When it comes time to sell or do a 1031 exchange of your tenant occupied residential income property, you have some decisions to make regarding your tenant. There are several advantages and disadvantages attached to both situations. It depends on your situation – how badly you need to sell your rental property and how co-operative are your tenants.

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One advantage to selling the property with tenants in it is that you will continue to receive income while your property is being marketed and sold. That can also be an attractive selling point to buyers who are looking for ‘income property’. The fact that there are tenants already in place can be a positive selling item. However, as a landlord you must remember your duties towards your tenants. Until you sell the property, you have to live by the conditions of the lease. Before agents or prospective buyers enter the property, the tenants should be informed at least 24 hours in advance.

While most tenants are helpful, some tenants may create problems when an agent wants to show a property and deliberately leave the home in a mess to discourage prospective buyers. They may even point out defects to a prospective buyer.

Most tenants may not maintain the property as well as a homeowner would generally. So, the property may not be as appealing to a prospective buyer. The property may be in bad need of repairs or painting before a buyer walks in.

The best course of action for most tenants is to set up a time to meet with them and let them know that you have made a decision to sell the property. Remind them how much you have appreciated having them and thank them for looking after your property. Offer your tenant the first right of refusal to purchase the property. If your tenant isn’t interested in purchasing the property, then explore what makes the most sense as you prepare to put the property on the open market. Based on your discussion and their feedback, you’ll be in a much better position to decide if and when you need to give them notice. Or, if it makes sense for all concerned for them to remain in the house while it is on the market for sale. If you’re going to give notice, be sure to put everything in writing.

No matter what you decide, make sure you know your tenants rights and do right by them. And of course, if you have other questions, feel free to give us a call.

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