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Preparing a house to sell is quite the process. If you’re a real estate investor with current tenants, it can become even more complicated. However, whether you’re deciding to sell because of a shifting business plan, a big life change or interest in investing your money elsewhere, figuring out when the best time is to sell and how you plan on doing so should be top of mind.
Here are five steps to take when preparing to sell your rental property.
Related: 6 Tips for Successfully Selling Your House
Step 1: Plan when to sell
The first step in selling your rental property is to strategically plan when to put the property on the market. If you can figure out your area’s local market trends, you will more easily be able to see what times are most profitable to sell your rental property. Here are some indicators that it’s a good time to sell:
Higher demand for housing:
Is there a large influx of buyers, perhaps due to new jobs cropping up in your area? While demand is high, it’s a strong sign to start preparing to sell just in case this demand doesn’t last long.
You have substantial equity:
It’s possible that you bought your property for a reasonable price and have made good renovation decisions over the years and now have a good amount of equity from that property. You should consider whether your potential gains will outweigh how much you’ll make in cash flow if you were to keep the property: If not, it’s best to wait until you have a stronger reason to sell.
Incoming drop in rental prices:
There are a few signs that rent prices in your area are about to drop. Although these are not guarantees, an influx of new construction or lower interest rates could lower the demand for your rental. If you see these signs, it’s a good idea to get out ahead of the decrease and sell your rental property.
Step 2: Communicate with your tenants
Maintaining a friendly, professional relationship with your tenants should always be top of mind for you as a landlord. Undergoing the selling process will force your tenants to decide between three options: They can move out, wait for you to sell the property and then move out, or remain a tenant under the new owner. If they choose to stay, it’s in your best interest to stay on their good side and encourage their cooperation.
Tenants are going to be inconvenienced during this process. They will have to deal with a new owner, potential showings and repairs, and they could have to renegotiate their rental agreement. While these inconveniences could prompt some tenants to be difficult, if you already have a strong relationship with them and offer incentives to make them feel appreciated, the selling process is much more likely to go smoothly.
Some ideas for tenant appreciation are offering gift cards to those who stay throughout the selling process or setting up activities like food trucks to stop by your property. Showing that you care about the sacrifices they’re making with their time and privacy will go a long way.
Related: 6 Strategies to Increase Your Real Estate Cash Flow
Step 3: Repair and prepare
Preparing your property for the market entails advertising, making necessary renovations or repairs, and creating a listing.
The first obstacle in this step is evaluating the current state of your property. Are there any big repairs that need to be done? Do you need to replace the carpet or appliances? Perform a pre-listing inspection to identify any glaring opportunities for improvement.
Then, arrange to fix anything you found in that inspection. Vacant units are the easiest to arrange service on because you don’t have to work around tenants’ schedules or inconvenience them by constantly being in their living space. Extensive projects sometimes require an empty unit, like installing new flooring or repainting.
Step 4: Hire a real estate agent
A real estate agent will help you navigate the advertising and showing process, along with any legal steps that may be included.
Advertising is extremely important. A good real estate agent will guide you toward the best ways to advertise in your area based on population trends and the local market, and they may also give you recommendations on house showing etiquette. They may also have access to databases that make it easier for you to find a great buyer.
Related: 5 Real Estate Mistakes That Could Make You Lose Money
Step 5: Choose a buyer
First of all, a great buyer must have the means to buy your property. This buyer could be a real estate investor like you or someone looking for their next home. It would be beneficial for you and your current tenants if you chose an investor who is willing and prepared to take on your active leases, so your tenants don’t have to move.
Also, if you have kept detailed records that prove your current tenants’ reliable record of paying on time and in full, investors may be willing to pay more for the property. The new investor will have an almost guaranteed positive cash flow right after they purchase the property without having to put in extra work for advertising or dealing with and filling vacancies.
However, this decision is ultimately up to you. A real estate showing agent will be able to provide experienced advice on what kind of buyer would be best for your business’s needs, so be sure to take the time and hire someone you trust.
Selling your rental property is best done with maximum preparation. The more research and prep you do into the process, the easier it will be for you and for your tenants. Consult with professionals in the field if you’re unsure of how to proceed. Picking a plan and sticking to it will be the best course of action, and ensuring your tenants are fully in-the-know will ease your stress as well.
