it, which is a bigger pool. The tradeoff is time and money: months without rent, turnover repairs, and the taxes, insurance and utilities while it sits empty.

The lease usually goes with the house

As a general rule, selling a rental doesn't cancel the lease. The buyer steps into your shoes as the landlord, and the tenant's lease and security deposit carry over. Your title company and attorney will handle how the deposit and the rent for the month of closing are split. Confirm the specifics for your lease with an attorney before you list.

What an investor buyer will ask for

When I look at an occupied rental, the first things I want to see are the lease and the rent history. Expect your buyer to ask for:

• A copy of every lease, with start and end dates
• Current rent and any security deposits held
• Payment history, including any late payments
• Who pays which utilities
• Recent repairs and the age of the major systems

Have it ready before you list. A buyer who has to chase paperwork usually gets nervous, and nervous buyers offer less.

Treat the tenants well

The tenants can make or break your sale. They control how the house looks for photos and showings. Ohio law generally requires a landlord to give tenants reasonable notice before entering, and 24 hours is the standard most landlords use, so plan showings with that in mind and group them where you can. Tell the tenants what's happening early and be respectful of their time. Some owners offer a rent credit for their cooperation. It's usually worth it.

Cleveland paperwork to line up

Cleveland has more paperwork than most suburbs, and buyers will ask about all of it:

• Rental registration with the city, plus the county rental registration Ohio requires
• Lead Safe certification, which we covered in our post on Lead Safe certificates and rehab budgets
• The city's Certificate of Disclosure for the sale, explained in our post for Cleveland first-time buyers
• Permit history for past work, which matters more than most owners expect, as we explained in our post on Cleveland rehab permits

Open violations or expired certificates don't always kill a deal, but they change the price and the timeline. Find out where you stand before a buyer does. A quick call to the city and a look at your own files can save weeks later in the deal.

Timing the sale around the lease

Look at when each lease ends before you pick a listing date. A tenant on a month-to-month lease gives a buyer more options than one with 10 months left. If a buyer wants the property delivered vacant, don't promise it until you know you can deliver it legally and on time, and get the terms in writing. Ending a tenancy follows its own rules and notice periods, so talk with an attorney before you agree to a vacancy date. The worst outcome is a buyer ready to close and a tenant who was never told.

How investors price an occupied rental

Investors price on rent, condition and risk. A tenant paying well below market rent, with a long lease left, lowers what an investor will pay, because they're stuck with that rent. A lease ending soon gives the buyer options. We put together rent numbers for investors quickly, and we described how in our post on rental comps.

Sell now or wait?

Selling occupied makes sense when the rent is solid, the tenants are cooperative and the house shows well enough. Waiting for vacancy makes sense when the rent is low, the house needs work that's easier to do empty, or you think an owner-occupant would pay noticeably more. Run the numbers both ways, including the months of holding costs.

If you inherited a tenant along with the house, we covered the bigger decision in our post on keeping, renting or selling an inherited Cleveland house.

If you own a Cleveland rental and want to talk through your options, schedule a time with me or someone on our team at 21mike.com.

Mike Ferrante
The Mike Team at LPT Realty
www.21mike.com
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